“I took the liberty of bullshitting you.”
“Excuse me while I whip this out.”
“I have half a mind to join a club and beat you over the head with it.”
Hello, Brainstorm groupies! When last we left our intrepid heroes, we were learning about the investment styles that each host was using to amass his Magic fortune. We learned that Marcel likes to take his time and Jason likes to bang it out as quick as possible. We discovered that Ryan likes to “play it safe” and Corbin is willing to take risk in order get the payoff he is hoping will be delivered by a beautiful amphibian creature.
Have you plied your trades based on their advise? Are you following one of them or all of them? Have you been picking trades based on your own opinion and then using their opinions as reinforcement?
Well, it’s time for a brand new season, but this time we are dealing with a different environment. In the previous season, the trades were from the release of the fall set until May. We then tracked those picks through the six months leading into the next rotation. This meant that all the picks were made with almost complete knowledge of the cards that were shaping the Standard and Modern formats. This allowed our protagonists to evaluate EV based on the thousand or so cards that mattered and the five or so tier-one decks running though tournament top eights. This gave them the picks that ended up significantly outperforming the market.
But this season, they had the exact opposite situation. Picks were chosen between May and the fall rotation (2013), and then we followed those picks from the release of Theros until the release of Journey into Nyx. Think about that: almost all the picks during this time period were made with zero-percent knowledge of devotion or gods, and half these picks were made before M14 was spoiled! If you don’t understand how hard it is to predict something with missing information, check this out:
This chart shows people plowing money into the stock market after it rises (peaks) and pulling money out of the market at the bottom of its cycles (valleys). As you can see by this graph, millions of people who do nothing but try to predict the stock market 24/7 literally bought high and sold low every time!
Before digging into today’s results, I also want to point out something know as The Observer Effect . The Brew Crew began tracking their picks in mid-2013 and I previously went over their individual results in the middle of their “season two” picks. This leads to some subtle changes in their behaviors you may notice as we dig in deep.
During this season, each individual made a different number of calls. This leads to some uneven comparisons if we compared each pick against each other pick. So we are going to instead pretend like you went out and spent $100 on each and every card they said buy, and by coincidence you sold exactly $100 worth of every card they said to sell (If your are spazzing about the math here, please read Investing 201). Then we divided the profits by the number of trades each of them sent your way. There are few discrepancies to sort out as well. If a host said something like “all Modern Masters rares” or “the 99 cards from Mind Seize not named True-Name Nemesis,” we did not include these as picks. Without naming a specific card, we can’t really specify a pick. We’ll consider those calls to be more general guidance and not, strictly speaking, actionable advice. Also, in the few instances where a target price was given, we assumed you followed directions and sold it even if the card price continued to go up afterwards.
Let’s start with some short-term results. First, I calculated what would have happened if you had purchased each pick of the week and then checked the value 30 days later.
Corbin’s picks averaged just 3.47 percent profit per trade, and he only correctly predicted the direction of his picks 18 percent of the time.
Ryan’s picks averaged 14.02 percent profit per trade, and he correctly called the direction of his picks less than 35 percent of the time.
Let’s pause and look at these for a second. Corbin was not able to give the correct guidance over 80 percent of the time but was still able to produce a positive return. His losses were so small and gains so large that his low call percentage was completely overwhelmed by the gains on his hits. Ryan missed his mark two-thirds of the time and still managed double-digit monthly returns. It’s like a pitcher who leads the league in both walks and strikeouts. End aside.
Jason earned an average of 19.32 percent profit per trade and correctly called a card’s price direction 62 percent of the time.
Marcel was able to average 37.01 percent profit per trade and only made a call about 33 percent of the time.
Jason had only one pick that dropped more then 20 percent in the first 30 days and Marcel had two picks that hit triple digits in the same period!
So now we are looking at returns where the crew predicted with greater then 50-percent accuracy what cards were going to rise in the next 30 days. This produced the kind of results that most fund managers would give their left nuts for (presumably the right ones are worth more?). What’s interesting is that each has his own style, but it appears that each is subconsciously using one of two investment concepts: Alpha or Beta (no, not that Alpha and Beta).
You see, when they evaluate their picks, they are not only calculating value in a vacuum—they are calculating your gain/loss potential versus a host of other cards. If five different cards can each go up by 50 percent, the best pick is actually the one with the lowest downside risk (Beta). If 10 different rares are all printed in the same quantity, the one that’s played as a four-of has a higher possible demand and a higher potential price (Alpha).
In the next couple articles, we will explore some longer-term results and see if the Crew has continued its previous performance and patterns. It will be interesting to see if their previous results have caused big changes to the way they see MTG finance. Until next time.