Day 59: Industrial Levels of Stupidity

Here is where I admit I can’t get my head around economics. Never have been able to. I like to believe I’m fairly intelligent but economics, like the names of people I meet at parties and my own language, is just one of those blackspots of mental flexibility. I’m going to have to get over it, quickly. The EVE economy is no place for part timers traders unless you wish to just sell to the highest price you can find posted. I might have to get over that name thing too. It looks like a lot of people are going to the London meet up : https://forums.eveonline.com/default.aspx?g=posts&t=110525

The trigger for the worry was that my manufacturing experiment before the weekend took off. I found I could make nearly 100% profit on each item in the end. They are small items so its not like I’m making millions. 100% of nothing is still nothing. I put speculative sell orders on, thinking the moving figures wouldn’t be indicative of what was going to happen. I sold out of stock, and apparently this is a big no-no. Something else I never understood. I should have made more. I need to factor in that over the weekend more people log in and do stuff. Speaking of which,  mineral prices took the expected hit so at least I predicted something. There is always a dip after a weekend but not this big. Oddly the hit isn’t so bad in the next region along. I can sell minerals I’ve mined and refined  there, buy it cheaper here and build stuff with it that I sell at a profit.

This is going to be difficult to write, and also probably all wrong. I’m no Mabrick, Goblin or K162 but at least if you read this is as a noob then you might be able to alter your mindset before making the same mistakes I did. Here is what I started thinking the other day after I had the potential of decent profit from manufacturing. Remember - this is what I was thinking, it isn’t the truth underlying the route to ultimate space tycoon.

1. Time is Money.
 
In Warcraft I tended to gather mats rather than buy low at the auction house. I was berated for this by a friend and I already understood the concept. In Warcraft I didn’t care. I didn’t need that much cash and I kind of enjoyed watching the scenery go by when I was out gathering. In EVE I still enjoy the scenery (find me a belt with a storm planet in the background) but I have too much invested already to be aware that I am wasting time in any sense.

Here is how it might have gone in Warcraft:

    I want to make item FOO so I go and farm the materials BAR and BAZ which occupies 100% of my time in game.

Here is how it goes in EVE

    I want to make item FOO, so I buy BAR and BAZ cheaply and set off the manufacturing process. I have 100% time left over so I go and do something else profitable with that. Say that this thing I do is as profitable as selling FOO (including the investment in BAR and BAZ). I’ve made twice as much cash in the same amount of time.

That is the simple version. Lets not even get into what activities you might be doing, how many production jobs you have running, inflation, hoarding stock that might be losing value over time, and lots of other things it hurts my brain to consider.

2. Supply and Demand.

You know this one. You think you do. It’s simple right? Sell shit that everyone wants. No. It’s way more complex than that since you haven’t figured out WHY demand, and you haven’t figured out HOW and WHAT of supply.

For starters you need this in your head at all times when thinking about making cash from anything. The next section will reveal why, but lets take an example of how Supply and Demand is more complex than you think.

Ore is the most basic component of anything, it gives you minerals used to make stuff. Minerals cost more than ore. You effectively create value from ore if you are a good refiner of ore. There is a lot of demand for minerals, since manufacturers need them to build things to supply the demand for whatever it is they build and they don’t have the time or energy or they have too much common sense to go out and get it themselves. Demand is high and supply is high. There are a lot of miners. You can be one of those miners. The last patch made mining large amounts of ore easier for newer players. This had the effect of some newbie miners just selling loads of ore. They didn’t know about, or just didn’t have the skills to make more value out of refining. Of course some miners did and they were selling more minerals. Supply began to edge over demand and so the demanders felt they could find better deals. With a buy order when supply outstrips demand, they can dictate these deals. They can force this because sellers looking for an instant hit wanted the best of these deals and competed with each other. Lets not even consider the manufacturers who set up buy orders for really cheap ore, found them filled by money desperate newbie miners, refined the ore themselves and in doing so lowered their production prices. At this point you are thinking that manufacturers are utter bastards profiting of the squabbling of miners and refiners. Nope. There are other manufacturers also making stuff more cheaply due to cheaper minerals and wanting to sell the result. The manufacturer is now in the same type of competition that the miners and refiners were except with the added problem that demand is dependant upon the type of item they are making, unlike ore and minerals which are used in everything.

