Opportunity Cost and Sports Cards
Opportunity cost is the single most important concept to understand to become a better sports card investor.
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Oxford dictionary defines opportunity cost as “the loss of potential gain from other alternatives when one alternative is chosen.”
This means we can’t have or do everything because our resources (time, money, etc) are limited. We must choose. If we invest $100 into player A, we can’t also invest that same $100 into player B. Simple, right? The application of this concept to our investing strategy is critical to maximize success. Let’s dive into how.
the loss of potential gain from other alternatives when one alternative is chosen.
Oxford
Opportunity Cost Applied to Sports Cards
We can’t buy two cards at once, so opportunity cost applies when we initially decide which card to buy.
But what if the outlook changes after we’ve already purchased a card, and it becomes clear the card is not going to rise the way we initially anticipated?
There are lots of reasons why a card’s trajectory might suddenly look a lot worse than when we bought it. Common examples include:
– Underperformance
– Injury
– Sending the card for grading and getting a 9 instead of a 10, or an 8 instead of a 9 (i.e., no value added from grading)
– Bad press, like getting arrested, being a giant tool during a press conference, etc.
– We realize we made a bad buy. It happens to all of us sometimes.
Do we sit on the card and wait for it to rise? Do we sell and move onto something else, even if it means taking a loss? Let’s explore this with an actual example of a scenario that happened in 2022:
Example
Let’s say we buy a Bryce Harper 2011 Bowman Chrome Auto BGS 9.5/10 (see on eBay: Bryce Harper 2011 Bowman Chrome Auto BGS 9.5/10) for $1000. We feel great about the investment because he gets off to a better than expected start to the season. He’s getting mentioned as an MVP candidate again, and it seems like he hits a homer every other night. It’s exciting!
He’s a seasoned vet, so his cards don’t immediately jump overnight; but they do start to heat up little by little. We can tell because we’re now getting regular offers for our Chrome Auto.
Then we see the news that he was hit by a pitch and has a fractured thumb. He’s having surgery and is out for a minimum of two months. Drat! We were on the right track to turning an easy profit, but now what do we do?
This scenario presents us with a decision. Rarely will values of an injured player rise and sometimes they’ll dip since he isn’t playing.
Our choices are to either:
A) hold the card and wait for him to come back and hope it rises at that point
B) move it now for whatever we can get and put the money toward something different
How do we decide what to do? We ask ourselves THE QUESTION.
THE QUESTION
This is important, so we capitalized and bolded it for dramatic effect. Hope it worked.
Part of the fun of sports cards is getting to deal in inventory of players that we actually like and enjoy. We also sometimes get attached to a card because we’re trying to avoid taking a loss (more on loss aversion below). Either of these types of attachment can make it difficult to make the right decisions to maximize profits.
If we’re ever unsure what to do with a card, whether we own it or we’re thinking about buying it, ask this question:
Is this the card that will rise highest, fastest?
This is also important, so we made it orange, bolded it, and italicized it for an even more dramatic effect. Hope it worked too.
Put simply, if we’re holding Card X while Card Y is rising faster, we’re missing the opportunity to grow our inventory value. Continuing to hold Card X instead of selling it and using the money to buy Card Y means we’re holding ourselves back.
And if that’s true, doesn’t it make it an easier decision to sell Card X and buy Card Y?
It’s simple, but asking ourselves this question is one of the easiest ways to determine whether or not we’re making the right move. Emotion holds us back in the investing world, and this question helps cut emotion out of the equation.
Now, we don’t always know which card will rise faster. Sometimes we can ask this question and still be wrong. We’re still taking an educated guess at the future, and we can’t always predict the future. The key is to try to get it right more than we get it wrong, and using THE QUESTION to help remove emotion allows us to do that.
In the case of the Harper example above, the answer is probably that there are better cards to hold than to let our money sit in a card of an injured player for 2-3 months during the middle of baseball season. Sorry, Bryce.
But what if changing course means we lose money?
What if selling Card X right now means losing money, especially after selling fees and shipping costs? I thought we are trying to make money, not lose it!
We have some difficult news for you, but understanding this can unlock the growth of your business. It doesn’t matter what you paid. That’s in the past. All that matters is where that card’s value is going moving forward.
The goal is absolutely to make money, but we have to look at the big picture. Sometimes things change as we learn new things or when we’re presented with new information. Sometimes we might be completely wrong!
Occasionally the right move is to take a loss on a card to enable ourselves to make far more by spending that money on a different card.
The way you lose in the long run is to leave your money tied up in a card that’s going nowhere, solely because you don’t want to lose on it. That’s an ego-driven move, and letting ego drive your decision-making is a great way to get crushed in the long run. You’re also disadvantaging yourself by overvaluing something that has zero impact on the market. Nobody cares what you paid except you. Don’t let your entry point cloud your judgment and hold you back from far bigger profits elsewhere.
Smart people are always learning and tweaking their beliefs based on the latest information. We have a full extra month of data and information now than we did a month ago. Why wouldn’t we use that information to our advantage?
Example
Let’s say we were deciding between buying a Silver Prizm RC of Zion Williamson (see on eBay) or a Silver Prizm RC of Ja Morant (see on eBay) before the 2021-22 NBA season, and we ultimately chose Zion.
Unfortunately, he gets injured and re-injured and eats a bunch of Cheetos and doesn’t play all year. Meanwhile, Ja takes a major step forward, putting up a borderline MVP season. Zion cards slowly dipped over the course of the year, while Ja’s climbed.
The right move in this scenario would have been to swallow a small loss on Zion once it became clear he was going to miss significant time, and put that money toward buying the Ja card.
If we were too worried about losing a few dollars selling the Zion, we would still own that card, it’s worth even less now, and worst of all, we would have completely missed the chance to make a bunch of money on the Ja.
Again, it’s not only injuries…
We’ve laid out two scenarios where values stopped moving due to injury. It’s important to recognize it’s not only injury that holds back values.
– Sometimes we pick a player who gets off to a painfully slow start to the year. People lose interest and his values start to dip.
– Sometimes we take a chance on a player but it turns out he just flat out sucks. No chance his cards are going anywhere, at least not now.
– Sometimes a player can perform well, but not well enough to drive values higher. Do we really want to hold a player whose cards are stuck in the mud?
Any scenario where values stagnate is a good time to reconsider whether that player is really the best place for your money to be tied up.
Leave Emotion and Ego Behind
Loss aversion is the idea that for us as humans, the pain of losing is a far stronger feeling than the pleasure from gaining. Therefore, we’d rather avoid loss than pursue potential gain. If we understand the relationship between opportunity cost and sports cards, we can be more aware of ourselves and our aversion to loss. Awareness makes it easier to fight the emotion-driven decision and instead make the smart decision.
Summary
Here’s the “too long; didn’t read” version of this page.
– Opportunity cost = what we’re missing out on when we make one decision and not another.
– Opportunity cost and sports cards = When we buy one card, we can’t also use the same money on another card. It therefore makes sense to do what we can to always have our money in the card that will rise highest, fastest.
– We as humans are emotion-driven beings who prefer to avoid the pain of loss more than we enjoy the pleasure of gain.
– We must fight emotion and ego because they cloud our judgment and stop us from making the right objective decisions.
– Nobody cares what you paid except you. Don’t let this irrelevant factor stop you from making a smart move.
– It’s ok to lose money on a card if you’re selling it to make more money on another card.
– THE QUESTION = “Given its current value, is this the card that will rise highest, fastest?”
Hopefully we learned something today. If you like this page, take a look at Cardboard Philosophy for more breakdowns of sports card investing theory.
Disclaimer
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