Flippin' The Cards

If you want to make money in cards, you have two basic pathways: short-term flips and medium and long-term investments. Each has vastly different incentives and strategies. An active dealer should be doing mostly the former. So, for the readers who may not have thought of it this way, I offer a breakdown of a short-term deal as illustrative of how I think about a short-term flip.

The set-up for our little scenario today: I went to a flea market and someone offered me about 10,000 postcards at three cents each. Four massive tubs at $75 per tub.

My first choice in assessing the deal is to determine what retail and wholesale are on these cards. I have to know both, and I work backwards from there. Say I am offered a pile of 1989 Donruss Ken Griffey Jr. rookie cards. They may retail for $4 each but there are thousands of them available at any given moment, so unless I want to piece out the cards for years, I have to discount them and move them in larger lots that will appeal to resellers. That $4 retail is more like $1 in that format, and even that is going to take some time. Which means my wholesale buy price is going to be a tiny percentage of retail. I learned this the hard way when I tried to flip forty-year-old fresh out of vending box commons. I got $0.03 each for those $1 retail cards.

Turning back to the postcard lot, I know that most postcards will sell for anywhere from $0.25 to $1 each. The $300 investment has a potential retail yield of $2,500-$10,000. Knowing that and knowing how to work the wholesale market (discussed below) the purchase is a no-brainer. Sold.

Once I lug all the crap back to my office, my next step is to go through the entire lot looking for desirable cards that I want to retail, and for rarities. I assume there are hidden gems in every single lot I buy, and time and time again, I have been proven right. I’ve said it before, and I will say it until the cows come home: go through everything before you sell anything and make damned sure you know what you are selling. Every year we have finds of rare cards tucked into all sorts of accumulations. I don’t want to be the ignoramus at a paper fair selling a $50,000 card for $25 because I was too lazy to break down my inventory.

A word on the breakdown: I think it is fun to research what I’ve purchased. If you don’t feel that way, my recommendation is that you devote your energies to a different endeavor. There are better ways to grind out a living. I make a lot of money as a lawyer; if it was only about the money, I wouldn’t waste my time chasing cardboard. Thing is, at some point, if you are fortunate, it isn’t only about the money. I enjoy finding a $50 card in a three-cent-a-card pick far more than I do billing $500 for an hourly consultation. I happen to be a data-driven mind; I like to learn new stuff and everything I learn about whatever it is I am picking goes into the memory banks and fuels my future hunts. I never knew much about postcards before I started picking. Now I know the different types and relative values across those types, and I learn more with every breakdown. Turning to our postcard lot as an example, I already knew how to break down postcards by era and type, but I learned from breaking down and researching the contents of the lot that vintage Halloween postcards are big sellers. I found several clean 1920s cards in the lot and they readily sold for $20 and up per card.

Breakdown completed, I have a small pile of cards to retail and a gigantic pile of cards that I want to get rid of. I begin looking for a wholesale buyer to take the bulk of the lot. To me, de-bulking is a critical step because I am just a part-time dealer right now. My schedule, time, energy and cognitive load do not allow me to sit around retailing everything. I also do not have the space (or the tolerant enough wife) to store it all for some future, perhaps illusory, retail endeavor. If you do not control your storage, you can quickly end up overwhelmed by stuff. I know one guy who bought and bought, did not de-bulk, and somehow ended up with a giant stack of boxes in the middle of his two-car garage. He doesn’t even know what’s in them. Not a good feeling.

I’ve been doing this for a while and I have a contact list of full-time sellers who travel and set up at all the shows, run whatnot streams, or have eBay stores. They buy in bulk. I know that they will sell the postcards at shows and online at retail and will buy the entire lot if the price is right. My considerations are speed and simplicity. If a dealer wants to buy it all, I am happy to get out with a decent profit, I will just negotiate the best price I can and move on. If the dealer wants to cherry-pick, I am going to charge a premium. That is a lesson I learned watching Alan Rosen (Mr. Mint) in action, as I wrote about some months ago.

I work my contacts list and I find a wholesale buyer who is willing to take the postcards and the other leftovers from my year’s purchases to date. I negotiated a price for all of it and sold him literally a carload of material I did not want to sell. I get 2x my cost for the postcard tubs with no sales costs. I double my money in a week.

Yay.

I then turn to the small stack of postcards I kept. I didn’t find a five-figure baseball card, but I did find some desirable retail items, like the Halloween postcards. I slightly underpriced those and moved them quickly on eBay. By the end of the calendar year I’d turned out the entire deal for a multiple of my cost.

Let me explain the year part. My goal is to never keep a deal more than a year. If I purchase a big lot in January, I will retail it for most of the year then get rid of the balance, whether to a wholesaler, in a bulk retail sale of my own, or via an auctioneer, before the end of the calendar year. Moving the whole deal in a calendar year keeps me focused on two goals: having my capital available to redeploy into more transactions and my return on investment.

Having cash on hand is the lifeblood in a flipping venture. As I wrote in my El Dorado column, one of the most exciting events for a flipper is getting the call from a collector who is ready to sell. I never know if I will get a call that will send me scrambling for cash and running out the door to make a deal. It doesn’t always pan out when I get there, but I won’t even get the chance if my cash is tied up in Jim Kaat cards that I am trying to retail. No, I want my cash out of a deal as fast as I can, just in case.

Speaking of which, besides not de-bulking and losing control of the paper blob, the biggest trap that many newer card dealers fall into is tying up their capital by carrying dead inventory. I have to be bloodlessly efficient about turning over my inventory because every card in my inventory that does not sell represents money tied up in a non-productive asset (we will set aside the fact that some cards appreciate over time to enough of a degree to counter the effects of inflation and what I might make in another investment; those kinds of cards rarely last long enough to become dead inventory but if they don’t sell for some reason, I hang on). I don’t want a million dollars in cards; I want a million dollars in money in the bank ready to put into new deals. I put myself on a liquidation plan every year to make sure that I am not the guy on Youtube selling a dead inventory to the Chasing Cardboard guy after years of carrying it.

Now let’s tally up the profits. In order to work, a flip needs to be profitable, so I need some baseline for profitability. I want to try and triple my money every flip. That seems like a lot but it isn’t. Between the costs of selling and taxes, most of that profit is going out the door. In rough terms, if I buy a deal at $300 and cash it out at wholesale and retail at $900, there is a gross profit of $600. My cost of sale will consume some percentage of that, and my total taxes (federal and state income, sales, and business license) will eat about 50% of the balance. I try to have a net profit of at least 30% in less than a year on each deal. If I could do that every deal I would be in heaven…and kicking the snot out of my other investments.

I don’t, which raises an interesting issue that takes some getting used to if you are a first-time business operator in this thing of ours: even the best dealers make mistakes. Over the year, I will make some bad deals, and I will lose money on those. It is inevitable. The net profit on the big hits can be offset by the losses on the duds if I liquidate the duds in the same tax year. I am a calendar year taxpayer, so come Halloween, I make an honest assessment of my crappy deals and of the overpriced mistakes in my inventory, and I sell them off in November and December for what I can get. I usually auction them off with a low starting bid, just in case I actually called it right and there is a profitable sale there. That happens too. I had one deal on vintage nonsports cards where I thought I was getting a great buy, but I just could not sell a damn thing. I set the pile of cards aside (more than a bit disgusted with myself for buying them) and decided to sell off the wreckage at the end of the year and take my lumps. Well, in the interim between when I set the cards aside and when I picked them up again to liquidate, these cards got popular and prices went way up. Some of the cards were worth as much as $100 each and I ended up with a tidy profit. And that’s just fine too…