Breaking Bank: How Essential are Velocity and Liquidity?

A solo show highlighting money velocity, liquidity, risk, greed, and how to apply mental models in the intersection of sports card collecting, investment, and market theory.

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Transcript

SPEAKER_00: 0:09

Welcome back to Slabnomics, the intersection of collecting investment and market theory for sports cards. This is episode nine, Breaking Bank. Now, before we dive in, I just want to take one minute to express my gratitude for the shares and the shout-outs on social media. Starting anything can be really isolating and frustrating. And there's nothing more uplifting than having someone support your work by recommending you publicly. So y'all know who you are. Thank you so much. Really appreciate you guys. I find that these things really truly come when you're kind of going through your toughest periods as well. So I appreciate all y'all MVPs. A new friend also told me that someone he respects very much shared Slabnomics with him a few weeks ago. And that's another critical piece towards getting this thing off the ground. So if you enjoy the pod, please share the link to a couple friends. Shoot them the Instagram if you like the content there. And by the way, we're about to hit a thousand followers. So this may just be the best time to follow that account if you get my drift. So, back to the show. Today's episode is about the velocity of money. But if you haven't worried about velocity since eighth grade physics, don't worry, I got you. The long and the short of it is that by the end of this episode, I hope to have convinced you that taking 25% now is smarter than waiting for 75% later. Have you ever heard the phrase one in hand is better than two in the bush? Kind of a weird phrase, right? Well, here's a little nugget for your next work happy hour trivia night. That saying is about birds, my emblematic kin. A wise little reminder that it's better to have one in the bag than to have two sitting there up in a tree. Now, if you thought this was my opening story, do not fret. Our story actually takes place in a sun-soaked southwest town in the United States called Albuquerque, New Mexico. Now, if you've ever been to Albuquerque, there isn't too much to really take notice of there. People go about their daily lives, they work their normal jobs, their janitors, their bankers, their high school teachers. Walter White is one such normal high school chemistry teacher. But his tragic story of cancer, crime, and corruption teaches many lessons along the way. In our case, we can leave aside the lens of morality, family dynamics, and advanced chemistry and focus instead on the lens of shared energy, simply money. Walt needed to produce a very specific sum of money to provide his family that nest egg they needed to get through life and college expenses. He effectively needed to store up the product of his energy to that specific number, which in season two, episode one, he calculates to be to the amount of$737,000. He takes a rational step towards chaos, justified in his extreme circumstances. Yet Walt makes that sum by the end of the season. And he tells Skylar, his wife, hey, I'm done. The show ends. We all say that was crazy and go about our lives as Breaking Bad fades quickly into meh. But that's not how it ends, because the bobbing for the apples of justification never finds the bottom of the metaphorical barrel. Walt trades in the small win for the chance to win bigger and bigger, leveling up to work with Gus Fring for a million per month, making more in a month than the entire sum he originally needed. But he needs just a bit more because risk went up. Then, spinning off his own operation to build his own empire, he needs even more because he can't walk away after all he's built. Now at some point, the goal stops being about making money and becomes about control. The illusion that he alone is going to decide when he exits. That he can time the top of the game that he's in. And we know how this ends. He dies alone with$80 million he can't use. With all the equations Walt worked out over the years, he left out two key variables. Time and a special risk, his own greed. That's the danger of trying to sell cards at the very top. Now let me ask you a question and answer it honestly, please. Have you ever been in a situation where you could take a good profit on a card, but decide to hold out for a little bit more? How did it end up? Because hand up, I've been right there with you. The real danger isn't so much being wrong, it's that we think we have more time than we actually do. Walt in the beginning of Breaking Bad had a very clear investment horizon, that is, a very specific timeline to put money in and take that money out later. Walt calculated how much he wanted to provide for his family, forecasting for how many years were needed for living expenses, including large fixed costs like college tuition. He even adjusted for inflation, which