What Value Proposition Should Grading Provide

[imbluestreak23]

Let's assume for the polls sake that you are only grading to maximize the value of your collectible. The question is simple, what ratio of margin that you receive on the collectibles that you grade is acceptable relative to the cost of getting those cards graded.

I.E.:
-I grade card X for $100, I have $200 in the cost of the card, I sell the card for $400, netting a $100 profit. In this example the value proposition is 1.0 or 1. For every $100 I spend in grading cost, I receive $100 in value created that I am able to capitalize on.
-I grade card X for $100, I have $400 in the cost of the card, I sell the card for $1,000, netting a $500 profit. In this example the value proposition is 5.0 or 5. For every $100 I spend in grading cost, I receive $500 in value created that I am able to capitalize on.

I have data for me going back to 2017 that I look at every now and then and it's interesting to see how that value proposition has shrunk due to a down market. Is it reasonable on an annual basis to spend $5,000 on grading only to receive $5,000 in margin? Or if you spend $5,000 in grading should you expect $10,000, $15,000, $20,000 in margin. So with our new normal starting at some point in 2022, what value proposition are you okay with? Is the value proposition that you are okay with:
-Between 0 and 1
-Between 1 and 2
-Between 2 and 4
-Between 4 and 6
-Between 6 and 10
-Only 10X

[Gem10collection]

If I am guaranteed these returns then I would pour capital in until the return becomes closer to something approaching the S&P500 index plus a few extra percentage points for my time and labor.

[imbluestreak23]

Originally Posted by Gem10collection

If I am guaranteed these returns then I would pour capital in until the return becomes closer to something approaching the S&P500 index plus a few extra percentage points for my time and labor.

And this is the type of discussion I'd like to have. Because for years, between 2-5x has been he norm. The past two years have exceeded 10X.

For me, this quickly becomes a poor mans game much like perusing around for wax at Walmart only to make $15-$20 per blaster acquired if there is a mass amount of folks willing to accept a value proposition between 0-1.

Investing $50K in grading only to yield $50K in profit while "actively" buying, cleaning, grading, waiting, selling does not seem to warrant the effort. Having said that, it's my n of 1 opinion.

[rroboo]

Originally Posted by imbluestreak23

Investing $50K in grading only to yield $50K in profit while "actively" buying, cleaning, grading, waiting, selling does not seem to warrant the effort. Having said that, it's my n of 1 opinion.

I'll take 10k profit off 50k invested. I sent in around 2,000 cards in the year 2020 so I understand the effort and time it takes. I still think that amount is worth it. However, the market is way too unstable though to invest with those expected returns at the start because that expected return is going negative when you get your cards back.

[imbluestreak23]

Originally Posted by rroboo

I'll take 12k profit off 50k invested. I sent in around 2,000 cards in the year 2020 so I understand the effort and time it takes. I still think that amount is worth it.

To clarify, this isn't necessarily ROI. This is looking at grading costs only. $12K profit on $50K invested is about a 24% ROI. Separately, if you spent $50K in grading fees + cost of the cards to only yield $12K in margin, to me that's hardly worth it assuming your cost of good sold matches your grading expense (it very much so likely exceeds). We are talking about a < 10% ROI at that point.

< 30% ROI doesn't seem worth it.

[brios8]

Originally Posted by rroboo

I'll take 10k profit off 50k invested. I sent in around 2,000 cards in the year 2020 so I understand the effort and time it takes. I still think that amount is worth it.

I agree..
invest $50k and in 3 months you get back $100k.
reinvest $100k and in 3 months you get back $200k
reinvest $200k and in 3 months you get back $400k
reinvest $400k and in 3 months you get back $800k

you could go from $50k to $800k in one year

lets say some cards dont sell quick.. no problem.. call it $600k in a year sounds possible if you keep reinvesting

but you will need to have a head start so you can have $50k being graded yet still have stock to sell plus also keep buying.

