Arbitrage for the rest of us

Anyone with a passing interest in economics should know the term “arbitrage” – the opportunity to buy an asset a low price and then immediately selling it for a higher price to a different market. However, it’s not a concept that’s limited to the Wolves of Wall Street in all their forms – it’s an economic principle that many believe is playing out every day in the online world.

The so-called eBay arbitrage phenomenon has been the subject of forums, economic articles and even academic papers for years – individuals making a living by “flipping” goods they’ve bought, using online classifieds and auction sites. John M Groleau, for example, achieved his claim to fame by making a million dollars in 18 months just by using eBay and Amazon – trolling storage auctions, flea markets, and yard sales to find bargains to resell.

Although it’s a new phenomenon in South Africa, it’s gaining traction.“There are a few individuals who are making a living entirely through online arbitrage,” says Claire Cobbledick, Head of Marketing Gumtree South Africa. “The majority of users are finding it an easy way to supplement their existing income, but we are becoming aware of increasing numbers of “Super Users” that are buying and reselling large quantities of goods with increasing success.”

The concept is extremely simple. If you buy an item for R5, and resell it for R50, you are practising arbitrage. It’s not, however, a given that an item will be sold for profit. It takes practise and a good eye. “There are scores of podcasts, books, websites and forums devoted purely to professional buying and reselling but they have one piece of advice in common: stick to what you know well,” says Cobbledick. “You don’t find valuable items just lying around every day – you have to look for them. Secondly, you have to spend learning what the values really are. Just because something sold well once, doesn’t mean it will sell well again. That’s why the most successful arbitreurs are the ones who combine their passion with their profession. If you like collecting vintage clothes or video games or art, chances are you will like looking for them, buying them and selling them.”

To become a successful arbitreur, there are a few things you can do immediately to make extra money:

·         Buying in one season, selling in another: “Stocking up on Christmas decorations, camping gear and air conditioners late in January and reselling them in December is a great strategy if you have the storage space,” says Cobbledick.

·         Buy Low and Sell High repeatedly: Masters of arbitrage recommend repeatedly visiting places where discounted goods, relative to the suggested retail price, are likely to be found. “It’s should be a regular weekend activity to really become a professional at it. Know where your town’s factory shops and thrift stores are and scour them for bargains.”

·         Start with what you know: “If you collect vinyl records, or vintage action figures or classic car parts, you know if what you are looking at is a bargain or not. But if you’ve never dabbled in antiques, you are more likely to be duped or to overpay for what you may assume is a valuable Royal Dalton figurine (but it’s actually regular kitsch). It doesn’t have to be a niche category – furniture or electronics can be great items to resell.”

·         Improve your search skills: “Keep an eye out for ads of individuals that are leaving the country or moving – they are more likely to negotiate because they would like to clear out their garage. Use multiple keyword searches to find the real gems, and set up alerts so that you can be the first to find a rare item when it’s uploaded.”

·         Buy in bulk: “One of the most profitable ventures is to buy out bulk tickets for an event, gaining a 10% discount, and reselling them (if the terms and conditions allow it). It’s a sure fire way of making a profit.” 

Possibly the biggest advantage of online arbitrage is the fact that it can be done fairly easily – without giving up your day job. “Use your hobbies and interests,” says Cobbledick. “If you enjoy browsing for bargains, chances are that you can turn it into a profit and supplement your income enough to splurge at the end of it.”

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