Diversifying investments on MTGO

Hi everyone! Welcome to my new column!

I’m Kevin and I will be publishing articles twice a week regarding MTGO finance. I’m going to start the first few articles talking about the basics of finance. It applies to everything, but I’m going to talk about it in the context of MTGO. Also, if you like a topic, and want more in depth explanation, please comment below to let me know.

My weekly YouTube show got a comment last week asking about how much money to invest in each card. The answer I had to give was simply, it depends. It was a question about diversification, a broad topic that I could write about for a year. I’m going to save you the two years of Masters in Business education and boil it down to a single article.

Diversification is the idea to keep your investments spread over an area rather than having your investment in one place. The idea is that if I invested in one card on MTGO from a new set and the card didn’t turn out as I expected, I might be able to get my money back. If the price only changes a small amount, I will make or lose a little. Now, here’s the dangerous part. What if the price skyrockets, or falls a huge percentage? If it falls, I’ll lose most of my investment. When the price goes up a lot, I’ll make a lot. Making a lot on one card is good, but it has a tendency to push people into what they think is a “sure thing”. I’m going to let you all in on a little secret, no investments are a sure thing. I have seen many people ruined in all kinds of investments because they didn’t diversify.

How can I protect myself from this kind of catastrophic investment failure? Let’s say I invested in 2 cards. And if there’s an equal probability that the cards will stay the same, see a small change in price, or see a big change in price, we will be more diversified than a single card investment. It’s like flipping a coin, every time you’ll get heads or tails. If you flip the coin an infinite amount of times, you’ll get an equal number of heads and tails. This theory applies to smaller numbers than infinity (the larger the better), but the concept is that the larger number of investments I have, the more likely I will end up at a probability of breaking even.  

How do I apply this to MTGO? Let’s look at two main ways to diversify on MTGO. The first is to invest in different cards. I recommend for the beginning investor to not invest in less than 10 different cards. The larger scale my investments get, the more cards I should be investing in. My recommendation is that larger investors have no more than 2% of their money in a single card. This protects investors from what we call specific risk, that is, risk that only affects certain cards. 

Now I’ve got all my money in ten different cards and everything is good, right? Not quite yet. One other thing to take into consideration is format diversification. Right now, Standard is the most popular format on MTGO and Modern is the second most popular. What if the next block comes out and players hate playing with it, like Mirrodin or Kamigawa block (which were awful for two opposite reasons)? The risk of investing in all Standard popular cards is that it’s possible that all standard cards can drop in value. This risk can be avoided. I recommend investing across different formats. I make sure my investments are invested across all tournament legal formats. I think it’s safe to say that it’s most important to invest in Standard and Modern and less should be invested in Vintage and Legacy, but investments in all formats are recommended.

What’s the bottom line? New investors, invest in no less than 10 cards. Investors with significant money invested, make sure you invest in no less than 50 cards. Make sure you split your cards up by format to avoid losing money from a format becoming less popular.