makes me happy. Brief aside about inflation, y'all, because nobody talks about this. The last couple years, it was more in the 11% range, but we'll leave that for a whole nother discussion. So, okay, let's say 3%, but what does that really mean for you, right? That's just for the Fed and the government to worry about. Fortunately, inflation really means that the price of your goods goes up by about 3% a year. Your dollars were 3% less, which means goods produced outside of America are 3% more. And unfortunately, we moved everything outside of America. But still, 3% biggie, right? Again, unfortunately, time compounds just like it does in the positive way when you invest in the stock market. And as an aside, just like when we talk about monetary velocity in a couple minutes. So that 737K Walter is talking about. Well, in 22 years, that 737K really means 1.4 million dollars. Time, in this case, is simultaneously the enemy of Walt's drug-funded family fund, an enemy of his cancer-filled body, and an enemy of his own mind. It's the gift of more time that gave Walt the insatiable desire for control, which stoked his ego, blinded him with bias, and led him to his downfall. But back to cards. Surely that's not what we're dealing with here. Let's talk fundamentals for a sec. In macroeconomics, the velocity of money measures how quickly money moves through an economy. In cards, your money's velocity is how quickly it can return to you and then go back to work again. Now most buyers and sellers are focused on multiples, like can I 3x this card? What dealers know is that you need to be focused on cycles. How many turns can I make of this money this year? Let's take a couple examples. First example, if I buy a card for$20 and in six weeks flip it for$30, I then take that$30, put it into another deal that makes me$50 after another six weeks of marinating and finagling. I then buy another card that I think will have a good play and say the next couple months. Let's say he's a prospect that I have some info on that others aren't seeing. That card doubles in two months. Chuching. So now I take my hundred dollars and just figure I'll buy a football card because the season is coming up and I think Anthony Richardson can't fall any further. Please God. The market sees him running shirtless and instantly flip his card for 25% profit in six weeks. He's so big, he's so fast. Okay, in the other scenario, person B buys a card for$20, a messy refractor PSA 10 on a sick deal. And he's so confident that this thing will go up 5x by the time the World Cup rolls around in a year, he holds it. People come to him after a week, and they offer to double his money. Here's 40 bucks. Nope. He knows what he has. Couple months later, these rates keep going up because soccer keeps going up. Someone offers him$60, three times his initial, but he sticks to his guns. When the World Cup comes, Messi scores a hat trick, and in the fever of excitement, someone buys that card he's had on eBay for the full$120 he has it listed for. His vision is fulfilled. The man pats himself on the back for his achieving not just his 5x goal, but 6x. Now which person do you choose? Person A or person B? Person B had a great return and a remarkable play. I respect his discipline and his long-sightedness. But what about the 50 other scenarios that he happened to dodge? The torn ACL before he could even play, Messi being sick before the game, and Argentina getting knocked out, or maybe Messi just didn't score at all and his card barely moved. And person B only gets that 3X after all. But even if everything does go right, it's the wrong move. See, in the first scenario, person A made 33% in six weeks, 66% in six weeks, then 100% in eight weeks, and that last 25% on the obvious A-rich play in six more weeks. Threw a lot of numbers at you, but it adds up to a half a year. And let me add up the percentages for you right quick. About 225% versus person B, who you might remember made 600%. But the math doesn't work like that. Person A ends up with$125,$5 more than person B. And in half the time, person A keeps going on like this. He's gonna own an island. Person A didn't make 225%. He made 625% through compound interests facilitated by monetary velocity. And I know that's a mouthful, and I know that not every flip goes for the positive, but I can assure you that velocity of deals yields better results even with some of those losses sprinkled in. Person B thinks he's playing chess, but really he's playing roulette. The best investors, they don't wait for the top. They sell at moments of peak liquidity. And liquidity, as we know, isn't a constant. It's a window, and windows close. Let's pivot to the buy-side fallacy for a minute. Inexperienced buyers get burned because they conflate a good deal with desirability. This is the most dangerous error by a newbie and one that I have definitely made. Just because that 1995 Barry Bonds PSA 8 sold for$15 once does not mean it will ever sell for that again. It