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Anthony Capece – Anatomy of a Spike

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The price spike can be the most exciting, terrifying, confusing, profitable, and potentially disastrous phenomenon in Magic finance. It’s equal parts the reason we do this and the thing we hate most about it. With Splinter Twin still fresh on everyone’s mind, today I’m going to talk about what causes these spikes, how you can prepare for them, and how you should react when you see them.

If you haven’t listened to the most recent episode of Brainstorm Brewery, I recommend you do that before continuing. It’s a good primer on Splinter Twin and some previous price spikes.

I’ll start by dividing price spikes into three categories:

  1. Real demand spikes

  2. Price corrections

  3. Speculative spikes

Understanding the differences and being able to recognize the type of spike in real time is critically important to a financier.

The Real-Demand Spike

This  type of spike is the easiest to identify and explain. It happens when any card sees a large, sudden increase in real demand. When I say “real demand,” I mean playability-driven demand. This usually means that someone just crushed a major tournament with it – see Nightveil Specter at Pro Tour Theros for a great recent example.

Here, demand increases sharply as players try to get their hands on the new tech (while supply remains unchanged), leading to a price increase. It’s simple and fundamental, and in that way a real-demand spike seems like the most “legitimate” type of spike.

How can you predict these? It’s hard, and you have to keep your ear to the ground. At the very least you should be combing decklists from any major event and following pros on Twitter, and you might even try brewing and testing yourself. If you had spent the week before Pro Tour Theros testing Standard, or if you knew some good players who were testing and could give you their results, you may have figured out that the blue and black devotion decks were the real deal before the tournament. Easier said than done, but not impossible.

It’s generally fine to buy into these spikes on two conditions. First, you have to verify that the demand is legitimate. You might use event coverage or a player source for this. Then, you have to make sure you are getting in at the ground floor or very close to it to ensure that there is an opportunity for profit.

If you can’t find any evidence that the card is actually breaking out, do not buy in. There are not that many ways to lose a lot of money quickly in Magic finance, but buying in to a spike at elevated prices only to find out that the demand wasn’t real is one of them. The fact that a card is “good in testing” is not enough on its own, you really need it to place in a major tournament or get some camera time. Also, if the price has already increased substantially, I would advise against buying in. Your profit will be limited at that point, and there is downside risk if the metagame shifts quickly. Wait for the next one.

A card that has seen a real demand spike will hold its new price as long as the demand stays in place (in other words, as long as the deck is still good). There is a such thing as a “one event deck,” so be careful.

Before I continue on, I want to point out that the next two types of spikes are often confused. It can be very hard to tell them apart when they are happening, although hindsight will always clear it up (for as much help as that is). Most people can identify a real-demand spike easily enough, but you will really have an advantage if you can tell a price correction from a speculative spike in real time.

The Price Correction

A price correction is a sudden increase in the price of an undervalued card without a clear catalyst. This means that supply and demand already indicate that the card should be more expensive, and the spike is simply the market waking up and realizing it. If you aren’t paying close attention, these seem to happen out of nowhere.

I think the fetch lands are a good example here. The fetch lands have been the cornerstones of Modern since day one, so why would Misty Rainforest spike last fall around the release of Return to Ravnica?

It wasn’t a real-demand spike – Misty was never not one of the most played cards in Modern. It was just a collective realization by the market that one of the most important cards in the format was a little on the cheap side.

Determining whether or not a card is undervalued is very difficult in its own right. Suffice to say that you must be able to back up any claim that a card is undervalued. “This card is way too good to be $5” is not a compelling case.  Further, identifying that a card is undervalued does not tell you when it will spike, just that it is likely to get back in line with other cards at some point in the future. Don’t forget about supply here – a very good card can be inexpensive and fairly valued if the supply is large enough.

The quickest and easiest way to tell if a card is undervalued is to use comps. Two weeks ago, if you were to compare Splinter Twin to other small-set rares printed around that time that see significant Modern play you may have used this list: Celestial Colonnade, Birthing Pod, Spellskite. Colonnade was $10, Spellskite was $8 before also jumping, and Pod was a little over $5 (note that Spellskite and Pod were printed a year later and thus have a larger supply). Based on those prices, you would have concluded that Twin was slightly undervalued at worst and had plenty of upside at under $5. I believe Splinter Twin was a textbook price correction.

If you look back at the Misty Rainforest chart, you can see that it resumed its normal growth after the spike – this is a clear indicator of a price correction. After snapping back in line, the card returned to what it was doing before. The market sometimes overshoots on spikes but, in general, price corrections are supported by supply and demand fundamentals and should hold up well.

I would buy into price corrections under the same conditions as real-demand spikes.  Make sure it’s real (check your comps) and make sure you aren’t too late. Ideally, though, a good financier need not buy into price corrections after they have started – he should already have plenty of copies in his binder. Remember, all the information you need to identify the undervalued cards is out there beforehand, you just have to put it together before the rest of the market.

