What is the point of the "Buyer's Premium"?

[raulus]

Originally Posted by Aquarian Sports Cards

Would seem to beg the question why didn't you pick said Mantle up at auction? If we're giving away cards at rates you can profit on, take advantage of us!

Howard provided some very thoughtful answers for his thinking here. I'll maybe add a few more.

Maybe as a quick preamble, I think we can all acknowledge that there's a difference between buying an item for our own collection and buying it to make a profit. When we're buying for our own collection, we're typically planning to keep it for a long time, possibly decades, or even until the end, and so our willingness to pay outlandish sums is often very strong for something that we plan to treasure so greatly. On the other hand, when we're specifically buying to make a profit, there's a whole different psychology and analysis around when it makes sense mathematically. And Howard identified in pretty solid detail for him how he analyzes that case.

I think I would posit a couple of other elements that come into play with this specific situation, to wit:

1) $90k is a lot to have tied up in a single item. At least for us mere mortals it is. While you're working to re-sell it, having this much tied up means that you have to pass on other opportunities, including opportunities to add to your personal collection. And this might represent a significant percentage of your liquid working capital, so having it tied up in a single item means that this could be your only play for a while until you can get it re-sold. And we haven't even gotten into factoring in the time value of money and the possibility of investing your cash in a productive asset that gives you a return while you're waiting.

2) Add to that the fact that you're risking so much on a single item. While 311 Mantles are arguably unique in that they only seem to go up, those are history's famous last words. If for some reason the demand for this specific piece drops, then you've risked an awful lot on just one bet. I would more specifically posit that in this case, the bottom of the market has been bid up a lot recently for low to mid grade items, such that there is added risk at this grade for this item that this price level might not be sustainable.

3) More generally, at this juncture in history, buying an item in the six figure range represents particular risks. We've seen prices in our little slice of the world over the last ~2 years rise, in many cases by 500% or more. While there has been a modest pullback from those highs recently for postwar items, it's anyone's guess how long the current elevated prices will last. They could last for another week, they could last for another decade. But if you invest this much into this one item with a plan to resell it, and the market drops off a cliff tomorrow, then your plan to make a profit has just evaporated, and you've probably lost a lot more than you ever really stood to gain. While this risk always exists to some extent, to my mind, it's heightened during periods where we've experienced such a dramatic, even breathtaking acceleration in prices.

4) There are very real and nonzero costs to sell. There are only so many people in this world who have $100k to spend on a single baseball card. While at times they seem like they're everywhere these days, competing against me to buy everything that I desperately need, quite honestly, I don't have that many of them on speed dial. I could certainly post it in Net54 free of charge, and maybe get some interest. Maybe! At the same time, most of the ballers on this board will take 10 seconds to identify my cost, and then not be real willing to go a lot higher. But if I have to turn around and take it to auction myself, then that means that I'll need someone who is willing to pay significantly more than I paid so as to cover my auction costs (whether it's 5%, 10%, 20%, or more, once we factor in everything). And if I want to not just break even, but actually make some money, then I'll need someone to pay a whole lot more to cover my original cost plus my selling costs plus a respectable profit. (Not to mention my taxes on my gain, which is probably taxable at ordinary rates if I haven't held for a full year.) (!!!) Maybe I'm just a nervous nellie, but that seems like a big risk to be taking.

Anyway, your question got me to thinking, which led me here. It was a good question to ask, because I think to some extent, there's a little bit of vulture in all of us, such that we're all always on the lookout for good bargains and opportunities to take advantage of market anomalies, particularly if it means that we can plow those profits back into buying for our own collection.