Quick note from the author: I am a young investor and Wall Street enthusiast. I also speculate on Magic cards and play most formats (poorly). As with any market, there are similarities between the stock market and the market for Magic: the Gathering cards. Thus, any knowledge of technical analysis, portfolio technique, and economics can be applied to both investments. Remember: profit is profit whether it’s in a playset of [card]Bridge from Below[/card] or in shares of Intel!
Quick note #2: Because financial analysis needs graphs, this may be more irritating to read than a strategy article. Plow through it!
I’d like to look at why I think the Legacy format has behaved like Apple stock in the past, why it continues to mimic it when the format is “in trouble” and what we can learn from it. I firmly believe that this is the time to buy into Legacy staples at deflated prices rather than to buy into Modern staples at inflated prices. Steve Job’s recent departure as Apple’s C.E.O. and the panic of Apple shareholders will help us to understand this.
Background and overview
In the Fall of 2004, a niche format called “Classic Restricted” spun off into a new format called “Legacy” when Aaron Forsythe made an online poll available on his Latest Developments page. The first tournament results at StarCityGames were recorded in early 2005 where Goblins and [card]Force of Will[/card] made dominant appearances. For our purposes, let’s take a few of the stellar cards:
Revised [card]Underground Sea[/card] (from Apathyhouse data)
As you can see, the average internet price for [card]Underground Sea[/card] in Fall ‘04/Spring ’05 was between $20 and $25. At this time, $100 was a hefty price tag for a set of duals. We’ll assume that the price trends of all Revised duals will roughly follow the most famous one: [card]Underground Sea[/card]. Let’s do another one:
Alliances [card]Force of Will[/card]
The [card]Force of Will[/card] pricing follows the same price trend, appearing in the new format at between $15 and $20 each. We could look at many more graphs from apathyhouse.com, but I believe that the dual lands and [card]Force of Will[/card] are the best examples, for this reason: They were not being shared by other rotating formats at this time. Legacy was in its infancy and the major pillars like [card]Tarmogoyf[/card] didn’t exist. Staples like [card]Standstill[/card] and [card]Æther Vial[/card] were being shared by standard in ’04 and ’05, so their pricing behavior isn’t as helpful. Commander wasn’t an issue, so it’s reasonable to assume that players who bought duals were buying them for Legacy or casual. Since casual purchases have stayed pretty constant over the 18-year history of Magic, they won’t skew our data too much.
I’ll also show you [card]Wasteland[/card], because it’s a pretty funny graph too see from our vantage point this summer:
Tempest [card]Wasteland[/card]
Remember that [card]Wasteland[/card] is an uncommon and that Tempest block and Saga block were wildly popular. This tells you that even in ‘04/’05, players were willing to spend about $30 on a playset.
Please don’t miss the common theme with Legacy staples: a steady climb through 2009 and then an explosion in late 2010/early 2011, and then a recent drop-off in the last six months.
Here is Apple stock from the same time period (AAPL on the Nasdaq index):
Oddly enough, the value of Legacy staples and the price of Apple stock began to take off at around the same time (late 2004 and early 2005). I’m definitely not suggesting there’s any correlation, but it makes our good analogy even better! As you can see, Apple stock has been one of the premiere American growth stocks for the last ten years: each $1k invested in 2001 is worth nearly 40k today. The dip around early 2009 is due to the global shock of the lending crisis, not anything specific to Apple.
As many of you know, Steve Jobs, Apple’s visionary C.E.O., has been battling cancer on and off for years. He’s taken several extended leaves of absence, none of which have been good for the stock. Then, on Thursday, August 24th of 2011, Jobs announced that he’ll step down from this position and turn the company over to one of his top research guys. The effect on Apple stock was immediate and dramatic: down 5% in the first hour. Articles began to fly around the internet, especially in Wall Street circles, that predicted the decline of Apple and the resurgence of Microsoft and other competitors. Whether this doomsday language turns out to be true is a matter of speculation.
