Greedy Goblin

Sunday, May 10, 2009

Long term investment

I made lot of money from long term investments, like herbs when inscription came out. You can do it too.

First and above all: investment means that your money is currently not money, but some item, that is supposed to increase it's value over time. So an investor wants to buy the item when cheap, hold it for some time (maybe years, maybe literally overnight) and sell it, for higher price than bought.

Of course you cannot invest into anything. Most items don't increase their value over time, so buying vendortrash, pieces of rock, gelatinous goo, toilet paper and such are bad investments. Bad investments can have profit, but less than a safe investment, tipically state bond or guaranteed bank deposit would pay. And bad investments can worth absolutely nothing, wasting all the money invested. Most bad investments are between these extremites.

So, contrary to the advertisements of the banks, investment funds, and brokers, a good investment is an exception, something like opening a box and finding a purple inside. It does happen, but it's not something you can expect. The usual thing is inflation-equal price increase, no profit, no loss, like finding vendortrash in the box. It's not a great find but covers the repair bill caused by the monster defending it. A good investment needs skills and careful study.

Important information:
Since you don't perform work, during the investment there is no value increase in the world. So if you have profit, someone, somewhere has a loss. It's not a bad thing in the goblin world and you should not have bad sleep because of that. This profit transfer can be a good thing to the world. A good investment can catalyze useful work. But you always have to keep it in mind: "if I win, someone else loses". You must know who is this loser. If you don't, you don't understand your investment! Goblin saying: if you don't know who loses on the business, you shall check the mirror!

So let's see Thelnia's items (she was a banker of mine before 3.0), with market prices of the items back then:
  • 168 stacks Tin (0.15)
  • 96 stacks Iron (0.6)
  • 228 stacks Copper (0.1)
  • 12 stacks Fel iron (0.8)
  • 24 stacks Bronze (0.2)
These items were there, there was no approximation in this. However Thelnia was no blacksmith and metal cannot be eaten. This is an investment, therefore has to make money somehow. The obvious question about this is how much do they worth now? The answer is easy and also hard.

The easy part is "multiply the quantity with the current market price". With this we get 2400G for Thelnia. Whoa, she is rich! If we make this multiplication every day, we get that nice edgy line on the picture.

The hard part is that if I'd pour this quantity to the market, the prices would collapse. There is no one in the market (unless a fellow investor) who could suck this amount up. Secondly, a miner can make profit from combining copper (0.1) and tin (0.15) into bronze (0.2*2), so if all the tin would be combined to bronze, the investment value would increase by 288G. Of course I couldn't sell that bronze either.

So theoretically I have 2400 (or 2688G) today. Practically I have lot of bags full of unsellable metal. Now we can form the complete law of investment: You must buy something that will increase it's price and sell!

What was my plan? The plan was that with the expansion lot of Death Knights will born. They are plate wearers and melee weapon wielders therefore lot of them will roll blacksmithing. Correction: I hoped that they will and I hoped they did not stockpile enough metal, and I hoped that they have money to pay my metal, and I hoped that other investors have not stockpiled enough to overflow the market. As we all know, these hopes failed, since Blizzard introduced "everything is BoE" at 3.0.

Anyway, I have a plan. Now let's see the questions I must answer before I start:
  • Who loses when I win? (Someone must, the trading is a 0 sum action). Answer: Those who roll DK and don't stockpile metal.
  • Is my investment good or at least neutral for the world? (Must be, or the people will be disgruntled, will riot against me, and spam the forums until my hope is nerfed down.) Answer: Yes, because without my investment there would be lot of DK with BS 80/450. A DK with BS 450/450 is has better chances agains the forces of Arthas. With my purchases I also elevate the metal prices now, making the miners happy and the mining industry roll faster.
  • Who is stupid? (Someone must be stupid to make a world-positive profitable investment possible) Answer: The DK who rolls BS although there will be (and already are) legions of BS who can create him BoE items and since everyone knows that there will be huge competition.
  • What is my backup plan? (There are too many "I hope" in my plan, just like in all investment plans. I must have a backup plan if any of these hopes went south) Answer: Even if the metals end up unsold, there will always be new BS and JC and Engi who will need them. Bronze is sold every day, although there are no DK-s around! So for a lowered price I will surely be able to sell these metals over a long period.

Evil question: have you asked these questions your banker/broker before you made an investment? If not, why are you so surprised when it went down with half of the world economy?

PS: as we know the investment mentioned above went south and I finished with -1000G. Let it be an example to everyone who want to get rich with near-0 work.

And yes, it was a shameless repost as I'm AFK in the weekend. So trolls enjoy your 15 mins!


Anonymous said...

If you hadn't mentioned that it was a repost, most people wouldn't have even noticed. Is there a thing as too much honesty for a goblin?

Zekta Chan said...

because it is funny, and nth prohibit a Goblin of having fun (except profit may be?) :)

I actually aware of it's a repost before I read to his line. But it's expected, since he had talk about this before... Still a good article to read for a second time thought :D

Fawr said...