I already think I’ve messed up that description. The basics of it are - it’s a system. Unless you want to be a cog in that system then don’t look for quick cash. If you want to make cash out of that system you are going to have to look at all the cogs and find out where the big lever that controls them all is situated. Avoidance might be another technique if possible, travelling to make a better sale and avoiding some region based system. There is value variance over regions because you can’t easily see from one region into another, one reason for idea of the trade route. Alternatively, try and control the market. You could buy up your competition and set a higher overall price for the buyers. You can either do this with cash - effectively investing it - or you can crash the market  by selling low until selling competition buggers off and you set the price to whatever you want.

REMEMBER - this is just me trying to think through an example. Don’t actually get involved in ore/mineral speculation and market control. The market is too wide and fast in the basics. Learn the lesson and apply it later to produced items.

3. Buy low, sell high, demand and the misinterpretation of Buy orders and Sell orders

Here is the important one. If, like me, you are a bit of an idiot then you had the market view sitting primarily on the split screen view of Buy Orders and Sell Orders. You could see the lowest Sell Order and the highest Buy Order. That's all you need to know about buy low, sell high right? No. Again. Go and look at the next tab, the Price History one. There is a graph plotting an average price there and a bar chart at the bottom showing how many units of the thing have been sold.

Here is an example. You turn up in a system and check the Buy orders for the item you are selling. They are all crap. They are all below your profit margin, they are less than it cost you to make it (you did calculate that against the cheapest you could get raw materials, right?). So you decide to sell elsewhere. There is no market for you here. As Darth Vader might say, unfortunately for any of us Star Wars fans,

NOOOOOOOOOOOOOOOOOOOOOOOO!

Have a look at the Sell orders. Are they higher? This is who you are competing with, you aren’t selling directly to Buy Orders because by and large they are speculative and low. They are for quick, desperate, calculated or erroneous sales. Would you ever post a Buy order and set the price so that the merchant made loads of cash? Nope, well not outside of some genius scheme anyway. Check the Price History - you notice that loads of these items are selling throughout the day, demand is there otherwise no one would fill in Sell orders. You can put your own competitive sell price in and probably sell out of stock over the next few days (market fluctuations aside).

So Buy Orders are not indicative, wholly, of demand. They may be in a super high demand market like minerals which is where I formed the erroneous concept that they were that useful all the time. Ammo is the same. If you want to make some slow cash starting in production - make ammo and ship it to Jita. In markets where the product moves more slowly you look to demand and your competition - the other sellers. Don’t look for the quick sale. You can do quick sales, I’ve done it and made some surprising amounts of cash on odd orders (eg 2 Incursus at 1 mill each one time) but that was it - they were anomalous situations. That's no way to create a regular income.

Conclusions

1 ) Unless you are desperate, and you probably won’t be after the first month, or you are in the ore/minerals game, then consider the return of cash over time. Don’t look to get all the lovely dosh at once just for pressing a button marked "Sell". Look to enter markets, sell over time, make a steady stream of income with decent rates of profit without buying into the lure of instant cash figures. The Transactions tab in your wallet is your friend. A column of regular green is better than a single number in green.  A friend once described EVE as “like having a second job” when he heard I’d started to play. In a way he was right, you have to make your own regular wage. Cash-in-hand jobs will get you started and now and again might make you a lot in one go but concentrate on the steady too.

2)  Next week I’ll be posting why all this is wrong and in some situations you should do exactly the opposite. Actually I won’t be posting about this. If I post about it, it would mean I thought about it some more which would mean my head exploded, writing grey matter on the wall but writing nothing on here.

3) Ignore me. As I said above, read Mabrick, Goblin or K162 or someone else. I’m going to buy a book on economics. This is too complex for me to have in my head along with everything else.

4) When setting up a sell order for your own price REMEMBER TO SET THE SELL ORDER DURATION. It looks like you can’t modify this later and I continually click through and end up having it set at 24 hours. This has pissed me off a lot recently. If I've missed some way to do this other than cancel and remake the order, then please let me know. Pay as much attention to setting up sales as you would if buying contracted items from a known filthy low sec pirate who’s pirate corp holds sovereignty in the known to be dangerous pirate system you are supposed to pick up the items from.

5) My brain hurts.

A few final pointers

1) Money sat in the bank is doing nothing. It is being wasted. Put it into some activity, hoard nothing unless you have a damn good reason. Keep only an emergency stash to restart you from scratch. See note 2.

2) A million is nothing. Get over it. By the end of month two you need to be thinking that 4 million is nothing. I’m aiming for 10 million is nothing by the end of month 3.

3) Start planning. Your first 3 months in EVE are orientation. Plan for month 4 or more as soon as you can. There will be plenty to do in the meantime.