Land Baron = Commodity Trader

People who make money in real life commodity markets often don't make the things they trade. They make money, because someone along the line has mistakenly put the wrong value to a commodity. They make money by gambling on what prices will do. They can't force the price to do anything. If they try to force prices up by selling for more they will make no sales. If they try to force prices down by selling for less they will find someone else reselling the same commodity they just sold for more.

Land in SL is a commodity, and currency in SL is a commodity. Everyone can freely trade each for money easily. Land barons are not the reason land costs from L$2.0/ meter and up. There are two competitions going on at the same time that determine the price of the land. Land sellers are competing to get the saleby constantly under selling each other. The lower they price the more likely they will sell. Land buyers are competing for different types of land. The first one to get to the cheapest land of a certain type gets it. Everyone has an equal chance at the same piece of land with features like Find and Auction listings. The fact that everyone has an equal opportunity to participate makes a person only able to guess at what the prices will do.

If you are upset that auction land is being sold cheap to a land seller and then sold for more, you should compete in the auction with them. No one is forcing you to stay out of the auction. It is your choice. You think land on grid should be cheaper, then don't buy the land until you see it for cheaper while you continue to sit without land. You think your land is worth more than everyone else is selling for, then sell your land for more as you continue to pay teir costs. You can sit there all day and think that prices are wrong. I can sit here and say a brand new corvette is worth $100. It doesn't make it true.

Land barons and currency traders are just playing a gambling game. They are trying to make money off of their ability to guess on prices. If you think the market can be controlled, then do it. It is a risky game. You could lose money when the market corrects itself. Markets always do. If you are good at predicting a market, then do it. These people aren't evil, they are just playing the gambling game they are good at. Would you think of a person as bad if they were good at Black Jack (not counting Casino Owners)?

You're spot on, Alt-of-someone. I'd even add that both are scarce resources, the latter artificially, the former by definition.

Buy low, sell high is the first rule of capitalism, right?

Pretty much applies here in spades. Very often I've compared this to playing the stock market, just as GOM-and-IGE-to-L$ is similar to trading foreign currency.

So, while what you've wrote is a nice read - I'm not seeing a point per se. Are you implying people yelling about value (of land, L$, etc) should put their money where their mouths are? Because said yelling is kinda par for the course.

Hell, imagine the number of harried souls on eBay.


Anyway, what I take away from it is one thing: Investing in Second Life is a gamble, and one should assume the risks of losing their shirt at the door versus the potential gain.

This is a tough lesson to learn for a lot of businesses, especially those in the way of the Linden Labs Improvement Steamroller(TM). Like in the real world, a good investor does not put all of his/her eggs into the same basket. By this, focusing solely on land or solely on playing the currency game are two of the more major mistakes some residents have made, leading to quite a bit of drama.


So, at the end of the day, anyone that believes they can time the market without fail either has a working crystal ball or is an outright fool. Like with good ol' Hollywood accounting, I wouldn't look at the "cheap" auctions; I'd look at the spread of values in aggregate.

While you're right, I think things are MUCH more complex than you painted.

Let's say the end of the month is coming, and you have 512 sqm of "surplus" land, which is forcing you onto the next tier. You want to tier down one level. What do you do? Price your land a bit lower than normal, since you NEED to sell it fast. On the other hand, if you're a landbaron, a surplus 512 sqm doesn't change a thing, so you set it at a price (maybe even a bit above average), and once it will sell, when someone REALLY likes that land, and will even pay the bit surplus.

Apply your theory of 'putting the wrong price on land' on this example, and it will fail

Another example: if you don't like beer, a can of beer isn't worth much to you, let's say only 1 cent, because after all, it might be good for shooting practice at that price. For a person at a party, being thirsty, the SAME CAN OF BEER might be worth even 5 USD. So, what IS the value of that can of beer? Is 1 cents wrong? Is 5 USD wrong? I think value can only be measured when the thing is put 'in context', or 'to a market'.

Also, if you have a ton of gold, but (let's suppose) noone wants gold, everyone wants silver, you're doomed, you probably won't even be able to sell it for a cent a metric ton.

As for added value: how much is a grain of sand worth to people in the desert? And how much is it worth for a silicone chip factory? If someone provides the service of packing up some sand from the desert onto a truck and delivering it to the factory on another continent, it's totally normal to make money on it.

An added value in SL: would you BUY a catalog of tested, categorized, good free items, shops (with locations) for L$ 10? Is L$ 10 less money than your many hours of time to do the search yourself? etc.

