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postheadericon Warcraft Advanced Gold Guide – Profit Profiles

Earlier we discussed normalizing the prices of items across two markets. It is worth mentioning now that you can index or normalize the price in a single market place. There are many ways to do this, but for example  – take three  separate median asking price for an item over a period of say a week. You will then have three “median” prices. Average these to find a “mean mean” and give that figure the index of 1.0.

Every other price can then be rated as a ratio of this 1.0. Look back at the last chapter for more information on this.

Price indexing can, at first glance seem a waste of time. It comes into it’s own when you are comparing the profit profile of several different items. It allows you to graph item that are of a very different price on the same scale and just compare how profitable they are as a percentage.

Is Swifthistle more profitable as a percentage than a Titansteel Destroyer or would Netherweave be a better investment, Using indexing you can compare these side by side and get a true comparison

But something is missing. Profit is measured OVER TIME.
Swifthistle might sell for you at 30 stacks a day at the auction house, 2 gold a stack. 60 gold turnover. If you bought for 1 gold a stack. Discounting the Auction cut for now, you have made 100% profit PER DAY.

Now the Titansteel destroyer might be bought (or made) at a cost to you of 800 gold, you put it on the market at 1200 gold – but it takes 4 days to sell.
In this example  – again discounting the auction house cut you have made a 33% profit over 4 days – or an un-compounded 8.25% per day.
Now this is where you need to make a couple of decisions regarding your trading. Are you a busy day trader – or a long term magnate.

If you play regularly, and quite like to dabble in the market every time you play, there is often more profit in buying lots of lower value items – and selling them on quickly. If you log onto Warcraft only a couple of times a week “go long” with higher value items.
If you choose the quick route, but miss a few days every week, you will find that you are making less money than someone who only logs on now and then and trades slowly.

Why waste your time ? There is a subtle choice between turnover and profit – decide what kind of investor you are, and make sure your portfolio reflects that choice.

While we are on the subject, we have already looked at the issues of copllecting your sales data through an add-on like Auctioneer. The problem being.

Auctioneer does not collect sales data!

That’s a pretty big problem. It can keep a record of what your characters sold items for, but for the rest of the servers population (that being 99.997% of the data then) it only collects the ASKING price, and that can be nothing like the selling price. On some servers almost 50% of auctions don’t sell at all.

Secondly it does not take seasonality or trends into account (at least not very well)

And thirdly it is skewed by rogue prices.

As we mentioned before the practice of putting a low level item, like a piece of copper ore, on for say 1000 gold pieces happens. Annoyingly it happens quite a bit. This skews the averages a lot.

arcraft Auctioneer Addon

Which brings us nicely to how YOU get around these issues. Well you filter them out. We use what is known as a “pareto” or “80-20” rule. We take our averages from the middle 80% of all prices offered.

So if ten prices were showing for an item  say 1, 3, 5, 5, 7, 8, 8, 8, 8, and 4000 we would not put the “1” or the “4000” into the equation.  The 4000 is clearly a rogue price. The 1 probably isn’t , but not including it does not slant the average much.  The difference is one will give you an average price per item of 405.3 gold. The other 5.5 gold. One is hopelessly wrong the other nearly right.

Back to an old point, Indexing also lets you compare prices between factions and across servers – allows you to filter out rogue data, takes seasonality into account and ensures you yourself keep an eye on your portfolio. Auctioneer -  while a very useful tool, does not do this.

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