Wednesday, May 27, 2009

Recognizing a bad trade and knowing what to do with it.

I had been reading this comprehensive post over at wowenomics that talked about the bad trades people make and how to recover from it. I found it a very educational read and I intend to share my own perspective also, but I shall do it here within my comfort zone :D

The article talks about identifying your mistakes and picking yourself up instead of moping over it. I find this a very refreshing change from all the other blogs out there, as while everyone had been talking about their successes, few had down an in-depth analysis of their failures.

While Jederus has outlined his solutions into 7 key categories, I would like to focus more on the types of mistakes that one can make, which makes it easier to decide what solution to focus on.

1) Risky Ventures/ Testing of waters
This is something we must all take part in, and that is to explore new opportunities and new markets. Sometimes we succeed brilliantly, sometimes we fail terribly.
When we do fail, what we must do is to employ the strategy of loss minimisation.
For example, in 3.1 what I did was to take a gamble on armbands on the construct.

I purchased it at 1600 gold, intending to sell it at a 25% markup, around the market price I suspected it would hover for a few weeks. Unfortunately, I underestimated the number of people rushing headlong into Ulduar 10 and have subsequently flooded the market, rendering me unable to sell it. The market price now hovers in the few hundreds.
What I did in the end, was to pass it to a Holy Paladin friend of mine, as he would actually benefit from this wrist slot upgrade. While it was undeniably a loss, my main goal was to minimise it as there was no way to recoup the gold used.

It would also be what Jederus calls donate!

2) External Changes/ Shock
Sometimes, a mistake or something fundamental changes about the market you're moving in, sometimes that change is not your fault.
Very often, blizzard will make stealth nerfs and hotfix or undocumented patch changes. Sometimes, it totally screws up a cash cow of yours.
It happened to me in the form of Kibler bits

I had purchased a few stacks of buzzard meat before, and sold them nicely to Hunters and Demonology warlocks as they were easy to make and were the same as the mammoth treats that cost northern spices. I could buy each stack at 1 or 2 g and sell it to those damage dealers for 20g.
In 3.1, it got nerfed from 30 str, stam to 20 str, stam, and I had to subsequently lower my price in the AH. I have been "bleeding them back into the market", and once I finish my stock, I will no longer sell them as it has dropped below my minimum gold per active action ratio.

3) Miscalculation
It happens to the best of us, some joker sold a gray at 100 gold and you accidentally purchased it. Or perhaps you sold a stormjewel at 60 gold. Its those things that make you want to kick yourself in the foot.
The best thing to do now is to suck the loss up and unwind the trade, following which you diversify back into other industries. In a sense, you will spread the overheads (cost of this miscalculation) and thin it out over your other markets to attain economies of scale.

4) Entering a contested market.
I've faced this in the Jewelcrafting market, as people come in and go, and random people sell gems at a loss. Its the bane of a lot of small time operators, as they seriously do not have the time to deal with the big players, or a person who comes to ruin the party.
In this case, I will sometimes practice strategic domination. Often, I'll wait till nightfall, or some lull in sellers, buy out some sellers, and relist my items. This involves both holding the item and waiting for the write time, as well as knowing when to enforce a sudden monopoly.

And with that, I should have covered the mistakes that can often happen while dabbling in trading. Do let me know if you've found it helpful!

1 comment:

Jederus said...

Fantastic ideas here as well. Thanks for visiting!