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Before the Auction: Buying on Speculation

Many buyers hope to nab overlooked auction treasures that will later bring in a king's ransom. Whether searching for a hot new collectible or a timeless favorite, buyers are constantly on the lookout for that diamond in the rough, anxious to quietly snatch it from the virtual parlor (or wherever) without much fanfare. However, buyers need to be clear about what they're investing in, how much they'll invest, and how and when they'll turn it for a profit. Here are some tips that will assist you in your speculative purchases and future sales, helping you to distinguish between true gold and worthless garage-fill.

Know Your Stuff
Knowledge is power--and it will be the strength of your speculative purchases. If you'll be speculating on items you already know a lot about, you're ahead of the curve. If not, be sure to fully research what you're thinking of buying. Use trade papers, collector's guides, the Internet, and even the auction sites themselves to acquaint yourself with the item you'll be purchasing. Become well versed in the history, manufacture dates, variations, and reproductions (if any) of the items you will invest in.

Then research the seller--especially if this is to be an online auction speculation. Determine how long the seller has dealt in this sort of item and what expertise he or she has. 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. If the item's inexpensive, you might not have much to lose in making the purchase. However, if it seems costly and you're just not sure, you might wish to pass or at least get the seller's contact information for the possibility of a later purchase--after you've done a bit more homework.

Know Your Limits
Regardless of an item's desirability or profit potential, you'll need to ensure that you buy it at a price that allows a profit to be realized. In general, you're best served when you can purchase an item at a "wholesale" price level--that is, roughly 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 determine your success 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 the 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: the seller might be trying to make the same profit you might have in mind.

If you're speculating at online auctions, your best bet is to set maximum bids--and not exceed them--that will allow you the profit margin you desire. While it's true that sniping often brings in good prices, it might also incite impassioned bidding on your part, causing you to exceed your bid limit. A good alternative is to bid early in an auction and then forget about it. Though you run the risk of being outbid, you might also find EOA notices coming your way, bringing tidings of great deals, too. However, if you have the will power to stick to your limit, snipe whenever possible.

Finally, try to avoid rampant speculative buying. If you're grabbing everything you come across, you might lose sight of how much you're spending. Even if you are getting great deals, your outgo could quickly exceed your income. Try to keep a balance between sales and purchases. The best situation? When auction profits are reinvested in future speculative purchases.

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