[Gem10collection]

Originally Posted by imbluestreak23

And this is the type of discussion I'd like to have. Because for years, between 2-5x has been he norm. The past two years have exceeded 10X.

For me, this quickly becomes a poor mans game much like perusing around for wax at Walmart only to make $15-$20 per blaster acquired if there is a mass amount of folks willing to accept a value proposition between 0-1.

Investing $50K in grading only to yield $50K in profit while "actively" buying, cleaning, grading, waiting, selling does not seem to warrant the effort. Having said that, it's my n of 1 opinion.

For a lot of people earning $50k a year playing with cards would be a fun "job" to have.

More important, I think there is no guarantee of earning that $50k going forward and real skill will be needed to generate alpha. In short (yes, I meant to do that), the easy money is gone and it's time to compete. The rules of the hobby have changed and adaptation will be the key to survival.

BTW, love your vids! One of only three youtube channels I subscribe to.

[rroboo]

Originally Posted by imbluestreak23

To clarify, this isn't necessarily ROI. This is looking at grading costs only. $12K profit on $50K invested is about a 24% ROI. Separately, if you spent $50K in grading fees + cost of the cards to only yield $12K in margin, to me that's hardly worth it assuming your cost of good sold matches your grading expense (it very much so likely exceeds). We are talking about a < 10% ROI at that point.

< 30% ROI doesn't seem worth it.

My bad, that's what I get for speed reading. It's all about return time and how much I can split that 50k to eliminate risk. At the end of the day, around 25k I would be ok with.

[rroboo]

Originally Posted by Gem10collection

For a lot of people earning $50k a year playing with cards would be a fun "job" to have.

People are having fun? #@#@#@#@, I sweat bullets the whole Q2 process. Started with almost nothing and ended up paying off all debt but so much invested.

[brios8]

Originally Posted by imbluestreak23

To clarify, this isn't necessarily ROI. This is looking at grading costs only. $12K profit on $50K invested is about a 24% ROI. Separately, if you spent $50K in grading fees + cost of the cards to only yield $12K in margin, to me that's hardly worth it assuming your cost of good sold matches your grading expense (it very much so likely exceeds). We are talking about a < 10% ROI at that point.

< 30% ROI doesn't seem worth it.

oh you mean $50k just in grading costs.. thats a lot lol

if I pay $100 to grade a card, I would expect to be able to profit at least 3x the cost of my submission..
lets say I send in 10 cards worth $10k, and I pay $1k (grading cost) I would like to get back at least $14k value wise... but since I probably made some good purchases I could maybe profit $5k instead of $3k

for every $1 invested in a card once I sell I need to at least get $1.50 back
and grading helps

[Gem10collection]

Originally Posted by rroboo

People are having fun? #@#@#@#@, I sweat bullets the whole Q2 process. Started with almost nothing and ended up paying off all debt but so much invested.

To me, that sounds like a job. My definition of a job is something we do for money that we don't particularly enjoy.

[imbluestreak23]

Originally Posted by Gem10collection

For a lot of people earning $50k a year playing with cards would be a fun "job" to have.

More important, I think there is no guarantee of earning that $50k going forward and real skill will be needed to generate alpha. In short (yes, I meant to do that), the easy money is gone and it's time to compete. The rules of the hobby have changed and adaptation will be the key to survival.

BTW, love your vids! One of only three youtube channels I subscribe to.

Mucho gracias my man! And no doubt, the extra $50K for a hobby isn't bad chunk change.

Most folks hobbies drain them of every penny which is no bueno.

[rroboo]

Originally Posted by Gem10collection

To me, that sounds like a job. My definition of a job is something we do for money that we don't particularly enjoy.

Yeah, your right. The only enjoyment I get is from cross-referencing the grades I get vs the actual.

[rwperu34]

Are you looking for average or minimum? The two subs I sent in before the shutdown I estimated at 1.2 and 2.5. Obviously the low end single cards are in the 0-1 range with the monsters over 10x.

