Prospecting Beta

In Finance, the term "beta" refers to how much a shift in the market affects the price of a particular stock. Basically, there are certain industries and companies that are closely tied to the market as a whole, while others function more independently. Those that are closer will go up or down dramatically based on movements in the market, while those who are not will be less impacted. A simple example: a stock brokerage may do very well when the market is doing well since it makes people want to invest (and therefore the company will do better when the market does well, and poorly when the market as a whole does poorly) while a grocery may work largely independent from the market, since people need milk and other staples regardless of whether the market is doing well. As a general rule, most every company is tied to the market in some way (although some like bankruptcy attorneys may do better when the market is doing poorly) and that is calculated (imperfectly) in a company's beta.

The card world works a bit different than the stock market but there's similarities. When the overall market for prospects is doing well, it pushes up prices on all cards to some degree (although like the stock market if there is no potential, there is no value.) When the market is down, even great prospects' cards suffer.

In the last couple of years, the emergence of Stephen Strasburg, Bryce Harper and especially Mike Trout (amongst others) has pushed the prospecting market to highs that have not been seen in a really long time. The prices and hype they have realized has been amazing.

The result is major impact on other prospects. I cannot remember a time in the last decade when hot prospects jumped in price so much so quickly. It seems like any top prospect who does anything performance-wise, or makes the Majors sees a huge spike. (I am sure there are exceptions, but overall this has been the case.) Seems like "prospecting beta" is alive and well, and has worked wonders for the market over the last year or so.

And that is the end of my rambling...

Thoughts?

this reminds me of finance class. pass.

This is the primary shift in the sports cards market, especially baseball prospecting (and I predict football this year will follow this trend as well) that I've noticed as well. For a long time, cards of one player were hardly correlated with another, especially if on a different team. While there is nowhere near a direct correlation, which they shouldn't be, it's definitely a healthy sign to see a corresponding increase in other items from one major prospect's spike.

The major takeaway I can come up with is that capital flow is increasing in this market. Lately, one of the difficulties in investing in the sports cards market is the lack of supply available on the secondary market. Many times I've personally been able to come up with a significant list of investments I'd like to make in certain players, but they are hardly up for sale, even after utilizing a large array of different websites. Hopefully with an increase in capital causes an increase in supply for rarer RC Autographs on the secondary market as well.

Great post, I mentioned something like this in another thread the other day myself. I think this is great for baseball cards moving forward, because now people are going to be looking for the "next Trout" for the next few years. In reality, Trout is a 1 in a million scenario ("so I'm sayin there's a chance!"), but it's great for the hobby to have people thinking this is the norm, because more money and attention will be paid to baseball cards thanks to the massive impact Trout, Harper, Strasburg, Heyward, etc. have had on the market the last few years.

For prospectors, I look at it like all of a sudden, the ceilings for all cards just doubled. This makes it easier to justify paying higher prices because there is still so much money to be made, even when paying more than usual for a card. As more people adopt this mentality, the value of cards will continue to climb over time.

For example: I'd say a good prospect having a great MiLB season or having a good MLB debut will kick a Gold Refractor Auto from $75-$125 in the preseason into the $250-$325 range. Now the same card has potential for $500+ in the same scenario, simply because OTHER Gold Ref Autos have sold for $500+ this year. So I'm willing to go buy a few for $200 apiece 75% of the way through this player's great MiLB season, because I know that I have $300+ potential profit, rather than just $50-$125 potential like in years past.