Notha 001 (138,12 58256 m2 US$1,000.00 Bid Now!
Increta 001 (128,12 48048 m2 US$1,000.00 Bid Now!
Sibine 001 (128,12 56768 m2 US$1,000.00 Bid Now!
Murinata 001 (128,12 56288 m2 US$1,000.00 Bid Now!
Eson 001 (128,12 61696 m2 US$1,000.00 Bid Now!
Cerura 001 (128,12 57056 m2 US$1,001.00 28m 56s

I assume it's a combination of choice and ability. Not everybody has $1000 lying around to 'trade' or 'play' with. These people don't choose to buy land from the land barons. They are forced to, as land in their price range just isn't available in the auctions.

Second to that, with the new sim auction system, land no longer is scarce. It's unlimited if you have unlimited resources (cash). One of the reasons that land barons make a profit is because they have the resources to buy big amounts cheaply, and sell/rent smaller amounts with a profit. This is not gambling, this is using the larger cash resources they have available.

Is this not standard business practice? What is the problem?

I just wanted to point out this practice isn't based on gambling, as was suggested by Dark Korvin. I didn't suggest it was a problem.
I'm not here to discuss business ethics, i'm way too chicken for that

This interested me. I prepared a post examining the rights, wrongs, and costs of land baronry. It got so long I gave it its own thread. The conclusions are so surprising it might be worth a glance.

It's broken into a short summary post, followed by one with all the detail, so its easy to avoid the boredom.

Yer tis :
/130/62/60956/1.html#post637127

I just prepared a post so long, I decided to give you a warning first.

I decided to have a close look at land baronry, to see what was bad or good about it, if it looked remunerative, and if the widespread complaints of greed and parasitism are fair.

I am a bit astonished at where this lead me to, and would like to see if someone can point out where I am wrong.

My surprised conclusion is that almost all that they do is of some value to the rest of us. That we maybe complain at their margins partly because we don't understand how ridiculously high their tier costs are in holding land even briefly, or understand the effort they need to prevent these costs going even higher.

And that making money by speculating on overall changes in land values is almost impossible.

That the one thing they do that is close to parasitism is simply taking advantage of our own ignorance and laziness of what the "right price" is, which is just part of life.

That the argument for stabilising land prices (and I think it is very strong for unrelated reasons) is not that it would prevent land speculation. Speculating on overall land price changes is impossible unless land prices are increasing by 30% per month - unheard of, and anyway could never be relied upon over any time scale.

Note that I am NOT saying they don't ever charge to much for their "services". Just that they nearly all are "services", and we probably underestimate their costs.

The next one is the detail of the logic, and is ridiculously big. Don't blame me if you insist on reading it.

Lets see if we can break the margin a land trader can make into its component parts, and identify the different things he can get up to :

1. "breaking bulk" ie buying in pieces bigger than ordinary people can afford, and cutting it up into the sort of size they require.
2. "superior knowledge" ie trading cleverly, by taking advantage of other players whose knowledge of what the stuff is worth right now is imperfect. Distinguish carefully from (3). This one (2) will still work if the land is resold instantly, so that no advantage is taken of an actual price change.
3. "normal speculative activity", can be alternatively be described as "invest and hold". This is the one in which the margin cannot be got by an instant resale, but relies on waiting for the price to increase before selling. To consistently succeed, the market must move significantly, and must be successfully predicted.
4. "manipulative speculative activity", in which traders with significant market power, or with other power to influence market confidence, improve their performance in (3) by giving false or misleading indications and/or making trading gestures, so that their knowledge that the resulting movement is temporary or contrived allows them to profit. Difficult, dangerous and open to very few.
5. "Development". Improve the land so that it is worth more, eg by adding infrastructure etc.
6. "Sales Broking". Holding a portfolio of land always on offer to buyers, with a good variety of types, and providing the buyer (perhaps in a hurry) with information on its features, to help in her choice.
7. "Purchase broking". Buying land from a seller in a hurry, eliminating the need to wait, albeit at a "fire sale" price.


Lets forget (5) as a different activity, and (4) as unlikely to happen in SL, though not impossible. Which of the others are useful to other players? Of those which are not, which are in a sense parasitic, which can be prevented/reduced, and how?

(1) can be a useful service, given that SL do not want to do it. The trader does something SL cannot be bothered to do, saving them employee effort. So it is probably useful.

(7) can be a godsend, and we can be very grateful, even to sell a bit cheaply, if it is exactly when we need it.

(6) is probably not very significant, but may be useful to some people occasionally. Particularly since land is not a uniform commodity, and different types have differing desirability, and therefore different values, so someone who understands it, if they only take a reasonable profit from you, may protect you from a more serious mistake.

That leaves (2) and (3) as potentially parasitic.

(2) may seem heartless, but someone is going to take advantage of those unable or unwilling to research the price carefully, and not much can be done about it. Stabilising land prices would reduce it a bit, by making price more certain, but people would still be confused by the different land locations and types, and anyway, the idea of an exact "correct price" for a particular parcel is partly a fiction.

