There are three main ways to make money off something related to Magic finance: One can successfully speculate on cards, constantly value trade to make a profit on cards already owned, or write about one of these things with instructions about how readers can do it for themselves. By far the best value for time invested comes from the last of those three. To avoid picking on specific people, I’m going to talk in generalities about this category of writers.

Articles about financial speculation in Magic vary in quality from mediocre to abhorrent, with most remaining in the border territory between bad and unreadable. They serve primarily to attract a lot of attention to the author’s not-so-bold statements and are meant to be so ephemeral that they may as well have never existed by the time the next set comes out. Debunking these predictions is pretty simple: Look up one such article for an older set, and look at what the author said about the cards. If it’s anything but the very most recent set, chances are that most of the cards the writer said to buy have declined in price—compare the site’s current prices to those quoted in the article.

The easy counterargument here is that of course the predictions were off over a long period; it’s impossible to know what the next sets will bring and what impact those will have on card prices. This is entirely accurate, and it’s why these speculative articles have such a short shelf life: One is meant to read them, remember them for exactly one week until the next one, and then forget they ever existed. This is similar to the way that psychics work: When psychics randomly get something right or say something vague enough that it can be spun as being right, they harp on it for ages. When they get something wrong, they expect people to forget about it entirely. As it relates to Magic, this isn’t necessarily malicious, because the writers themselves will forget about all the things they were wrong about. “Hindsight is 20/20” is a misleading phrase, because people are extremely bad at remembering what we were predicting at a certain point in time. We tend to replace our predictions with what actually happened, thinking we were right all along. The only way to stop this is to hold writers accountable for their predictions over the long term.

A recent New York Times article questions the core idea of professional stock traders—that they know anything more than random guesses about what stocks will go up or down in the future. Statistics show that they do not—flipping a coin on all buy-or-sell decisions would have resulted in a slightly better outcome than following the decisions made by them. If one cares to do the research, similar confirming evidence is all over. People making bold predictions as a profession are quite bad at it unless they’re basing it on solid statistical evidence (namely, overall economic trends) rather than their gut.

If one person’s article isn’t enough: In 1995, the Journal of Financial and Strategic Decisions published a study comparing expert predictions about the stock market to random chance, and this is even more pertinent to what we’re currently talking about. The study found that the stocks outperformed random chance in the first week, and then underperformed it in every future time period (for up to six months). The study further hypothesizes that this is due to the market’s reaction to the picks—an immediate bump in their prices from people reading the column. After that, market forces unrelated to the predictions take over. Authors of finance articles will often talk about their previous week’s picks and how well they did. This sort of shortsighted confirmation needs to stop.

The people studied spend their entire work week researching and making decisions on stocks. They immerse themselves in that world. They’re still incapable of making better-than-random decisions. If that’s the case, what can we assume about major financial writers and their army of speculators? What does this say about someone reading who’s thinking he knows a decent amount about Magic and buying cards as an “investment”?

The field of behavioral economics has good answers to why these writers behave the way they do: People overrate their own abilities in anything they’re only moderately well versed in and think they can do much better than other people at it. Even if they know logically that card speculation is a zero-sum game, they will believe themselves so much better at card evaluation than their peers that they believe they’ll be successful despite the odds. Worse still, when they inevitably go through the financial ups and downs associated with speculation, they’ll celebrate their wins while either writing off their losses as mere outliers or, more likely, by forgetting about them entirely. Sure, people who preordered Snapcaster Mage and Liliana of the Veil at low prices made out well (my only speculative purchase was a playset of the former at under $50), but a lot of people also preordered Snapcasters at prices above what they currently are. And people bought Garruk Relentless at prices way above what they currently are.

People, when they think about the difficult-to-predict future of a card’s prices, will subconsciously answer much easier questions. Instead of, “Will this card’s demand in the future rise relative to its supply?”—something they know very little about—they will instead ask themselves whether they think the card is good, whether they want to make a deck with it, and whether it seems cool. These questions will be substituted, and these people won’t even notice themselves doing it.

Does this mean that no one can ever make a profit on card speculation? Of course not. If you work with pro players and determine conclusively that you’ve found the next Tarmogoyf and it’s currently selling for $2, that’s obviously a superb way to invest your money. But this is an entirely different process; it involves testing the cards inside and out—not making snap judgments based on what a card looks like, what it reminds you of, and how good the first draft of a deck including it is. Even professional players have incredibly spotty track records at card evaluations for new sets before they’ve tested extensively.

Earlier, I said that card speculation is a zero-sum game, which isn’t entirely accurate. It is negative-sum. Most people who are engaged in Magic finance are buying and selling paper cards, and the transaction costs are substantial. Buying and selling on eBay is the best way to go, but even that has fees for listing and shipping. When people buy and sell cards back and forth to each other, they’re just slowly enriching eBay and other companies.

And then there are the online stores. While writers will pretend that cards are worth what their store sells them for, and that an increase in that price means an increase in value that should be celebrated, they are not worth that. Things are worth the amount of money you can get for them—if you value a card at $10 but you can only sell it back to a major site at $3 or on eBay for $6 after fees, it is worth $6, and you are deluding yourself into overvaluing your collection to reinforce your conviction that Magic investing is what you should be doing with your time and money. Low-value cards are the biggest culprits; if you buy a card at $1 and it sells at online dealers for $2, you haven’t even come close to doubling your investment. If you try to sell on eBay, even if the price really has increased, the fees will kill you. If you try to trade it away along with other cards for something high-value, people will expect you to trade more than what you “should” as a transaction fee for trading up. This leads to systematic overvaluing of random junk.