We call this a micro-level “shock.” It’s a serious and sudden adjustment to a particular stock. Alternatively, a macro-level “shock” is one that affects multiple countries, regions, and stocks, like the Japanese tsunami or the current lending crisis. This shock to Apple has caused many investors to make snap judgments to bail out of their positions in a fantastic growth company. In contrast, Microsoft stock has risen (though I can’t claim complete causation, since the securities market is such an indefinable animal).
Similarly, I believe that the announcement of the Modern format has functioned as a micro-level shock to the Legacy format and that many “investors” are acting irrationally by dumping their Legacy staples at “fire-sale” prices to chase Modern cards at ridiculous mark-ups.
$35 for [card]Hallowed Fountain[/card]? $20 for [card]Grove of the Burnwillows[/card]? How in the world are these cards going to hold their values? Purchasing playsets at these prices is almost guaranteeing that you’ll be buying high and selling low, so there’s only one explanation that fits this model: fear. I will buy only if I’m convinced that North America’s supply of [card]Hallowed Fountain[/card]s will run out. A [card]Hallowed Fountain[/card] at $35 is completely based on irrational fear and is certainly the ceiling for ANY dual land printed after 1995.
According to price charts, what’s happening at a macro-level is this: eternal players are selling Legacy and buying Modern, driving the older format down irrationally and propping the newer format up irrationally. Keep in mind that this is all happening before any major Modern tournament results have been reported, so the format is still very “wide open.”
Let’s zoom in on the 6-month chart for [card]Wasteland[/card] (Tempest) for an example of this, since it is a fantastic case-study for Legacy:
After the “Legacy Boom” of early 2011, the legacy market corrected downward a bit, so that you can now buy a [card]Wasteland[/card] for nearly the same price you could buy it before the boom. Does this make any sort of sense? Sure, we can attribute some of the Legacy boom to speculators, but we now know that there was an unprecedented influx of players into Legacy, especially overseas. Tournament numbers at SCG Legacy Opens rose dramatically and the supply of certain cards became a very real issue ([card]Candelabra of Tawnos[/card], [card]Grim Tutor[/card], etc).
So if a substantial number of people have jumped into Legacy in the last 8 months, buying staples and driving prices up, why should Legacy staples be available at nearly “pre-boom” prices now? Are we supposed to assume that every single one of those players decided to play Modern instead? Only a decision like that would justify these Modern prices!
Let’s call it what it is: irrationality and fear. And just like in the stock market, there are traders with massive amounts of cash that are willing to speculate, hype, and manipulate the market. So let’s not participate! I personally haven’t bought a single shockland this summer and don’t plan on it until the prices drop to a reasonable and sustainable level.
Where’s the smart money? I believe that Legacy staples are deals right now, especially those that are “out of favor” in the current metagame. Eternal formats are fickle and cyclical. Find a solid and proven Legacy deck that hasn’t scored a top-8 in a few months and do your due diligence (DD) on the cards it runs. Legacy staples, especially dual lands and others on the Reserve List, are like steady growth stocks: it would take a very serious shock to keep them from rising year after year.
Afterthought #1: What kinds of people will the Modern format attract? Certainly we don’t think that massive numbers of Legacy players will be liquidating their dual lands to pick up shocklands and [card]Grove of the Burnwillows[/card], right? Modern is not targeted at Legacy players and I doubt that they will “poach” too many of them. Modern is intended to be an affordable entry point into Eternal formats for standard players. If it succeeds, it’s going to have to develop those standard players. Currently, the price points of Legacy and Modern cards are not supporting this theory. Thus, either my theory about the intention of Modern is wrong or we are in an irrational bubble.
Afterthought #2: The supply of dual lands available on the internet has noticeably increased during the last half of this summer. This is driving their prices down. …grin…
Questions? Comments? Let me know at ryanshawnmayo@gmail.com