>>78325141Let’s say I have some financial insight that nobody else has. Maybe I’ve just realized that over the next week, the bulk of Magic The Gathering playing cards are going to nosedive in value. There was a public preview of some new upcoming cards. Everyone is excited about how cool they look and how powerful they are, but I’m (somehow) the only one that realizes this means the old cards are about to become worthless.
I enjoy this feeling of smug superiority thanks to my prescience, but wouldn’t it be cool if there was some way I could use this knowledge to MAKE MONEY?
As it turns out, I can. Here is how it goes:
I go to Bob and I ask if I can borrow his collection of MTG cards. He doesn’t play anymore, but he’s been holding onto them as a sort of investment. His collection is just sitting in a great big box in the garage. I offer him $10 for the use of his cards. He’s not using them right now, so he’s happy to accept the money. I hand him the tenner and stagger out of the garage with the box after agreeing to return the collection in one week.
Then I drive directly to the game store and sell the whole thing.
Let’s say I get $1,000 for Bob’s collection. A few days later the new MTG cards come out. As I predicted, the old cards drop in value. With the new cards in play, the old cards are useless so nobody is using them. Worse, people are taking these now-cheap cards to the game store and unloading them to help pay for the new cards. The market is flooded with these old cards and the price drops even more.
The end of the week rolls around. I swing by the game store and buy all the cards needed to replace Bob’s collection. It costs me just $90. Then I drop the cards off in Bob’s garage. All done.
I paid $10 to rent the collection for a week, I sold the collection for $1,000, and it cost me $90 to re-buy it at the end. Which means I made $900.
If you’ve ever heard the term “short sell”, this is what they’re talking about. Only instead of Magic Cards, we’re dealing with shares of stock. You borrow the shares, sell them, wait for them to go down, then buy them back at a (hopefully) lower price and return them to the person you originally borrowed them from.