The Speculative Spike

A speculative spike is basically a bank run on Magic cards. It is not demand driven at all, in fact just the opposite. A speculative spike is ignited by a lack of supply (illiquidity), which is often caused by a buyout. This can lead to “fake” prices as the very few copies left on the market get re-listed at arbitrary new highs.

Let’s step through one of these to help us understand it.

  1. Someone buys most or all of the available copies of a card. This is really not practical with newer cards because of the print runs, so it is almost always an old card. We’ll use Aluren as an example.

  2. Now that supply has disappeared completely, anyone who has this card sitting around will rush to list it. The problem is that there is no information on what price is appropriate for the market. If the market sold out of Aluren at $5, any price higher than that is fair game. The sellers choose an arbitrary price, in this case $25.

  3. Ostensibly, the new price of the card is $25, but who is buying? No one really wanted this card at $5 except for the buyout agent anyway. Very few copies if any will sell at this price, which is why many people refer to it as fake.

  4. The people who will buy at the new price are those buying out of fear (missing their last chance at the card) or greed (hoping to find the Greater Fool that Jason talked about in one his articles). The buyout agent is depending on these people to help him cash out. The most important thing is that you are not one of them.

  5. The price slowly comes back down as people realize that there is nothing to support this card at $25. If the buyout agent found some panic buyers, he made some profit. If not, he has a ton of Alurens that are once again $5.

The buyout agent is not necessarily malicious. In the case of Aluren, there was speculation that an Imperial Recruiter reprint would make the Aluren deck more popular in Legacy. If that had actually happened, we would be looking at a real-demand spike. As it was, most savvy financiers recognized that the Aluren deck wasn’t even very good to begin with.

Don’t think that people are making a ton of money like this. Remember how difficult it can be to out a ton of cards in time to catch a real-demand spike. Now imagine trying to do that with $20 Alurens that nobody wanted at $5. Buylists often don’t adjust in these situations, they just wait it out. Trying something like this is just as dumb as it seems.

Telling Them Apart

This is where, in my opinion, you can really level up as a financier. It is easy to see the differences between the examples above in hindsight, but can you do it in real time? When prices are spiking, you have to move quickly if you want to participate. Here are some guidelines:

  1. Identify undervalued cards ahead of time. If you already know a card like Birthing Pod is undervalued, you won’t need to think about it when it spikes. And even better, you can make sure you have plenty of copies.

  2. If you do not see the spiking card as undervalued, then always, always, always verify the demand. If you do not, you risk buying into a speculative spike, and it is far better to miss a price correction than it is to buy into a speculative spike.

  3. Watch for the signs of an oncoming price correction if you are still struggling. The spike happens when the market wakes up, but there are usually signs of the market rolling over and yawning first.

A week before the actual spike, there were signs on eBay that the price on Splinter Twin was moving. Similarly, the cheapest copies of a card disappearing on TCGPlayer is a good indicator. Word on Twitter was that Twin’s price had jumped in Europe the week before. If you see these warnings signs, even if you don’t view the card as undervalued, it points toward a price correction instead of a speculative spike. Speculative spikes are dependent on removing most or all of the supply at once, so there is rarely that much warning. It tends to be more like, “I woke up this morning and the internet was sold out of Alurens.”

Once you identify a speculative spike, stay away at all costs. If you are not 100% sure what you are dealing with, don’t buy! Here is an example of something that looked a lot like a price correction but seems to have been more speculative in hindsight:

Trust me, you are not a happy camper if your binder is full of $80 Force of Wills that you bought because “it was your last chance before they went to $100.” When in doubt, especially with older cards, don’t buy. Getting stuck in one of these is the actual worst thing you can do in Magic finance.

The Mix

I’ll add one final nuance and then call it a day. You may see elements of all three categories of spikes mixed together at times. Commonly, a real-demand spike will have a speculative element tacked on, causing an overshoot. Master of Waves is a good example of this – Pro Tour Theros was definitely responsible for the initial jump, but you still had plenty of people buying vendors out at $15 because they didn’t want to miss the next Jace. As a result, Master came down significantly from its high but still settled at $12, which was double the original price.

Shared Animosity is one that I see as a speculative spike on an undervalued card. Sure, $7 is way too high for a card that doesn’t really see play, but at the same time $0.50 for an old rare that has potential to be Modern playable is too low. This one is still shaking out and I expect it to come back down quite a bit, but not all the way to near-bulk.

Since this article is already very long, I’ll be talking about other cards that I think are due for price corrections on Twitter this week. Don’t worry, I’ll come up with something more creative than Spellskite and Birthing Pod. (But for the record, Pod is a decent target and I would lay off of Spellskite now that it has moved again.) Follow at @acmtg.

Thanks for reading.