That doesn't count the cost of the card though. IMO the cost is zero. Partially because once you buy the card you own it, not the money. The main reason I count the cost as zero is because if 20% of cards bought will grade at any given price level then selling the four that won't should cover the cost of the 5th...and then some.

The other issue is I have no qualms with speculation. For example I'm buying up a bunch of Isaac Paredes and Geraldo Perdomo not because I think they are worth grading right now (or ever in the case of Perdomo). It's all about that ideal future where they maybe make an all star game or two. In that case I'll be way way up before I ever send in a card. Heck, even Yordan Alvarez, Kyle Tucker, Rafael Devers, and Eloy Jimenez were similar when I started buying them. They were in the "grade range" already, but I was looking for a big year. Devers and Tucker got there so their ROI is even bigger. Now I'll just hold on to my Eloy and Yordan until they get hot and/or have a big year. And of course Gallo...

[rwperu34]

Another thought;

If you are going to grade to consign the whole order (eg w PC_Sportscards) the effective cost of grading is $0.

[Scottish Punk]

If you are looking at this strictly as a business/accounting perspective, you need to account for your variable costs - labor.

"while "actively" buying, cleaning, grading, waiting"

Each of these (well not waiting) accounts for some time. Figure out what your hourly rate is and calculate how long each step is per card or order (would be a rough estimate for sure). How many hours to you spend finding clean raw cards, how much time does it take in the cleaning process (few seconds of fiber cloth I would assume), how long does it take to penny sleeve/card savor/paperwork for grading. All that takes time and should be calculated into your ROI.

[imbluestreak23]

Originally Posted by Scottish Punk

If you are looking at this strictly as a business/accounting perspective, you need to account for your variable costs - labor.

"while "actively" buying, cleaning, grading, waiting"

Each of these (well not waiting) accounts for some time. Figure out what your hourly rate is and calculate how long each step is per card or order (would be a rough estimate for sure). How many hours to you spend finding clean raw cards, how much time does it take in the cleaning process (few seconds of fiber cloth I would assume), how long does it take to penny sleeve/card savor/paperwork for grading. All that takes time and should be calculated into your ROI.

Sure, but again this is mainly a discussion about what value should a grading company provide. With the balance of cost to grading and expected TA increasingly being pushed out due to demand, the masses of collectors are saying that the value created by simply grading a single card was far to high. The grading companies are indirectly saying the value we provide for you collectors is to high as evidenced by the demand for our services. For every dollar you give us, we have returned ten dollars or more in profit for 48 months. We are squeezing this a more manageable balanced return where skill and speculation will allow one to maximize that return, but will there be days where the bottom 25% of grade-flippers who spend a dollar with grading companies, will their return actually be a negative number?

This isn't meant to be an ROI conversation for the collectible. They are two different things. It's an attempt to look at only 1 variable. In aggregate, what should someone expect for the dollars they spend grading, and is the common denominator of folks willing to spend a lot to grade to profit so little outweighing the historical balance that the grading value proposition has provided historically.

[Scottish Punk]

If we are just talking more from a philosophical standpoint. My opinion would be 0 and 1. Some uptick in value for taking the time and energy to get something graded. The exuberant mark up on 10's will forever be silly to me. Also, I think from the same standpoint if grading multiplier was much smaller, there would be less fraud (trimming and insider grader issues). Grading, in my mind, should be way more focused on authenticating than a ranking number. That ship never left the harbour and PSA wouldn't be as big as they are without the number competition and regrades.

[Noel3]

I believe the value should be 1. I know that it is not consistent and is now a gamble. I’ve been grading sines the 90’s and am amazed at the changes recently.

For my own personal collection grades provide NO VALUE.

It’s art, I know what I like.

Because I want to fund more of my “Art “ I grade and speculate cards.

It’s fun when I win and requires less capital than investing.

N

[jjcan]

I started grading November 2019, smaller qty lots then most of you that are flipping the last 2 years.

