Buying Inventory on Speculation

From purchase to profit, it pays to have an investment strategy.

by Dennis L. Prince
- Jan 19, 2010

Many sellers rightly seek out less-traveled sources of supply, online and elsewhere, often in hopes of nabbing overlooked treasures or otherwise undervalued goods that are certain to bring in a handsome return upon resell. Whether it's destined to be this year's gotta-have item, or a timeless favorite that's always in short supply, sellers are constantly on the lookout for an oasis of undiscovered goods, anxious to quietly snatch them from the secret source without much fanfare—that is, without drawing attention from competing sellers.

While this is an excellent and encouraged strategy, resellers need to be clear about what they'll invest in, how much they'll invest and how (and when) they'll actually be able to turn a profit. Here are some tips to help you in your speculative purchases.

Know your stuff

Knowledge is power, and it is the prerequisite for making any educated speculative investment. If you'll be speculating on items of which you're already an expert, you're ahead of the curve. If you're venturing into goods of which you're something of a novice, be sure to fully research what you'll buy before you buy. Use trade papers, collector's guides, the Internet and even the auction places themselves to acquaint yourself with the item of intended investment. Become well versed in the history, manufacture dates, variations and reproductions (if any) of the items you will invest in.

Then research the source—especially if this is to be an online-auction speculation. Determine how long the source (or seller) has dealt in this sort of item and what expertise is imparted to help you in your potential purchase decision. If you're purchasing from a dealer at a show, responding to a classified ad or standing at someone's garage sale, you'll need to be prepared to make quick assessments of authenticity and potential value by your own abilities.

In general, it's best if you can purchase items at least 50 percent below their current retail value

If the goods are inexpensive, you might not have much to lose in making the purchase. However, if the investment will be costly and you're just not sure, you might wish to pass, or at least get the seller's contact information for chance of a later purchase—after you've done a bit more homework, yet before you've committed a significant portion of your cash assets.

Know your limits

Regardless how desirable an item is, or what its profit potential may be, you'll need to ensure you can nevertheless buy it at a price that allows a profit to be realized. In general, you're best served when you can purchase items at sort of "wholesale prices," that is at least 50 percent below the current retail value of the item. This doesn't mean you'll always get this sort of price, but it should be your goal—how you relax that depends on how much profit you intend to make.

Of course, good haggling skills are a must in situations where you'll be buying direct from a private seller. Quickly assess how much the seller knows about the piece, and how fairly the item is priced. Never insult a seller with an obnoxiously low price—remember that seller you're trying to buy from might be an investor looking to turn a profit, just as you are.

If you're speculating at online auctions, your best bet is to set maximum bids—and not exceed them. This will allow you the profit margin you desire. While it's true that last-second bidding (known as "sniping") often brings in good prices, it might also incite impassioned maximum-value bidding on your part, causing you to exceed your intended bid limit as you seek to secure a win.

One alternative is to bid early in an auction and then forget about it. If another bidder surpasses your maximum bid, it's more than your profit calculation would uphold anyway. If you intend to snipe bid, be present to launch a last-moment offer, or enlist an automated sniping tool to bid on your behalf.

In all of this, try to avoid rampant speculative buying. If you're grabbing everything in sight, you might lose sight of how much you're spending. Even if you are getting great deals, your outlay could quickly exceed your income. Try to keep a balance between sales and purchases with the best situation being where auction profits are re-invested in future speculative purchases.

If you hold on to a trendy item too long, the demand might bottom out and you're stuck with a fad gone flat

Flow, show or stow your stuff

On flowing your stuff: Obviously, the key to profiting from an invested buy is selling when demand (and prices) will be highest. Look for events (e.g., historical, film, media) that will make your investment items particularly sought after—then sell! Sometimes the best time to sell is immediately after purchase. If you're holding a trendy item that is virtually impossible to obtain, demand will be high today. However, if you hold on too long, the demand might bottom out and you're stuck with a fad gone flat.

On showing your stuff: Some of your best sales happen when you're not actively selling. If you have some great items that you're holing up, pop them up for view on your business Web site as a sort of display-only piece. Frequently, visitors will ask if these sorts of items are for sale, which could spell great profits for you with minimal marketing effort.

On stowing your stuff: Some items will need time to "mature," to reach their highest-value potential. If you're buying items like limited sculptures, Christmas ornaments, character icons, or whatever, you might need to sit on these awhile before their true value can be realized. Figure that most current pop-culture items need around 20 years to reach maturity—the point when younger folks of that day have also matured, and now feel a tug of nostalgia for days gone by. Therefore, find good storage for these items—someplace dry, dark and solid. Of course, you'll need to be comfortable that you can have your cash assets tied up for such a period of time. If you can, sometimes you'll find you've nurtured a nice nest egg in the process.

About the Author

Dennis L. Prince has been analyzing and advocating the e-commerce sector since 1996. He has published more than 12 books on the subject, including How to Sell Anything on eBay…and Make a Fortune, second edition (McGraw-Hill, 2006) and How to Make Money with MySpace (McGraw-Hill, 2008). His insight is actively sought within online, magazine, television and radio venues.

Opinions expressed here may not be shared by Auctiva Corp. and/or its principals.

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