doesn't mean you buying it for$5 is a great deal, unless you're able to find at least one person to say, okay, I want to buy this specific card for a specific reason. And the more cards there are, the more options a potential buyer has. He has thousands of PSA nines he can buy instead of your eight. The person buying that card might think, this card is so undervalued, it'll be worth way more in six months. But what they forget is that only matters if someone's willing to pay more in six months because something has changed. I bought cards I thought were slam dunks, right? Rare, nice, undercomps, and held them for almost a year with zero interest. The card didn't fail me, my liquidity thesis did. Nothing changed in the market legacy design of the player, nor did they get any juice through marketing or hype. So on the flip side, talking about sellers, sellers often overplay their hand. They think their card is special, they think it's immune to market cycles, that the right buyer just hasn't seen it yet. Now, sometimes I'll think the same thing to myself. I'm just waiting for the right buyer, right? Oftentimes the right buyer, though, was just me six months ago. Here's the truth. Most cards are replaceable, and we forget that. Most buyers, they have so many alternatives, and most spikes are going to be short-lived. Even worse when you have that rare card and demand starts heating up and you're on a great trajectory, Tops and Panini print more of that player's cards to stem demand, and the supply inflates, and each card is worth less. Let me give you a quick mental model that I use. A bird in the hand framework, if you will. I ask myself, is this card at peak hype, liquidity, or visibility? Has the narrative been priced in? Do I have a better place to put this money right now? If the answer is going to be yes to all three of those, then it's time to sell. Take the 25%, reinvest it, or just hold into cash and wait for the next opportunity. That's why I always say the market doesn't reward truth, it rewards timing. Let me give you three exit frameworks that I use for velocity plays. Number one, you have the catalyst flip. You buy ahead of a known event, debut, transfer, comeback game. You sell into the news cycle, not after the outcome. This is just the classic buy the rumor, sell the news. Two, you have the off-season to on-season trade. It's like a light flipping on. Buy in the off-season when search interests and prices dip, sell the week of media day, preseason hype, or new product release. Buyers have short attention spans, which means you have a short, juicy window. Number three, you got your short-term thesis exit. In this one, as in all things that I recommend, you should have a clear thesis. I think this card jumps 20% during the Netflix stock drop. Once it hits, you don't wait for 25% anymore. You take the gain and you rotate your capital. As I've said in an earlier episode, the nice thing is you'll know if it didn't pan out very early, and you can let go and cut ties. One more framework, and this one's close to my heart. Forced to sell is death to ROI. It's not a platitude, it's just math, and I've seen it so many times. If you tie up all your money in long holds, you lose your ability to pivot when opportunities arise. That means you can end up selling something you didn't want to sell at the worst possible time, to choose a card you weren't planning to buy. On the flip side of the coin, you never have enough in the war chest to buy up all those opportunities that come to you through unforeseen circumstances. Liquidity isn't just a number, remember, it's freedom, it's opportunity. So don't let your pride handcuff your portfolio. Walter White thought he could exit the game when he wanted, but being addicted to control forced him out of control. It made him his own worst enemy. That's the trap. Convincing yourself that you know more than the market knows, that your price target is just inevitable, that you are the one who knocks. You're not. I'm not. And that's okay, because we're not here to be right. We're here to win. Take profits, reinvest, stack small wins. That's how you end up letting your velocity compound. That's how you end up breaking bank. Oh, and one more thing before you go. If money is stored energy, which is how I like to think about it, buying and selling an alternative asset like sports cards is transferring in and out of liquidity of energy, since the dollar is the most liquid asset out there. It can be helpful to think along the lines of what is at a premium right now? Why is that? And why might that change? Because the one constant that we know is there is always change. If this episode hit home, please share it with a collector friend or two. Subscribe on Spotify, YouTube, and Apple Podcasts, and follow me at Slabnomics for weekly drops, insights, and maybe a few breaking bad memes now that I've had this episode drop. This has been Slabnomics episode nine Breaking Bank. Keep building, and I'll talk to you later.