This is a headline that makes me chuckle every single time I read it:
“Apple posted quarterly results that beat estimates Monday … shares dropped more than 5%.”
For those who don’t follow non-Magic finance, the reason this happens (and it happens all the time to all kinds of companies) has to do with expectations. Apple beat the earnings estimates but it was expected to beat the estimates by even more. The stock price reflected the expectation (not the estimate) and it corrected downward when Apple came up short. The end result is a quarter that looked good on paper but resulted in a sharp drop in share price. It’s all about the expectation.
The thing is, Apple didn’t have a bad quarter. Yes, shares dropped 5%, but that was more a function of high expectations than poor performance. By objective measures, Apple was doing fine—a healthy, profitable company.
If you can sort through expectations and focus on actual performance, you will often find there are opportunities mixed in. A 5% discount on Apple shares just because someone else let their expectations get out of control? Works for me.
We can find similar opportunities in Magic finance.
How about a tier-one Modern deck that put more players into day two at Pro Tour Born of the Gods than any other deck? A deck that will certainly remain relevant going forward and is capable of taking down any given Modern tournament if the meta suits it. The deck is Zoo, and it offers as good a buying opportunity as you will find for many of these cards.
Check out Goblin Guide on MTGO:
The card is down around 30% since the pro tour. Sure, Zoo didn’t do as well as we thought it would, but is that any reason to be down on Goblin Guide? (Update: Sorry guys, this one rebounded in the day since I posted this. Magic finance moves quick, I guess.)
Guide is the definitive one-drop in red aggro decks, and one thing we know for sure is that red aggro decks will never go away. It was about this price just before the Nacatl unbanning, and that was all upside for Goblin Guide—it still goes in mono-red like before and now it goes in (some) Zoo decks as well. Expectations of Zoo were too high and now Goblin Guide is a buy on MTGO. I have bought and sold my playset of this card several times now, grinding out a few tix each time. I just picked them up yet again.
Knight of the Reliquary did something similar, plummeting almost 40% from its peak. This one is a little tougher since it really wasn’t doing anything prior to the Nacatl unbanning. It’s on the watch list for sure.
Heck, even Tarmogoyf is down 10% from the pro tour peak on MTGO. This may not seem like a huge deal in a vacuum, but most other Modern prices are going through the roof. Past in Flames, Geist of Saint Traft, Primeval Titan, Snapcaster Mage, the list goes on. If a single Zoo list had landed in the top eight of the pro tour, ‘Goyf might be 100 tix right now. Instead, the buying window remains open for just a little bit longer. I don’t think this card stays at 80 tix for long and when it moves, it’s probably not coming back down unless it gets reprinted again.
The point is really not to call for buys on these particular cards, but to use Zoo at the pro tour as an illustration. When expectations are high and results don’t live up to them, you have to decide whether the pessimism is justified or the market is overshooting.
Zoo didn’t dominate the pro tour, but that was a big ask to begin with. There were plenty of copies of Wild Nacatl in the top decks though, and this was in a meta where Zoo was basically guaranteed to be one of the most-played decks. I’m pretty sure that the Nacatl unbanning served as a telegraph that said, “If you only do one thing to prepare for this pro tour, make sure you can beat Zoo.” Accordingly, players packed a million copies of Anger of the Gods.
The deck is solid and the meta won’t always be this harsh. It will be harder to justify sideboard slots to hate out a deck that didn’t top eight the pro tour when Twin and Pod are running wild. In my mind, the market is overshooting. Zoo is a perfectly good Modern deck.
I’ve used MTGO examples here because the market adjusts so quickly. Paper prices don’t bounce all over like that, but I think you can still take advantage of this pessimism in trade. Players will be tripping over each other trying to give you out-of-favor stuff like Knights or Guides for the UWR staples that won the pro tour, Amulet of Vigor, or whatever else. Buy low, sell high—I know, I am a prodigy.
Now let’s take a slightly different angle on this idea.
The expectation here was not performance-based, but supply-based. The word on this set was that it would be “printed to demand.” I believe this was established by Mark Rosewater, who stated on his Tumblr that Wizards would reprint these decks if demand dictated. Of course, this was a one-sentence answer and we were left to fill in the blanks. The conventional wisdom was that these would sell out around the holidays and then we would see a second wave in early 2014.
What we actually saw was the good decks (and not just Mind Seize) selling out quickly and the clunkers warming shelves until, in some cases, they went on clearance. I haven’t seen a restock of these decks. Most stores here have about two copies of the Naya deck still sitting around. Your mileage may vary, but it seems like a set is only as strong as its weakest deck.
I passed by quite a few Esper and Bant decks in my search for True-Name Nemesis when the set was first released. Based on the information I had, I expected to sell off the Mind Seizes and then circle back to get whatever else I wanted on the restock. Nope.
There are some very good cards in this set, and they were prevented from being reprinted by the shelf-warmers. The end result is that the size of the print run didn’t meet expectation and certainly didn’t meet demand for the top decks. The market is very focused on Modern and the release of Born of the Gods and hasn’t quite realized this yet.
There is nothing tethering True-Name Nemesis to a $30 price tag any longer, so the sky’s the limit on that guy. Toxic Deluge is very good and a strong buy in my opinion. When people do get around to acquiring these cards, I think they will be unpleasantly surprised to find there are fewer copies available than they thought.
Even the powerful new cards aimed at Commander and Cube players should see upward price movement before too long. Primal Vigor and Sudden Demise come to mind. I think Sol Ring and Baleful Strix will come roaring back much sooner than expected. Pretty much everything that synergizes with Nekusar already spiked, so I’m assuming $2 is not a realistic long-term price for him.
There is a lot of money being thrown around the Magic secondary market these days. With the new breed of trigger-happy speculators in the mix, the strategy of being the first one into a spec is getting harder and harder to execute. Rushing into a spec will make you money sometimes but it will also lose you money sometimes. Being right once is better than being first ten times.
Understanding the expectations of the market will, in effect, allow you to speculate on the speculators. They provide the volatility, you capitalize on their mistakes. Buy good cards at good prices when they get it wrong, and sell into the hype when they come around. Strangely, it’s never been easier to make money in Magic finance than it is right now.
Thanks for reading.