liryon.net

This month, some guy has been orchestrating a bunch of buyouts of Magic: The Gathering cards; specifically, legacy staples. MTGPrice did an interview with him. He also posted this video. I want to use generous assumptions and the information provided via these sources to estimate how much money one can make per year via the buyouts strategy. I will first estimate how much you can make per year via making non-buyout deals like the ones he talks about, then move on to discuss only the buyout strategy.

Facts from the interview and the video

• Bitterblossom bought 65 copies at $5 sold 65 copies at $22.5
• Moat bought 41 copies at $375
• Rest in Peace bought 1000 copies at $0.7
• Lions Eye Diamond bought 150 at $130
• Buyouts in the last month: Lions Eye Diamond, Moat (2)

Assumptions I’ll be making

• Bitterblossom bought in February 2008, sold May 2008
• All 41 Moats can be sold over the course of 3 years for $655 (the current price)
• All 150 Lion’s Eye Diamonds can be sold over the course of 3 years for $193 (the current price)
• Rest in Peace bought at it’s most recent low in December 2014 and sold today for $4.55
• Sales priced via outside websites incur at 15% penalty off these TCG Mid prices to account for shipping and selling at TCG low, etc…

Warmup
Lets start by looking at the non-buyout deals.

Bitterblossom
This was clearly not a buyout, but we have some numbers so lets do some math. May 2008 was the first time Bitterblossom could be sold for the price listed, and he stated that be bought them when they were spoiled which is February 2008. He sold them for a grand total of $1462.5. We won’t apply the sell penalty here because we took his word on the sell price. He paid $325. This gain took 3 months. So he made $379.16 per month on this deal. That’s $4550 per year if you can make other deals that are similarly profitable.

Rest in Peace
This is also clearly not a buyout but again we can do some math. If he is able to out 1000 copies at today’s prices he makes grand total of $4550. We need to apply the 15% penalty so he really makes $3867.5. He paid $700, so net profit is 3167.5. This gain took 20 months. So that’s $158.375 a month, or $1900.5 a year. He thinks it will go up to $10, but I can’t tell how long that will take. He’s already had this investment for 20 months so its certainly a long term hold.

These are the deals he tells us about to make him look smart, but let’s be generous and say that the Rest in Peace deal, which makes far less, represents the average non-buyout deal he does. We don’t know the size of his bankroll but let’s assume he can afford to make 5 such bets a month, every month on continuing rotating basis. That would earn him $114,030 a year. It would imply bankroll of $42,000 per year until the deals start to come to fruition. We were being generous. If his average deal, including the bets that lose money is only half as good as this Rest in Peace deal then the same implied bankroll would only net $57,015. What are the chances the the second best deal he tells us about is 2x as good as his average deal? Pretty high.

Why these assumptions
In the video and the interview he clearly states that he is not running a pump and dump, but he instead plans to hold the cards long term. He indicates that he expects all staple reserve list cards to be bought out every 2 to 3 years going forward. Therefore, since he also indicates that he is doing this to support his family, we assume he takes this first available out.

I think he is correct in assuming that the total supply of reserve list cards is fixed. No more will ever be created and no large fraction will be lost. Every time one leaves the market, the price goes up by a fixed amount, assuming demand remains constant. We can estimate from his buyout of Lion’s Eye Diamonds (LED) that this is $0.42 per copy. That’s the current price minus the price he paid over the number of copies he bought. We neglect the intimidate spike price because that only exists because people are slow to react. Being fast to react as a seller doesn’t work because buyers are still slow to react, so we can ignore the spike in all cases.

His goal is to wait for another buyout in 2-3 years. Let’s assume the second buyout is the for same number of cards on the same supply curve. So if there was no organic growth between now and then, the price would rise to $256. Let’s assume, as he states in the video this is when he starts selling his LEDs. Each one he sells lowers the price by $0.42. So the last one he sells will net him $193, and the average one he sells is worth $225. Because we assumed the buyouts to be the same size, his selling totally undoes the effects of the second buyout, but because the second buyout occurs, he makes an extra $4,800 before any transaction penalties.