I made the same investment with the same reasons, but (with the exception of iron which I think I overpaid for) I found all the prices went up on my server (double or more for most of them). I thought it was new DK miners (with the easy leveling of mining by smelting ore) which drove the rise.

I'm still selling of the iron slowly at a loss though...

Anonymous said...

i had the strangest feeling of deja vu until i read the last line hehe.

Anonymous said...

You miss that you don't have to be stupid to roll BS as DK since it is after all the best raiding profession together with JC after they gave the profession benefits.

So a lot of people roll the profession to get the perfect min/max char which makes the demand on the market.


Joe Nothin' said...

Actually, it was almost a good investmant, because most of the assumptions were right - DKs did become blacksmithes [My DK is a smith, and not becuase i'm stupid, but becuase it gives me extra sockets]. However, those DKs also became miners, so they had to go out and mine themselves to 300 out in the old world. Its not alot of work, it gives you the extra 50stm and a titansteel CD, and it saves a ton of money while leveling.

So, a miner will get all of those while leveling his mining and his DK to 80.

However, the hard part is 260-300, and you need an endless amount of mithril and thorium. Those are the metals that would have been worthwhile to stockpile and sell. If i wasn't a goblin, that is also the metal i'd be farming instead of saronite [well, maybe saronite + eternals is better, i'm not sure].

So, all your hopes were right, but you missed intimate knowlage with the proffession itself. Add that to what you need to make a good invetmant - reserch, knowlage, background on the investmant and of the people you'll be selling items too.

Also, not calling them stupid should help. I just think its a good idea to think of the people you win over as equals. Keeps you sharp.

Nils said...

Sometimes when I read your, often very interesting, blog I wonder if you really understand economics, and not just business.

Your statement that there have to be losers in this scenario is simply incorrect. No one has to lose anything for you to make a profit out of your investment.

The fact that you don't do any work doesn't mean that value doesn't increase. The fact is that you buy from people who value liquidity now compared to potential further profit. This decision can often be entirely rational and benificial to the economy as a whole. You on the other hand have the capital to make long term investments and can sit on unsold goods for a longer period of time. This will benefiit potential buyers in the future, when stocks run low and demand goes up. Without your stockpiling prices would be even higher in the future and the material you bought would, to a larger extentt hve gone to waste, through vendoring of unsold mats or products of said mats.

Let's take your Death Knight example, for instance. You state that the losers in that scenario are the Death Knights who didn't stockpile mats themselves. That means you assume that the most effective way for them to spend their resources back when you made your investment was to buy the same stuff you did. However that might not be true at all. There might be things that they were better of spending on back then, wether that was raiding expenses or some alternate finacial investment. In fact they are winners in this scenario, since you provided them with cheaper mats than would have been the case if you hadn't invested in materials in anticipation of an increase in demand.

The trade in in this case really is not a zero sum game at all. It is often win-win.

Gevlon said...

@Nils: If profit could be made without work AND without stupids, we would be in Utopia. No one would have to work, and everyone would have everything.

While it's possible in individual cases that someone smartly spend his now money, accepting that I will milk him later. But it's only possible if he has a more profitable investment for his money. It is also possible that the one who HE milks is also smart since he spends his money on an even more profitable business. But this line cannot continue forever. Somewhere must be a stupid who suck up all the loss for the whole chain.

Nils said...

No, there doesn't have to be anyone soaking up any losses. One major feature of capitalism is that value is created through discrepant valuation of a certain product or service between the seller and the buyer. This is what is at play here. Some people will value a certain, small, profit today higher than a potential, large, profit tomorrow, for various reasons.

Also, making an investment is not lacking in work. You are putting a considerable amount of work into trying to find out what might become proofitable tomorrow. That knowledge is then put to good use in the market when you provide your capital to investing in something that might be used inefficently today so that it can be used for more productive ends at some future date.

There is also the fact that the profit you make is a result of the risk you are willing to take. Most people are risk averese, often with good reason. That is why a market benefits from capital provided by risk neutral investors. They provide anessential service by providing liquidity to the market. There is absolutely zero need for anyone to be a loser for this to work. Now of course there will still be losers who lack knowledge who will make decisions that they wouldn't have made with better information. Information they could have gotten through a trivial time investment. However, for a market to function, those people are in no way a necessity. As a matter of fact the market would work better without them.

MyName said...


You are right that capitalism can be a win-win, but only in cases where innovation is involved. If I figure out a way to spin straw into gold, everyone wins because the people with the straw now have a new market for it and society now has more gold.

However, if you are simply trading goods without doing anything to them it is nearly always a win-lose situation for someone. Either for the DKs who are paying more to buy ore after the expac came out than they would if they had gotten it earlier, or for the people who are grinding out the ore now, when they could have made more gold selling it later. Or, of course, Gevlon could lose as he bought ore at a higher price than he could later sell it for.

You do have a point in that, as far as the economic goes, it could still be a win-win since if all of the goods are moved more efficiently then if Gevlon had not moved in, but just because the invisible hand works, doesn't mean that the individual players may not have winners and losers.