Chapter Two - Basics of Investing

The Investing Motto

At the core of the investing method is a simple law that represents the entire philosophy. Learn it well. While it may seem like common sense, it is easy to get side-tracked and lose focus. Buy Cheap, Sell Dear

Using the Grand Exchange Graphs

The Grand Exchange graphs, introduced in late 2007, are THE most important tool in your investing armory. They can be accessed from the main RuneScape page, unter the "Game Guide" tab. The Grand Exchange Database's home page has two main sections, both of which are useful for investors.

The first section, Price Rises, reveals the items that raised the most in price over the last day, week, or month. You can access the weekly or monthly averages by clicking on the extendid list, then choosing the time frame you want from the buttons on the top of the list. The monthly (30-day) averages are best for medium to long term investing, while the dailies are best for short-term investments and arbitrage.

The 7 and 30 day averages for largets price drops are most useful when you are attempting to profit off a price bounce in a crashing item. More information on price bounces is in the next Chapter, Intermediate Investing Techniques. section.

Identifying "Hot Items"

The first step in investing is to identify a "hot item" - an item that is going to rise over the next few days (for short-term investing) or the next few weeks (long-term investing). We can find hot items two ways - using the graphs, or through speculation about future updates. Update speculation is covered in the Advanced section. We'll now discuss methods of predicting and profiting from short-term fluctuations.

Predicting Short-Term Fluctuations

The item in the graph below, a Saradomin Platebody, has a predictable pattern of price fluctuation. Like a wave, it goes up and down repeatedly. Many items have this sort of fluctuation - it tends to be a characteristic of items used frequently but mainly by higher-end players with more money to spend.

The green arrows on the graph show the top of each wave and the red arrows show the bottoms. In order to profit from this item, you would have to predict the beginning (bottom) of the next wave, and buy several Saradomin Platebodies on the day when the next price was at its lowest. The price would then rise over the next several days, and you would attempt to sell right at or near the top (green arrow) of the wave.

Other items with similar "wave" graphs high-end weapons, armor, and even more expensive food (Swordfish is a great example). Because of this pattern, we can be fairly certain that an item of this sort will go up again once it has reached the bottom of a "wave". This makes wave items some of the best and safest investments possible.

So how do we know exactly when to buy a "wave" item, and when to sell? Common sense tells us to buy at the bottom of a wave, and sell at the top. The secret to predicting the bottoms and tops of these fluctuations is the slope of the line. Yeah, the one you learned in math class. When the slope of the line flattens out, we know that we're at the top or bottom of a price wave. You can see the flattening slope at the beginning and ending of a cycle on either side of the arrows on the graph above. As soon as you see the slope go flat at the bottom of a price drop, it's time to buy. When it goes flat on the way up, you have to sell (although I prefer to sell before this happens to ensure that I don't get stuck with the item after it starts to fall again).

Other Factors In Choosing An Investment

Let's pretend that we decide to invest in earth runes, hoping that they will rise 1gp each. If earth runes (hypothetically) cost 10gp, we'd earn a profit of 1gp for each earth rune we bought. We spend 1M on 100K earth runes, and pick up 100K profit the next day.

Now suppose we had decided to buy one hundred, say, addy platebodies for 10k each (a total investment of 1M). They go up 500gp overnight, leaving us with 50k profit. While the physical rise of the addy plates was larger, the percentage rise of the earth rune was larger.

Unless you're dealing with extremely expensive items (such as Godswords, etc) the better investment is ALWAYS the less expensive item with the larger profit margin percentage.

This is an often underestimated factor in investing. Investment Weight is a measure of how easy or difficult it will be to sell your investment and profit once the price goes up. Items that are commonly traded have a very light Investment Weight, there's always someone buying or selling. Expensive or rare items, on the other hand, are very "heavy" investments because there's a much smaller market. Items that are dropping in price also have a higher investment weight, because people are unwilling to buy the item.

In an attempt to prevent price manipulation, Jagex introduced a series of limits on your Grand Exchange transactions. This is important to know when choosing an item to invest in, and can also be confusing when you cannot buy or sell an item and don't know why. These are the known "buy" limits imposed by Jagex:

Item Buying Limits

• Runes, Arrows, Most Food Items: 10,000 per four hours
• Most Armor/Weapons: 100 per four hours
• Many Treasure Trails items: 2 per four hours

	Other Limits Jagex has also made it impossible to sell an item on the Grand Exchange if you have bought at least one of that item through the Exchange (or through regular trading!) in the past four hours. It is important to know this, many people have been confused when they cannot seem to sell an item they just bought even for the lowest price.

It can be very frustrating to only be able to buy 100 rune scimitars if you expect them to rise 2K in the next day. While there is no way to buy more then the specified amount per four hour period, there are several methods you can use to maximize your profit on buy-limited items:

• Buy items from other players via the unlimited, traditional trade window (only do this after you buy the maximum from the Exchange)
• Have a friend buy the items on the GE at the same time as you, and then trade them to you (offer them a few thousand coins for their help!)
• Use the "Related Items" (item chaining) tactic to profit off the effects of the rising item's price rise (more on this later)