He also makes whatever organic growth occurs. That could be positive or negative. Everyone who owns a card makes the organic growth, all the time. It is true that if you want a large multiplier on this growth for a low supply card like LED that you must buy them out, simply because there aren’t enough cards.

Now, the person who does the second buyout gets screwed here. They don’t increase the price of the card at all. Well, it will increase slightly if their buyout is larger or decrease a bit if their buyout is smaller. But really for the second buyout person to make any real bank a third buyout will need to occur. I can not argue whether or not a second buyout will actually occur. Because that depends on the third buyout occurring and so on. However, they could occur because people with cash money often don’t understand economics. I will estimate two scenarios one where they occur and one where they do not.

Lions Eye Diamond
What has the organic growth been on this card for the past 3 years. Well, in January 2013 LED cost $90. Now, prior to the buyout it cost $130. The entire gain is due to the printing of eternal masters, which spiked all legacy staples on the reserve list. I’m counting this as organic growth because it was not bought out by one person. It was a general expectation that complimentary cards would come down in price and increase demand for LEDs. It turns out that no complimentary cards came down in price, because storm deck cards avoided the reprint in Eternal Masters.

Will there be another spike like this in the next three years? I don’t know, but I’d bet not. The similar situation is Modern Masters 1 and 2 and infect. I’ll assume there is another eternal masters release in the time frame. Will it include storm cards? I don’t think so. Modern Masters 1 did not include infect because it was too good for the draft format. The same thing was true of Modern Masters 2, so it again was not in the set. Storm was not included in Eternal Masters 1, presumably because it was not a good fit for the draft format. The same will be true for Eternal Masters 2. Therefore, its unlikely that storm cards will get a reprint. When the price of a good goes down, the price of complimentary goods goes up. However this didn’t happen, and I don’t think it will happen, so really I’d expect the natural growth of LED to be negative from a $130 price point, trending back down towards the $90 price point which held steady for years before Eternal Masters.

Lets say it would have only made it back down to $100, without the buyout. Because of his buyout though it won’t go back down that low. It will be $0.42*150 = $63 higher than it would otherwise be. So that’s $163. I used $193 in my assumption, which is larger than I really expect the price to be in three years by $30, which is the amount I expect the card to drop due to natural growth. We disagree on the expectations of natural growth, so its fair to assume zero natural growth.

We’re going to assume he sells all copies in 3 years at $193, so he makes $24,607.5 after the 15% penalty. He paid $19,500. So he makes a net profit of $5107.5 over three years. So his profit per year is $1702.5.

If we add in the effect of selling into the second buyout we add $4080 in post penalty profit, or $1360 per year.

Moat
The buyout price per card for this is a whopping $6.83, compared to LED’s $0.42. Again I’ll assume an equal sized buyout starting from the current price. That’s puts Moat up to $935. The average price from selling into the buyout is $795, so the extra earn from selling 41 copies into this buyout then is $5740.

The price on Moat has organically grown by $10 over the past 3 years. That’s not a good return on a $375 investment, so I’m ignoring it.

Assuming he sells all 41 copies for today’s current price at an average three years from the buyout date makes $22,826.75 after the 15% penalty. He paid $15,375, so he will net, with these assumptions $7451.75 on this deal in three years. So this is $2483.91 per year.

If we add in the extra earn from selling into a second buyout he makes an extra $4879 after the 15% penalty. This adds $1626 per year.

Per Year Profits
Let’s further assume that these deals are typical and he’s makes them a typical rate of 2 per month. First, lets average the profits and costs for these two deals. An average buyout deal costs $17,437.5 to execute, and results in profit per year of $2093 or by selling into a second equally sized buyout $3586. Two of these deals per month every month costs $418,500 in bankroll per year until they come to fruition. It results in a profit per year of $50,232 or $86,064 if he is able to sell into the next buyout. So the best case I’m giving him he makes a 20% annual rate of return, and my expected case is 12%.