The real money, obviously, is in being the agent who enables people to buy and sell these cards, taking a hefty fee at each end, and every site is incredibly eager to encourage would-be speculators. And why wouldn’t they be? It convinces people to spend more money on Magic cards at their sites, letting the sites sell for better prices overall. And when those people need to dump their speculated-upon cards ASAP, the big stores are there for that as well. It’s so much better to enable people to buy and sell anything than it is to do it oneself.

Speculation, though, isn’t the bread-and-butter of Magic finance. That would be trading for value—the fine art of convincing people to overvalue what you’re offering them and undervalue what they’d give back. Writers who do this will say that they make some hourly wage that puts car mechanics to shame, and that it’s simple for anyone to do similarly, even if they set their sights on something more average—like, say, $30 an hour. This brings up several questions immediately, and I will attempt to ask them without profanity.

Who’s going to be dumb enough to want to trade with you and take that much of a loss? Value trading relies on these people’s existence, and the more people who attempt it, the sooner those hapless souls will be left with empty binders and a confused frown. Going back to behavioral economics, the principle of value trading relies on overcoming a significant hurdle in psychology: overvaluing our own possessions relative to what everyone else has. It can often be a challenge when working with people just to get them to accept that their prized possessions are worth market value rather than the inflated prices in their heads. Value traders have to reverse the person’s psychology, and that takes some doing. It’s far from impossible—or else these traders wouldn’t exist—but difficult.

What happens when two value traders go head-to-head? Judging by how on top of card prices even the most casual players are, you’d think that this would happen constantly. There’re basically two outcomes possible: Either the players haggle back and forth, each insisting that he should be the one walking away with free money, and negating each other’s offers before walking away angry with the same cards each had going in, or the superior value trader uses his knowledge to pull the wool over the rookie’s eyes and gain value off that obscure $20 enchantment from Legends that the fool thought was only worth $10.

Knowing this, isn’t the only strategy to trade with people who are worse at trading than you are? More important than how you find your next target, how do you know who’s better at this than you?

Why on earth would anyone make even a tiny trade with self-described “value traders” if they claim to make so much money off idiots?

What happens when the hoard of diehard fans of these writers take their advice and trade for value with one another?

Why are so many people ignoring the game of Magic for this anyway?

Here, we come to the completely icky subject of morality as it applies to value trading. While the party on the losing end of the deal is giving up their cards voluntarily, he’s not doing so with full information in almost any circumstance (those would be the last-minute I-need-these-cards-for-the-tournament-and-don’t-care-what-I-give-away-to-get-them situations). What’s not in dispute is that these people aren’t creating anything. They are taking money away from other players and keeping it for themselves, acting like a voluntary tax on people trying to get cards. They are certainly something that makes the game less accessible to new players. . . . Who wants to go to a tournament where, in order to get the necessary cards, a person has to memorize a thousand-line spreadsheet of editions and prices? Advice to new players: Just don’t trade. Ever.

So far, I’ve painted with a broad brush about Magic financiers and the idea of making money through card transactions. With good economic insight, including an understanding of the cyclical nature of formats and how the broader Magic market can behave erratically, smart people can certainly make money. Ted Knutson has written some very good articles analyzing Magic from this angle because he avoids the gut-calls and goes for solid stats-based analysis that’s not reliant on specific cards and specific decks. He is the sane man in the midst of mania, and I can’t praise him enough. It’s not surprising that he’s someone who’s had actual economic education and has a real-world job in gambling.

Even speculative purchases can turn out well with the right timing; the market has historically undervalued staple uncommons such as Dismember, which start out low and climb to the price of a good rare after the next set has come out. High-value cards, when they’re first spoiled and available for preorder, cost much less than they can be sold for when the set is released. People often assume that the price fervor is at its peak around the prerelease, but graphing prices shows that it often peaks at release time. The lesson here, though, is to above all else attempt to judge what will be good and to buy cards thinking months down the line—otherwise, it will cost you money more often than not. Sure, sometimes you’ll be correct about a card like Birthing Pod, but in the long run, you’re better off leaving your own judgment at the door and looking at the historical trends.

If you ask an economist or financial historian what it means when a market has doubled in size in the past few years, prices in key aspects have skyrocketed to the point that they price out people who are actually interested, there’s been an explosion in people giving advice on how to buy and sell profitably in it, and laymen are speculating like mad—well, they’ll instantly give you the sad news.

There is a Magic bubble. It might be ongoing, or maybe it’s already burst and we’re all just late in catching on. But it exists. Nothing can double every three years. Last year, tournaments were springing up everywhere. Some were successful. Magic sites are much more plentiful than they used to be. They’re hiring more writers at better wages than in years past.

I’m optimistic that Magic won’t crash and burn overnight and that the growth will simply increase more slowly until it’s not increasing. Legacy’s boom period has certainly ended—a quick glance at price graphs shows the peak to have been around April or so and that there’s a stagnation or decline on most things since then. A lot of those players justified their spending by expecting their dual lands and other high-value cards to keep those values indefinitely. If their cards only go up in value, they haven’t spent money; they’ve invested intelligently.

By the way, Wasteland has declined in value by close to $20 from its peak.

Anyone interested in reading more about the theories I poorly attempt to summarize should read the excellent new book by Daniel Kahneman (author of the previously linked NYT article), Thinking, Fast and Slow.

Jesse Mason

@KillGoldfish on Twitter

killingagoldfish.blogspot.com