Sunday, February 3, 2013
Twitchie's Guide to Resetting Markets
Have you ever been frustrated that the profit margins in your favourite market are razor thin? Have you ever thought, "My goods are worth more than that!"? Well, with a little capital and some moxie, you can have an impact on the prices on your auction house. Read on for some tips on finding the markets ripe for resetting and ways to reduce your risk.
The graph above is a reset I performed in the [Living Steel Belt Buckle] market just a couple of days ago. Thanks to The Undermine Journal, it is easy to analyse the impact the reset has had over the following days.
WHAT TO LOOK FOR BEFORE PERFORMING A RESET
Volume. In order to reset a market, you need to buy up all the undervalued goods. In order to reduce the capital you invest in the reset, you want to look for a market whose volume has bottomed out. To perform my reset, I only had to buy a little over a stack of buckles. There is a correlation between price and volume that indicates a market is ready for a reset. As the price is driven down, many competitors will leave a once lucrative market for greener pastures, lowering the volume available to consumers. If you are comfortable spending a little extra, the best case is when people liquidate their stock as they leave, giving you an opportunity to expand your own stock in the process.
Price. There are a few factors to consider when deciding a market is undervalued. In the graph above you can see an olive line that represents the materials price, which indicates that the price of belt buckles is just insanely close to the cost of [Living Steel]. As a blacksmith, I want a profit margin over and above the added value of smelting ore, transmuting bars and using my daily alchemy cooldowns. So, I double check the living steel market, which has been pretty consistent. I'm ready to declare belt buckles are undervalued.
Market factors. Belt buckles are an essential (yeah, I said it) enhancement for every player in end game content. Forget you know the word optional for a second. If you have time to level, you have time to buckle! So there's always going to be demand for these items, reasonable competition and some volume. Resetting lower volume markets (e.g., craftable epics) have other considerations. Take anything with [Blood Spirit]s in them for example. The price of spirits have fluctuated wildly since the start of the expansion. Firstly, because they are a depreciating asset (they start scarce, but as time goes on more content is cleared, more are produced and demand goes down as more and more characters no longer require them for gear). Secondly, sadly, because of duping which has a chaotic effect the markets it touches. So the two keywords here are depreciating and unpredictable. For other lower volume markets (e.g., BoEs, pets, mounts) the value of items are a lot more subjective, so experience with the market is key before attempting a reset.
Risk. Once a market is understood, and ripe for resetting, take another moment to understand the risk you are taking on before performing a reset. I like to consider the worst case scenario and work backwards from there. The hypothetical worst case is that you buy up a bunch of stock, and the items you bought were hotfixed overnight into vendor trash. You just just lost your entire capital investment. Scary, huh? So in my example, I spent over 7k on buckles. For me, where 7k is less than the average increase in my liquid gold per day, it is very low risk. Working up from that, consider how you would feel if the market crashed (e.g., if Blizzard changed the availability of [Golden Lotus] while you were resetting flasks) and what you would be prepared to do to liquidate your stock. Also consider how quickly you expect to get your investment back, particularly with high value, low volume markets. Depending the demand on your server, it can take days, weeks or months to offload goods, that are depreciating every moment they sit in your bags.
WHAT TO EXPECT AFTER A RESET
Expect a correction. It is naive to expect the market won't respond to a reset. The goal is to get a return on your investment before the price settles back down.
Don't be greedy. I'm all for pricing a product at 'whatever the market will bear'. However, when resetting a market, resetting it too high will just invite exponentially more competition looking to get in on the action. I know, do as I say, not as I do. I was a little greedy with my reset, and you can see the almost immediate correction from 580g to 470g. I also didn't sell a single buckle for over 470g in the reset.
Ride the price all the way down. A successful reset will see you make a return on your investment before the price falls down to pre-reset level. If you're lucky, the market will stabilise at a higher price, but you shouldn't count on it. Be aggressive and make sure you get the sales you want as quickly as possible. The beauty of resetting a market you are active in is that you have your original stock, plus the cheap stock from your competitors, so you can make sure to have plenty of volume for peak demand times (e.g., raid nights).
Record your result! In my example, I sold my stack of competitors buckles from 450g down to 420g before I started in on my own stock at 40g higher than pre-reset prices. A good result will give you the confidence to use this approach in all your markets. More importantly, a bad result is an opportunity to try and figure out why your assessment of undervalued was wrong. When I say record your success, I mean have the actual figures available! I highly recommend TSM accounting, which records both purchases and sales for easy reconciliation. When a fellow gold maker starts talking in with vague hyperbole and insipid estimation my eyes glaze over and I reach for the [Binary Brew]. I beg of you, a little gnome can only drink so much.
What markets do you actively reset? Be sure to comment with your victories and horrific failures in the comments!