So if he is to keep doing this at the current rate, neglecting the fact this there may not be 24 staple reserve list card per year to speculate on, he’ll have to put in $1.25 million before he makes his first, in the best case, $258,192. That profit covers 14 of the 24 buyouts that occur in year 4, assuming buyouts cost the same then as they do now, on average. We know he doesn’t have this kind of bankroll, as he discusses that this kind of bankroll is not present in magic.

So, he will likely make between 12-20% on his investment, unless his investment reduces the number of magic players who care about playing legacy (likely). That’s pretty good, if you can keep doing it (which is hard). My real point, however, is that he’s almost done. He can not single-handedly create a new normal where buyouts occur at the current rate. Clearly, others can contribute and create this new normal of monthly buyouts. At least until they run out of good cards to speculate on in this way.

For those of you who have not already heard, about the same time as I was packing up from my Memorial Weekend camping trip, my dad suffered a stroke. Luckily, it was of the less serious variety, which unfortunetly still seems pretty serious. I found out after I was home from the camping trip. He and my mom were both at home and she was thankfully able to respond quickly. After a two day stay at the hospital it was confirmed that he was not in any short term risk of having another one; good news.

He has been home now for a few weeks resting up and getting a first hand course in how the mind works. He was especially proud, on the first day home, to remember both mine, and my mom’s names, but he couldn’t get his own until given a hint. These day’s hes doing much better than that. He started driving again recently and was working on multiplication tables.

He seems in good spirits every time I talk to him, which has been a lot more as of late. He is expected to be back to his old self in about six weeks, which is just about how long we have until our annual family trip to the Outter Banks this year. I can’t wait for that trip now, more than ever. I should probablly buy some plane tickets.

Wow, yesterday, marks the start of the third year of this blog. When I started the reason for blogging was that I had a bunch of stories/things I wanted to talk about and no one who’d be interested in hearing about them. So I decided I’d just tell the internet and assume no one read them. I’m not sure what the reason I continue blogging now is, but that is not it. I’ve been fortune over the last two years to meet a bunch of new friends, who, among other things will (at least in the collective sense) listen to my stories.

The blog continues to do a good job of forcing me to organize the stories and acting as a broadcast medium so I have to tell the stories less often. Its sort of a reversal of sorts, especially since I now find myself keeping certain classes of stories off the blog.

I woke up this morning to a view out my bathroom skylight of a dark column of billowing smoke. There was a four alarm fire on my street. The house 9 away, on the same side caught first. Eventually the fire spread, via radiated heat, not wind, to the house 8 away. The original house was destroyed, but it appears the house it spread to is being repaired already. Two other homes to the other side and the back also suffered some damage it seems. Some firefighters and possibly occupants suffered some minor injuries such as smoke inhalation. My room mates commented that they may have also suffered from smoke inhalation just by being in the house all day.

I never felt in danger, but from my window I didn’t consider it was so close. I got ready as usual, but in the process heard a ring at the door from my downstairs neighbor. When I got ready I found her down the street with other onlookers. She informed me that the fire department expected it to be five hours before we could move our cars. There were tucks all long the street and hoses everywhere. They must have tapped all the hydrants on our street plus some more. Apparently all the activity caused a water main to bust which temporarily gave them a pressure problem till they apparently cut off the water to there to maintain pressure.

I watched for a bit, at the time when the 8 away house spontaneously began to billow smoke from its attic to much grief of everyone there. I had previously commented that they seemed to be doing a good job keeping it from spreading. They did immediately focus on preventing damage to the new house, which is apparently the home of 3 Jesuit priests. Somehow I feel comforted that 3 Jesuit priests lived, and will soon again live on my block. Anyways, while I was watching it appeared to be snowing. Given all the water in the air and the 20 degree temperatures it seems likely. I decided that I’d need to make the 9:30 bus to work, and after waking my room mates and making my lunch I booked it to just make the bus.

At work I learned that I live on the same street as one of my coworkers (since there was only one 4 alarm fire in Cambridge this morning). Although she lives on the other block, on a private drive like thing. I did know she lived nearby, but not exactly how nearby. This may lead to some carpooling.

