Risk - it's not just a game that wastes your entire weekend and engulfs entire tables. Risk is the enemy of speculators. Risk is what makes speculation non-trivial, and what allows speculators to conduct their business. Risk is a necessary evil, and with a good set of guidelines, risk can be your ally. Risk may not generate Wolf tokens, give your guys flying, or even distribute +1/+1 counters, but it's one hell of an ally nonetheless.

Many people have a difficult time discussing things like randomization, probability, and patterns. The human mind is constructed to recognize patterns, even where none exist. In many cases, these patterns do exist and are meaningful, but often times it is detrimental to apply a value judgment to an otherwise random series of events.

The worst example of this is the mulligan decision. People generally look at the last time they kept a similar hand when debating a tough mulligan. They often overlook small differences in making the comparison, base their decisions off emotion rather than logic and mathematics, and fail to consider a large enough data set. That's to be expected. Who really remembers every opening hand they've drawn with a given deck? Since we are so poorly equipped to understand things like randomization and probability unless we spend a great deal of time being educated on the subject, having a set of guidelines will help us overcome our natural deficiencies and thus allow us control over risk.

Imagine if an insurance company issued policies the way we make mulligan decisions sometimes. "Well, the last guy who bought life insurance around your age died a month later. You don't smoke like he did, but you're from the same city and you're both Irish, so we're going to have to charge you extra". That would be asinine and make no sense. They have very well compensated individuals called actuaries who spend all of their time calculating risk. Magic players would do well to befriend a few of these cerebral titans and listen to them talk about their profession.

Managing your Magic finances is no different. Each position you take should be taken on its own merits. I made this mistake recently. Time will tell if the mistake will hurt me, or if I'll make money regardless, but it was a mistake nonetheless. When Joraga Warcaller was spoiled, I purchased a number of Nissa Revane cards on Magic Online. I remembered making money with that card before, and remembering how easily it shot up to 10 dollars from 5. I failed to consider all the factors, and at press time, she hasn't really moved but a few percent.

Some people would be appalled at the idea of being stuck with multiple playsets of somewhat expensive cards, but in my situation, it won't really cause much harm. I don't mean to brag or indicate that my MTGO bankroll is especially large or robust, but a couple playsets of Nissa Revane doesn't represent but a small portion of my fund's overall value. See, I look at a MTGO account like a mutual fund. Each card on the account has its own merits, risks, and values attached. By diversifying the kinds of cards I'm buying, I ensure that I'm never all-in on one trade.

Before I get into the different investment types, I want to borrow a page from the poker players' books. Bankroll management in poker is extremely important, as playing stakes higher than your bankroll means that you're likely to hit zero due to variance. By staying within a betting limit based on your current bankroll, you ensure that variance won't force you to reinvest any new money. In general, I never like to have more than 50% of my tickets invested at any time on Magic Online. If I have 100 tickets, I'll designate 50 for investment immediately and set the other 50 aside to ensure that I can always act on a good deal. The concept of opportunity cost should be familiar to readers of my work by now. For those not familiar, opportunity cost is simply "the stuff you can't do because you're doing something else". 50% is a rough guideline, so feel free to explore your own personal preference. It's better to be more conservative, since new opportunities arise all the time.

So now that you've set aside tickets or cash to acquire cards in your medium of choice, you need to understand how to invest and why. The easiest way to understand a position is to evaluate it using a two axis system. This only applies to Standard and Extended, where the price of cards fluctuates and most cards don't easily pass $25. Eternal is an entirely different ball game.

Cost: What a card costs you at a given point in time. This ranges from insignificant (bulk rare price, 25c or less) up to prohibitive ($25+).

Probability: How likely it is that a card will rise in price. This ranges from wildly speculative (a card whose "jump conditions" have little to no confirmation or credibility) to sure thing (an ideal that doesn't truly exist, but this is most often achieved when a new deck or piece of tech emerges and prices just haven't had time to adjust yet).

A card that costs very little, a bulk rare like Hive Mind, will register very well on the Cost axis, but the chances that it shoots up in price register poorly on the probability axis. Now that there are decks that use Hive Mind to kill the opponent with the Pacts from Future Sight, they gain some ground on the probability axis. Whenever there's a big disparity between cost and probability, you can make a confident decision. You can either be sure that you won't lose a lot of money, or you'll know for sure that you should avoid an investment entirely. The worst investments are those that are high on the cost axis and low on the probability axis.

I personally shy away from cards higher than $5 for large quantity investment. This is partially due to the size of my bankroll and partially because I'm very risk-averse. While a $10 card doubling earns me $10, I'd rather spend that $10 on two playsets of 5 different $0.25 rares. Why? Because for the same investment, I have 5 opportunities to be correct as opposed to one. As long as each of the 5 investments makes logical sense, you increase your EV dramatically and you start to factor our your own biases and errors.

Magic cards don't drop in price nearly as dramatically or frequently as equities do. The only time a card takes a massive price hit is when a rotation takes place or when it is banned. Rotations can be modeled into your investment strategy, and bannings are becoming rare these days. This means that your actual risk of loss is very low, and you only have to worry about opportunity cost. Lost opportunity sucks, but it's a lot more forgiving than realizing that the cards you bought yesterday aren't worth the paper they're printed on today. Because of this, it rarely hurts to make a large number of highly speculative plays.

Diversifying your risk is as simple as ensuring you have cards that fall in all places on the Cost/Probability spectrum. Having some low-risk cards that have potential to hold steady or climb slowly is nice, since you can always cash them out in a pinch, but having high risk and high upside plays means you can randomly realize legendary levels of profit. An unplayed rare can be had for as little as $0.15 on MTGO, and sometimes as low as $.25 in Paper. When a card goes from total obscurity to Tier 1 relevance, it usually hits at least $1-$2, and more often $4+. Percentage-wise, these profits are unheard-of. The issue is that at first, they will still seem paltry. Making 10x your money on a 10c rare means a profit of 90c. The truth is, instead of buying bigger and bigger cards as your bankroll increases, simply buy more of the same cheap cards. Your risk portfolio will remain approximately the same, as will your profit margins. The only thing that will change? The dollar amounts. As long as your speculations are founded in good reasoning and your sources of information are reliable, you can usually avoid taking a loss on cards by simply avoiding the more expensive ones. Occasionally you'll do something like buy forty copies of Pyromancer Ascension and effectively kiss your money goodbye, but at least you'll still have 40 copies of that card for the forseeable future. While the money may just be gone forever, there's always the chance that some lunatic Japanese deckbuilding genius finds a way to break the card wide open.

Overall, speculating on cards is far less dangerous and risky if you take steps to ensure you never overextend your bankroll and focus on the less costly investments. These suggestions come from a mix of personal experience trading cards, playing poker, and studying the heck out of real investment strategies. Embracing the fact that you will make terrible choices, overlook important variables, and fail to consider the human mind's own disadvantages is the best possible way to become a better speculator. Even a brilliant investor like Warren Buffett makes some bad calls, but any given decision he makes has a theoretical maximum impact on his net worth. Unless you move into more advanced strategies like leveraging* (which is basically using money you don't have to buy stuff and resell it to pay back the loan with interest), it's not possible to lose more than you put on the table.

Until next week, fellow investors, keep your minds and wallets open to new opportunities!

* Don't do this. I don't care how smart you think you are. Unless you're a professional equities trader or something, you'll probably just shoot yourself in the foot. Buying Magic Cards on credit is dumb as hell. Pool money with friends or something.