So the only candidate for a really parasitic activity which is going on here in significant amounts is (3). This is "normal speculative activity". Making money from genuine overall movements in the market as a whole over time, but buying when it is low, and selling when it is high.

Lets look at this to see how attractive it is. Whether we fancy having a go at it.

It involves owning land, and waiting for the predicted price change. Since you have to be free to sell at the right moment, unless you are relying on long term changes (more than say two months) it would seem you have to leave the land empty, and can't really rent it out while you hold it.

So what is the cost of holding empty land. Frighteningly high. In addition to the RL interest costs of tying up money you could have in real RL dollars, you have tier to pay.

Even for the big holder, I dont think you can get the tier below roughly US$200 per US$1000 of land. Which is 20% PER MONTH. Aaaagh !

But wait ! Its much worse than that, and more fraught. Because of the tier boundaries.
(a) You only have to be over a tier boundary for one second, and you incur the extra tier as if it were the whole month. If
(b) You only have to be over a tier boundary by one square meter, and you pay for the whole next chunk you do not have.

So if you don't perfectly fill your entire tier, for the entire month, you are paying at a much, much higher rate. Even fill 3/4 of your tier, for 3/4 of the month, and you may be paying at close to 40%. Its a very complex calculation.

I think we can assume a trader who is doing many trades per month (buys when price is low, sells when price is high) and who is trading in chunks of significant size relative to his tier level. He will be unable to keep himself consistently just below a tier level, because he cannot always choose the precise timing and size of every trade.

What this means is that his average tier charge will be well above the 20% per month. We might guess that if he exerts no "tier efficiency" control at all, he might suffer from (a) and (b) to the extent that on average he is paying 40% per month.

What this means is that unless the land you bought is appreciating by more than 30% per month, you are losing out, and even to get that you have to be very sharp in controlling the timing and size of your trades to keep your tier fullish and yet within limit.

I'm too lazy to examine the land sales curve, and correct it for exchange rate. My guess is it that 30% per month has almost never happened, and could certainly never be relied upon occurring in the future.

My conclusion is that it is almost impossible to make money by speculating on land price changes with time. Holding land empty for this particular purpose is close to insanity.

There is money to be made in land, but it is for legitimate purposes which give some value to the community, as listed above.

Which is not to say we are not being ripped off, of course, if the margins being taken from those useful activities are too high.

But I don't think many of us realise that anyone with empty land, and trading around with it, is likely losing at least 30% of its value every month it is held.

Not realising this may mean that we are unable to fairly assess when we are in fact being ripped off. Holding land for resale at a profit without another use for it meanwhile looks like a very dangerous game, requiring a continuous tier balancing act, and a very fast turnover.

Why aren't certain people bankrupt ?

I'd be glad if someone can show me an error in my logic. I didn't really know where this would lead me, and am pretty surprised by my own conclusions.

In RL people with more money have better investment opporunities with large returns. If one has $10k us dollars, the return is much better than a $500 investment. If one spends $1000+ for a sim as an investment, that money could all be lost. The return on the large risk is required to cover self-insurance.

If the investment/risk is tiny, the reward is also tiny. This is capitalism 101 imho.

Hmm, I like all the interesting responses I got in a short time.

For one, I have an alt named Ender Albion that I use when I don't want to be bothered. I have another alt that I never use at all except to transfer money, but I think I'll save that identity for a rainy day in case Ender Albion starts geting lots of IM's. For the main part though, this is the name you will have most likely met if you see me in world. So for the one that thinks I'm an alt, you are correct. If you think I'm an alt of someone that is well known by another name, then you are wrong.

The thing that many people miss in the land trade market is teir cost. The fact that most people don't want to spend $1000 means that a land baron is doing you the service of taking a huge chunk of land and chopping it into smaller peices you can afford. This may not seem useful to the average person, but if Sims weren't chopped up and resold smaller, land would be more scarce, and prices would be higher. They also take land off your hands for cheap prices when you need to sell today to avoid teir costs. You can think of it as a rip off, but you wouldn't do it if it didn't save you money from the teir costs.

Land Baronry and currency exchange are both gambles. Land baronry is a gamble, because it is not guaranteed that you will make more money than you pay for teir. Currency exchange is a gamble, because it is not guaranteed that the market will change in the direction you want in a timely fashion.

Now for those that didn't see a problem with any of this, that is my point. The two groups aren't hurting you. Both groups do their best to predict what a buy and sell will do to make them money. In reality though, most of them aren't forcing the price to do anything. In reality, most traders are just riding the wave. Those that try to force the wave to do something are taking the huge risk of the wave bouncing back when they don't want it to.

Right on, Dark. (applauds)