Textbook Arbitrage: Making Money Off Used Books

Nov 10, 2014
Originally published on November 14, 2014 8:55 am

On the most recent episode of our show, we told you the story of two guys who think they've found a guaranteed way to buy low and sell high. Their secret strategy — buying and selling used textbooks.

Bob Peterson told us he got the idea after he watched a used economics textbook nearly double in price between the day he posted it for sale online, and the day he shipped it out to the buyer. Bob saw this happening with other books, and he guessed that the prices of the textbooks were going up and down with the college calendar. His theory was that prices would fall in summer (no one is looking for a nice textbook in July to curl up with on the beach) but then rise when classes begin and students really need the books.

If he was right and this was happening reliably with lots of books, Bob figured he could make money. So he enlisted his brother-in-law, Kenny Jacobson, a computer programmer, to help him sift through the data.

Over a year Bob and Kenny gathered data from Amazon on sales of all kinds of used textbooks, and they found the pattern was there for lots of textbooks — prices fell in the summer and jumped back up as classes started at the beginning of a semester. It was as if they'd found a stock that went up and down at very regular times, so that they could know exactly when to buy it, and exactly when to sell it.

For every dollar Bob and Kenny put in, they say they've gotten $2 back. They doubled their money in a semester.

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And there are people who will pour over data from the stock market looking for any little pattern that will tell them when to buy and when to sell. Those strategies usually fail. But David Kestenbaum of our Planet Money team has the story of two guys who think they've done it - found a sure-fire money-making pattern, and it's not in stocks.

DAVID KESTENBAUM, BYLINE: This is somewhere in Utah. I'm not going to say where. It's outside a small town at the end of a dirt road at one of those storage facilities, places where people stick stuff if they don't have room for it in their basement.

What kind of security do you have there?

BOB PETERSON: I have a padlock (laughter) on the door (laughter). That is it. (Laughter).

KESTENBAUM: This is Bob Peterson. The storage locker is where he keeps his secret investment - books, thousands of fat textbooks.

PETERSON: I got "Marketing," "College Accounting," "Earth Science," "Living With Art."

KESTENBAUM: The boringness of this is Bob's advantage. He's figured out the about old textbooks that most people had overlooked. He discovered it by accident. Bob runs a small business selling stuff on Amazon - T-shirts, flip-flops, used books. And he noticed that the prices for used textbooks sometimes rose dramatically. He saw one book go from $4 up to $60. And he had an idea for what was going on. Maybe the price swings had to do with the college calendar. Books would be cheap, say, during the summer when students were eager to get rid of them, then more expensive when classes started and everyone was scrambling to find a copy. Now, if you think you've seen a pattern in the stock market, there's lots of data you can use to check if you're right. For textbooks, there is nothing like that.

PETERSON: And this is when I approached Kenny. Oh, he's my brother-in-law.

KESTENBAUM: Kenny Jacobson, computer programmer.

KENNY JACOBSON: Every programmer goes through a phase where he or she thinks they can beat the market, and I learned by experience that you can't (laughter). I wasn't going to beat the market.

KESTENBAUM: There were too many people, too many computer trading algorithms - all looking for any little pattern. The stock market seemed unbeatable. But maybe there was a way to beat the textbook market. Kenny wrote a computer program that would go to the Amazon website and automatically check what price textbooks were selling for. It did this every night for months. The guys made some charts, and, yes, some textbooks had really clear patterns

PETERSON: Gold standard for this textbook season is adult development and aging. Do you have that chart, Kenny?

JACOBSON: Let me find them.

PETERSON: Do you want the ISBN number? 007 312 8546.

JACOBSON: Oh, yeah, we've got six of those in inventory. Oh, my gosh. OK, that is a good chart.

KESTENBAUM: In the offseason, the book hits a low of $17. But then classes start, and it goes up to $250. You can make over 200 bucks off a single book. It's as if you'd found a stock that went up and down at very regular times so that you would know exactly when you could buy it and then you would know exactly when to sell it, and you would, guaranteed, make money.

JACOBSON: Yeah. That's what got us excited. (Laughter).

KESTENBAUM: Free money. They decided to go all in - buy $10,000 worth of used textbooks, which when you're getting them for 8 bucks or 4 bucks, it's a lot books. You're like a hedge fund for textbooks.

JACOBSON: (Laughter).

PETERSON: That's a good way at looking at it, yes. (Laughter).

KESTENBAUM: A very small hedge fund.

PETERSON: A very small one. Yeah.

KESTENBAUM: So far, they say for every dollar they put in, they're getting $2 back. The thing about free money opportunities is that they tend not to last very long, precisely because everyone is looking for them. Kenny and Bob have a head start, but if some giant, used bookstore wants in on this game, there will be a bidding war for those textbooks offseason. You won't be able to get them for $4 anymore. And you won't be able to sell them for $200. The price gap will close. And really, everyone will be better off. The students selling the books will get more money for them, and the people buying them when classes start, they'll get them a little cheaper than they do now. Everyone will win, except for Kenny and Bob. They will be out of business. David Kestenbaum, NPR News. Transcript provided by NPR, Copyright NPR.