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Anthony Capece

Anthony Capece

@acmtg   -    Articles
Anthony is your typical started-during-Revised-then-quit-then-came-back-years-later Magic player.He enjoys the financial aspect of the game the most, mainly because it lets him use his analytical side but also because it makes up for the money he hemorrhages drafting on MTGO.
Anthony Capece

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About the author

Anthony Capece

@acmtg   -    Articles
Anthony is your typical started-during-Revised-then-quit-then-came-back-years-later Magic player. He enjoys the financial aspect of the game the most, mainly because it lets him use his analytical side but also because it makes up for the money he hemorrhages drafting on MTGO.

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  1. Jason Alt

    You should edit this so that your name is on it somewhere :p

  2. Anthony Capece

    Interesting strategy.
    Thanks for fixing it.

  3. Douglas Johnson

    Great article. I need to start thinking of how I can turn current events into relevant information for articles, like this.

  4. Anthony Capece

    Here’s a thought on an undervalued card (for the people that visit the website!). Not 100% sure this one is due for a price correction (because I’m not 100% sure if the deck is that good) but it wouldn’t shock me at all.

    Scapeshift is the key card in a tier 1 (tier 2?) Modern deck, automatic 4-of in that deck, single printing in Morningtide which was almost 6 years ago and is $7-$8.

    Shared Animosity is from the same set, sees play nowhere, and is $7 TCG Mid. Clique is from that set and is $45 post Modern Masters reprint. Mutavault was $35 pre-M14. Sure, they see more play, but if the Scapeshift deck is legit tier 1 in Modern, I think it’s a $15-$20 card.

  5. Dylan

    You present the zendikar fetch lands as an example of a price correction but keep in mind that was in large part driven by an overnight change in buylist prices at StarcityGames for Misty Rainforest and Scalding Tarn. If I remember SCG doubled (or nearly doubled) their buy price to $20 at a time when these fetchlands could be found on Ebay and online vendors for the new buylist price. A quick price correction soon followed but this was not due to a “collective realization” but rather market forces following a change in buylist prices across the board.
    I would argue that any collective realizations that a card is undervalued is a product of speculative forces and fluctuations in supply and demand (your other two categories).One can also attribute the rise in price of splinter twin on speculation following a winning GP performance, a trend seen over and over when a deck spikes a GP and has a rare from a set several years old.
    Thanks for the article.

    1. Dylan

      Forgot to add in mid April ’13 SCG raised the price of FOW to $100 and their buylist price to $60 causing another spike in FOW prices (this had happened before). While this may have been due to an increase in demand the market is heavily influenced by the actions of large vendors, and this should be noted in the article somewhere. Thanks again!

      1. Mike Fellman

        Correct. Large Vendors dominate the market and high spreads ensure their is virtually no opportunity for arbitrage.

  6. Anthony Capece

    Thanks Dylan, I think it is relevant to mention those buylist changes. My stance on Misty is that since it was undervalued, that spike was going to happen anyway and SCG simply recognized it first. Everything was already in place

    The fact that FOW couldn’t hold the price when they did the same thing shows me that even SCG can’t prop up the price on a fairly valued card forever. It also shows me that they were getting a little greedy to even try!

    Great points, I appreciate the feedback.

  7. Mike Fellman

    “It wasn’t a real-demand spike – Misty was never not one of the most played cards in Modern. It was just a collective realization by the market that one of the most important cards in the format was a little on the cheap side.”

    This looks like the classic myth of “immaculate inflation” to me. In order to get steep price action in either direction, it takes either a surplus of buyers bidding prices up or a surplus of sellers bidding the price down. The motives of these actors is usually unknown. There are speculators, players, bots rebuilding inventory, ect… The market never “wakes ups” from collective unconscious and suddenly just raises or lowers prices. Prices are set via a supply and demand dynamics between buyers and sellers. It takes two to tango.

    The “Star City Games Effect” is also quite interesting. Star City essentially has enough buying power to control the market of many legacy staples simply by updating its buy list. Because players always expect the value of these cards to go up, nobody actually sells to Star City when it raises prices because they simply expect they will have to buy back at a dearer price some time in the future. This creates an upward price spiral and anchored inflation expectations.

    Wizards Reserve list does more harm than good. While it creates some certainty for collectors, it creates a moral hazard for speculative price action on highly sought after cards because it essentially assures that prices can never go down. This means that the market cannot correct when it gets ahead of itself. If Star City raised its buy price to 500 dollars for Revised Underground Sea, the speculators would not sell. They would simply wait for the next inevitable price increase because Wizards has promised never to reprint the card. So really, only large liquidity players can create downward pressure on the market. In reality, someday this will be Star City games itself. Any business can be mismanaged no matter how lucrative. When a bump in the road comes and Star City or another large dealer is forced liquidate inventory to pay bills, it could send prices tumbling.

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  1. DJ Johnson – Getting Value Out of Lesser Commons and Uncommons » Brainstorm Brewery

    […] podcast, and my co-writer Anthony Capece addressed the topic in his incredibly well-written article Anatomy of a Spike), I’d like to bring up a different, less-discussed topic. If you ask most MTG financiers what the […]

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