Blasters, Beggars & Credits: Investment Versus Speculation

Some players do it for glory. Some do it for infamy. Some like to accumulate the most points, or explore the far reaches of the worlds they inhabit. This, however, is not a column for those people. This is a column for those people who, quietly or not, enjoy making money so that their digital avatar can sleep on large piles of cash.

One topic that comes up a lot in connection with TOR is “speculation.” In fact, most all of us are participating in speculation right now: we’re making educated guesses on how things will go in the game. And that speculation will never cease, in at least some way: speculation about the future, about the high-water mark of subscribers, and so forth. But speculation also has an economic twist: it also means to spend money on a venture that isn’t a sure-fire vehicle to return on that initial expenditure, with profit. And it’s something that we do every day, even if not in the same financial sense.

Speculation is a fancy way of saying you’re taking a gamble – you are, in effect, betting that the market for an item will generally net you more money in the future. In some way, as the paradox of the oracle goes, you’re sort of fulfilling that idea because you are purchasing an item (or holding onto one) and removing it from the market until a future date – and, all things being equal, removal of one item for a time will, according to laws of supply and demand, fractionally decrease supply, thus increasing the price (slightly). Of course, the word speculation has more meanings – and speculation isn’t held only to the realm of money.

Supply and demand - like a law, only cited more often. Image courtesy of wikipedia.

While most people understandably don’t like the system (you are increasing the cost of a certain good or item while contributing virtually nothing – the only net in this trade is the small amount of profit and the even smaller amount of [potential] inflation), it is going to be existent in a free market society. It’s one of the ways money is made (via loans) in the real life system – and it will be present in Star Wars: The Old Republic regardless. “Buy low and sell high!” the refrain goes.

Many people will use the word “investment” when buying things low and selling high – or when talking about the time they spent doing something or preparing something. And that is more or less how the word is used these days: it’s parlance for, “Spending money to make money,” though there is no consideration of risk. Investment, as a term, should be used when there is no doubt that your initial amount spent will be returned along with profit. And in a game such as TOR, there is no promise of a positive return on investment – there is always the threat of market downturns, of new competition, of credit farmers wiping out your market. Understand that we are primarily engaged in speculation and not, as it were, in investment.

Why, you might ask, is this important? It’s about perspective. On many, many blogs, one of the first things in comments brought up by people new to the money meta-game is frustration – frustration with the process of making money, frustration with the auction house, frustration that not everything sold, frustration that they aren’t rich yet, frustration with their strategy and its lack of progress. If your perspective is, “I’ve invested all this time, energy, and money and now I can’t get it back,” you are more than likely about to exit the market and become a consumer who makes money off the occasional rare drop and quests, flashpoints, and raids, and therefore reduce competition in the actual market.

This is what happens when your speculation doesn't work out - it's not just for ship captains and raid leaders.

This is actually a bad thing for the server economy – the less actual sellers, the harder it is to get items that people need. The biggest fish will, more than likely within a few months, stop farming all together and become dependent on resource sellers to create items. They will be limited by the quantity they can buy, which limits the quantity of what they can sell. Less money in the system means less items produced in it.

However, on the flip side, if you acknowledge your own innate human weakness for following a strategy that did not work, and change it to something that does, then you have probably realized that you speculated. You speculated that selling item x would net you so much profit, and it didn’t, and now you need to find something else. As easy as some people say money-making is, it turns out to be a real challenge for most people, and it has less to do with intelligence than with the ability to look at the situation and make changes. People tend to “get married” to an idea, which I do not recommend.

For instance, if (as I speculate it will now, and this is also your Beggar’s Tip for the column) Synthweaving is populated by too many crafters, to the point where supply is greater than demand, then I would heartily recommend you drop it. Many people will not do this – they think, “Well, I’ve leveled this profession, I like crafting some of these items, and I’ve already invested all this time into it, I don’t want to drop it even though I’m not making money!” That sort of thinking is how you back yourself into a wall. You have acknowledged both that you cannot make money with that profession and that you won’t change because you (hypothetically, Zlatto! I’m not saying it’s actually you.) feel that your investment in time doesn’t warrant another – and you did so in the same sentence.

Well, that’s patently wrong. You didn’t invest any time – you speculated that this profession would make you money hand over fist, and you were wrong. Now, and this is part of societal/cultural/other influences on people, you don’t want to admit failure. Failure is weakness, right? That’s why things like FailBlog exist – we laugh at others’ failure to make ourselves feel better about our own.

Admitting it is something we’re not taught to do (at least, some of us). But then you see a commercial for some successful CEO or hear about a TOR crafter who made a billion credits, and all they talk about are the various ways they didn’t succeed. Success isn’t a potion you drink – it’s built on lessons taken from your failures. Not every strategy will succeed – not every tip or trick will work out for.

As a “for instance, I might say something like this in a column: “The trick about making money is to anticipate periods of upheaval.” As you read on, however, this what you would see:

In normal, day-to-day, the price of items will follow rough trends. For instance, buff potions will see a sharp increase in demand on traditional raid reset nights, and will taper off during the week only to sharply increase again (in terms of demand). Prices don’t always follow these spikes; sometimes the suppliers will increase in equal or greater proportion, and it might sell for less during the demand spike if the supply is too great; similarly, if supplies are not able to meet the demand, the lower-priced will go quickly and leave a market that you, as a major supplier, could take for quite a bit as you’d be able to set your own price. Monopolies are bad for the buyers (higher prices), and great for the lone seller (however short it may last).

In the real world, it’s rare to run into – but in a game world, it does happen. Sometimes, the monopoly is due to there not being enough people playing the auction house game, or because they didn’t know that market. Identifying these niche areas are great – but remember that’s it’s speculative.

That is why it is speculation – you might ramp up for a big sales night only to find that selling would actually cut into your profits. You speculated that you would make decent money – but it didn’t happen, through no fault of your own. The whole trick to making money off the auction house is to successfully speculate – on both your auction house opponents, and on demand. Even my tips are speculation – there are no real foolproof, 100% certain get-rich-quick strategies. Risk is there, always – get to know risk. He’s your friend.

I invested in Rendili Hyperworks and all I got was the T-Clap.

Of course, there are methods you can pursue to hedge your bets, if you have the resources. I’ll share one from WoW. If you could get on early enough on a Tuesday, you could buy the (usually) meager stock of flasks in the auction house. You then place a few (2 – 5) at extreme prices – at least double the normal price. By setting the trend, you influence what other people post their flasks for – generally, people will try and make what profit they can. Depending on the “prime” raid time, you wait until 15 minutes before, and then post as much as you can – and it will generally be much higher than if you had done nothing.

There are a lot of variables, and there are many things that could go wrong with that – but if you can, there’s much money to be had. That’s the speculation part – you “invest” in buying the initial stock and bet on people following your trend. A good auction house opponent might see what you’re doing and then block by posting their own flasks below the market average – while it results in a bit of a loss for them, you find yourself out quite a bit. That’s risk versus reward – in which case, you simply pack it in and fight another day.