A Simple Illustration of Arbitrage on eBay
What is Arbitrage?
Arbitrage is the art of buying in one market and simultaneously selling in another.
Indeed, arbitrage has been going on ever since prehistoric times when two or more cavemen put aside their fear and their cache of rocks and sticks--makeshift weapons along with grunts, yowling, and other guttural responses--and decided to start a society.
Through the years, the players and ever-evolving forms of arbitrage have become more and more sophisticated, but the basic premise is always the same-- buying in one forum to make a profitable and timely sale in another.
Or, in an alternative form, arbitrage can also take place involving the same commodity within the same marketplace. This article will provide you with a simple and easy to understand illustration of this particular version of arbitrage.
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Who Am I, and Why Should You Listen to Me?
First of all, I want to be absolutely clear that I'm just an ordinary guy trying to make a living. And the kind of living I'm involved in at this point in my life is a daily scratch and grind. I'm not rich by any means. I struggle like most Americans these days to pay the bills, and I do a stand-up job of meeting my financial obligations and providing for my family.
What I lack in financial abundance, I make up for in resourcefulness. I can travel through any social circle and do an adequate job of contributing my share of great conversation, personality, wit, and empathy. I'm pretty good at tuning in to my environment, listening to and reading about what others have to share, and I see relevance and significance in every human being I meet. To that end, the veteran holding a sign asking for help on the corner is as vital to my existence as the executive with the fancy suit sitting twenty feet away from me in the coffee shop where I'm spontaneously spinning this Hub.
In short, I know how to hustle. And I don't mean that in the manipulative way it's come to mean in current times. I'm old school, and I learned about hustling from my father. It's the resolve to do whatever it takes to provide for one's family. And when it's time to lay my head down on my pillow at night, I know I will have a good night's rest knowing full well that I did my very best today to contribute to my family's well-being.
So why should you listen to me? No reason, except to, at best, learn something new...or, at least, to be somewhat amused or irritated, your choice.
- The Girl With the Haunting Green Eyes
During the Soviet Union-Afghanistan conflict three decades ago, a talented National Geographic photographer captured the image of a young Afghan girl. Her face--especially those mesmerizing eyes--graced the cover of this compelling issue.
An Example of Arbitrage
Less than a year ago, I retired from a job as a bagel baker and went to work full-time as an eBay seller.
In my constant search for inventory to market online, I came across a near mint copy of a very popular National Geographic issue (June, 1985) featuring a cover photo of a beautiful young Afghan woman with haunted--and haunting--green eyes. I had bought a huge amount of Life, Look, Saturday Evening Post, Scientific American, and other magazines the previous week from a woman at an estate sale in Walla Walla. I received a phone invitation from her a week later to purchase another huge lot of magazines for a ridiculously low price. I'm so thankful that I made the decision to go back and browse through her leftover issues.
For a mere dime, I purchased the above-mentioned issue.
After diligently conducting research about this particular magazine, I learned that it was arguably the most famous NG cover of all time. The Afghan woman, a refugee at the time, had a most remarkable and compelling story, and yet it was her lovely yet angst-ridden image, brilliantly memorialized by NG photographer, Steve McCurry, that promoted the issue to amazing and record-breaking popularity all over the globe.
Not long after, I sold it on eBay for a profit just shy of twenty dollars. I had banked on the magazine's appeal to command a higher than average National Geographic price on eBay, and my gut feeling was right.
A few months later, while attending another estate sale with my wife in the southeast Washington town of Waitsburg, approximately a half hour's drive from Walla Walla, I found an even finer copy of the magazine. About this time, I wrote both a blog post and a complementary Hub article about the Afghan girl issue and did some elementary social media promotion of it.
A relatively short time later, I sold the issue for about $25.
The two successes convinced me that I could repeat the process. This is where my first experience with arbitrage came in.
I did a search on eBay and noticed that there appeared to be about a dozen listings or so of this issue. In my opinion, most of the respective sellers were listing the issue for an absurdly low price. With this in mind, and confident about my ability to bring in a reasonable profit, I opted to purchase one of these eBay-listed items. I bought and immediately paid $4.99 for a copy.
On the same day that I received the copy in the mail, I listed it at a price of about $25. A week later, it sold.
I then purchased another copy for $3.99. The seller didn't mention that there was a slight tear in the margin. I was a little miffed but decided I could still list the issue. I changed my template description and mentioned the imperfection. However, I still asked for the $25 price. Lo and behold, just yesterday, I made another sale.
I've thus bought and sold different copies of the same issue four times on eBay. Odds are, I'll continue to successfully market the Afghan girl issue.
Honestly, these are nominal profits that I'm making. But it illustrates the effectiveness of arbitrage.
A host of other sellers are doing the same thing on a grander scale. For example, one could purchase an item low on Amazon and sell it high on eBay. Or the opposite scenario could be just as effective. As more online marketplaces emerge, the possibilities are endless.
Without leaving the comfort of your computer room, den, or kitchen chair, or --if you're a coffee shop nomad like me--a table at your favorite neighborhood java haunt, you, too, can soon be engaged in the fun and profitable online activity of arbitrage.