Total cards sent to PSA 3900 cards at end of the acceptance bulk.
Received back 2600 PSA graded cards Since November 2019 submissions, 1300 cards left to receive.

In hand I have 800 cards left. My Total submissions fees for the first 3200 slabs are all payed off. So about $34K in fees ( I sold enough slabs since 2019 through my consigner who submits for me), I also paid $16K for the cards I submitted (alot of the cards where older lower end RCs picked up last 20 years). My Cost in not including time, setup at shows, and ebay computing is $50k plus shipping supplies.

Plus I still have 800 plus slabs in hand as inventory. (BUT 700 cards to still pay for) I am around a 3X-3.5X depending on when I sell the rest.

Was it worth it it? Yes. Why because I use to do shows and sell ungraded cards the 8 years ahead of that, and noway would I consider slabbing under those market conditions 2010-2017. A PSA 9 wouldn't get a X1 return.

I will definitely be more cautious next year once bulk opens up. With 1300 cards still sitting at PSA, and who knows what the market has in store for those. .

Do I think I can beat last years multipliers on new lower end cards that are sitting ungraded now?, probably not. Last 2 years was just a good opportunity to maximize profit margins especially so for someone who does not have a great grading eye(ME)

[imbluestreak23]

With economy "kinda" opened up, giving this a bump.

[Sets2]

Originally Posted by brios8

oh you mean $50k just in grading costs.. thats a lot lol

if I pay $100 to grade a card, I would expect to be able to profit at least 3x the cost of my submission..
lets say I send in 10 cards worth $10k, and I pay $1k (grading cost) I would like to get back at least $14k value wise... but since I probably made some good purchases I could maybe profit $5k instead of $3k

for every $1 invested in a card once I sell I need to at least get $1.50 back
and grading helps

So, I try to think the same way. Most stuff, I have bought years ago, and some recently, but that money is already spent. So Ideally, I look for 5-10x of my grading cost. I am evaluating cards now at $100 per, the question I ask myself is "what is it worth in an 8 or 9"? Since I never assume a 10.

Although, since I don't really know the cogs, I could getting my A** handed to me; especially considering how much the standards have changed today.

[CheapThief]

This is kind of an incomplete proposition, since you would have to know how often you can expect to hit your terminal grade, and also what the percentile increase on the raw value that putting the card in the terminal holder would bring. Without these two parameters in place there isn't any intelligent way (that I can think of) to answer the question.

[SpartanWarrior]

Let me preface my reply with the fact I don't submit cards for grading. I do have graded cards in my collection.

I feel grading SHOULD provide the following:

1. Validating the card is authentic.
2. Validating the card is in some original state (ie not trimmed, recolored, pressed, etc).
3. Giving an opinion on the condition of the card.

My personal collection has a majority of cards that were acquired prior to grading companies existing and I have no intention of grading them. It adds nothing to my enjoyment of the collection.

I realize that the whole concept of grading cards makes it somewhat easier to conduct transactions. But I also realize that this is NOT even close to foolproof. The people grading your 1933 Goudey might have been selling electronics at Best Buy this time last year. Them saying its a 6 instead of a 5 doesn't mean you should be willing to shell out an extra 35K. I think people are slowly beginning to realize this and look at the cards (though I readily admit there are lots of folks only looking at numbers).

So I don't view the grading service as enhancing the value of the card rather it SHOULD simply validate the card is what it looks like it is. I think the market is slowly drifting in this direction and you can see examples of auctions where 3s sell for more than 4s simply due to the card being nicer. But I don't think the market will ever truly get back to the customer looking at the card and determining for themselves what they believe the grade is and corresponding value. Its here to stay and I don't worry about it.

[forjlf]

For PSA 9s: 2-4

For PSA 10s: 4-6

For the PSA 9s: I figure if you are doing this right you should be able to get double your cost in resale value even selling them ungraded. So why would I bother with the complete hassle that grading is if I can't beat that in PSA 9 grade?