After living in Boston for more than two years without managing to ride a bike once I finally went for a ride this weekend. About two weeks ago I helped Andreas, one of my room mates, fix up one of the many bikes we found in our basement. Alas, when we got done fixing it up it was already dark outside, which is not the best time to give a new bike a try. The bike is a pretty old school road bike, and I’m not really used to the placement of the breaks on the overly curved handle bars or the placement of the shifters on the frame, below the top bar. I imagine I’ll get used to these things. I’m just glad that we found a bike that fits me lying around asking to be used, as I was not excited about the chances of finding something good on craig’s list.

I wanted to wait for a nice day when I could ride it in the light some to get used to things. I very much wanted to try it twice earlier in the week, but those were ruined by rain and by darkness. To make sure that didn’t happen again I started working on the bike first thing Sunday morning. Despite fixing it up I still had some work to do on it. First I had to attach the bike lock mount, and then I had to fix the tail light. The bike has a little wheel rim generator on it to power two lights. The wire for the tail light wasn’t connected to the generator, but it was pretty easy to take the connecting piece apart and twist the tail light’s wire in with the headlight. There is only one wire for each light, so the return path must be the bike frame itself. That seems pretty neat, if unnecessary. After doing all that and testing my helmet on the low ceiling in the basement I was off. I planned to do the fresh pond loop, and I didn’t want to spend much time on actual roads, but my downstairs neighbor, Karen, suggested I ride along Memorial Drive which is closed to cars on Sunday mornings for recreational use.

View Larger Map

I think that blog post frequency, like thorough forethought is inversely proportional to temperature. I just don’t care about much of anything when its this ridiculously hot.

Courtesy cbiwind.org

I’ve been having this recurring dream recently. If you know me, you know that any dream I can remember when waking is a rarity. I don’t, however, read much meaning into them. In this dream I am a high level assistant to a bumbling United States Senator. I’m a lawyer type who does his best to keep the senator in line and from looking like a fool. I’ve had this dream twice, with the second one being an extension of the first chronologically, not a repletion. While dreaming I remembered that in the first dream I was unable to discover the senator’s name, and so I made a point to find out this time. I succeeded, and it was a good name that now escapes my thoughts (and has done so all day). I remember that it was a man’s name befitting a senator.

Nearly all of the dream takes place in this grand, classroom sized, wood paneled, room outside of the Senate chambers. It has long dark wooden tables befitting a room of such a location at which myself and and an associate of mine, who shares my task, are the only ones seated. The senator or his other, more lowly aids rush in and out of the room and ask our advice, which is always sound. The advice is an abstraction, I give it, but I am not aware of what topics it is on, only that everyone bends to my word. Even the senator does not protest. Amazingly enough this position of power does not help me get laid, although this is not a prominent aspect of the dream. It’s quite enjoyable when I’m having it, but in retrospect it seems pretty lame. It is difficult to control due to the constant interruptions of people needing advice. This sort of resets anything I try to do. If I have it again I’m going to try to have some more fun, see if I can walk around a bit.

I have been super busy these past three weeks, between skiing, work, and my former FIRST robotics team coming to town. I have plenty of stories and no time to tell them. I’ll try to catch up, but my mom is coming to visit starting tomorrow, so who knows when! For right now its off the BBQ in the back yard already in progress. Yay, spring and warm weather!

Thunder! A thunderstorm, it must be spring! Oh and the soothing sounds of a spring rain, lets open a window!

I ran across two things that i thought would fit into this category today.

1. My bank was robbed today for the second time in as many years. Just a few minuets before I drove past it on my way home today. That is not a very good track record. The previous time was last May, and I think I was out of town at the time. Looks like they never caught the guy, so it could easily be the same one. No one was hurt in either robbery, and no worries thats what the FDIC is for, right?
2. That Martian Luther King day “is observed on the third yesterday of January,” this according to the Metro Boston. I know I make a lot of mistakes with my writing on the blog, but that’s just it. Its a blog, I am not a professional. I run across professional writers who make the same mistakes or worse than mine almost every day. Although this is the most egregious one I’ve seen in print (as opposed to online) in quite some time. See for yourself (highlighting added):