How To Use Market Adjustments To Buy New Releases Profitably
A guide to accounting for falling markets in your Expected Value calculations.
One of the most profitable card grading strategies is to buy cards that are newly released and grade them. But while this can be profitable, it can also be risky. This post will provide a framework of how to reduce that risk.
When To Use Market Adjustments
When a new set is released, we do not buy any cards to grade until about one month after the first PSA 10 copy sells on eBay. There are a few reasons for this:
There needs to be graded supply on the market to calculate the Gem Rate.
There needs to be graded sales to determine PSA 10 and PSA 9 values.
Newer cards tend to fall in value shortly after release as new packs get opened and more cards get graded. We try not to buy too early.
We use Market Adjustments to address the 3rd point, in order to make sure that even if a card falls in value while we’re grading it, we can still make a profit.
Using Market Adjustments In Expected Value
Applying the Market Adjustment is simple. In our normal EV calculations, we use the PSA 10 Value and PSA 9 Value of the card to calculate the Expected Value. With Market Adjustments, we reduce the PSA 10 & 9 values by the amount we expect the market to fall. The calculation looks like this:
Adjusted PSA 10 Value = PSA 10 Value x (100% - Market Adjustment)
Adjusted PSA 9 Value = PSA 9 Value x (100% - Market Adjustment)
We then use these Adjusted values in place of the original values during the EV calculations. For a more general overview of how to evaluate profitable cards to grade, check out our Complete Guide to Expected Value.
How Large Should The Adjustments Be?
Generally, at the start of our buying window, we use Market Adjustments of about 25%, then gradually decrease it to 10% over the following months. Usually after 3 to 4 months, we will remove the adjustment altogether. Another way to think about this is if the card falls by exactly the amount of your Market Adjustment, you will have estimated the Expected Value perfectly.
Example Calculating EV With An Adjustment
We’ll look at a quick example of this. We’ll do an easy one, where we assume a fixed $40 grading cost, 13% fee costs, and a 10% Market Adjustment.
Market Values & Gem Rates
PSA 10 Value | $400
PSA 9 Value | $150
Gem Rate | 65.0%
Adjusted Values
Market Adjustment | 10.0%
Adjusted PSA 10 Value | $400 x (100% - 10.0%) = $360
Adjusted PSA 9 Value | $150 x (100% - 10.0%) = $135
Expected Value
EV Before Fees | $360 x 65.0% + $135 x 35.0% = $281.25
Grading Costs | $40.00
Selling Fees | $281.25 x 13.0% = $36.56
Expected Value | $281.25 - $40.00 - $36.56 = $204.69
You can see this is exactly the same as the regular Expected Value calculation, except we’ve added an extra step for calculating the Adjusted Values.
Takeaways
While the mechanics of applying Market Adjustments are simple, knowing when to use them is more art than science. It depends on how much risk you want to take for a given product, and on having a subjective feel of how markets move and what supply looks like. Admittedly, we don’t always get this completely right, but the idea is more about reducing risk than being perfect.