Today I would like to talk about something that not many people consider when making gold in WoW, opportunity cost. For the serious gold maker, or someone just starting out this can be important. Just as in real life, businesses must make decisions about their assets and inventories related to opportunity cost, so must you as a wow gold maker. The effects of opportunity costs essentially come down to risk versus reward.
A popular strategy of many players is to stockpile goods for the next patch so they can cash in and make tens of thousands of gold in a few days. While this is an effective strategy and one that can make you a ton of gold there is something that not many of these players consider, opportunity cost.
For every item you stockpile there is a risk that inherently comes with holding that item. That risk is the amount of demand behind the item in the future, which is unknown. Maybe people will not want it as much as you predict so you sat on a stack of items for a month and they did not pay off for you at all.That's why its riskier than playing the market at the current time, because at this point in time you can accurately gauge demand for certain items, while in the future you can not.
You need to consider the possible return of your gold now, versus later. Maybe you invest a bunch of your gold into pyrite ore in order to make a killing once you can prospect it for epic gems. Let's say this happens 2 months from now once patch 4.3 comes out just as a random example. So you have 1000g to invest in pyrite ore and you buy as much as you can with it. Then you wait 2 months doing nothing since you have no gold. After the 2 months you can sell the prospect epic gems for 4000g. That's 4x what you invested, although you had to wait 2 months for it and got nothing during that down time. Not only that but you faced the risk that epic gems did not come out in patch 4.3, as well as the fact that you may not be able to accurately gauge demand for them.
Now consider a different scenario. You spend 1000g on pyrite ore and prospect it, or transform it into items for people to use. After a week you make 1500g, 1.5x what you originally spent. Assuming you invest the 1000g each week and come back with 500g in net profit at the end of the week after 8 weeks you will have made 4000g not including the initial 1000g investment.
Either way you make the same amount of gold, however the second method is far less risky than the other. This is because you are spreading your earnings out and learning a consistent cashflow over time, instead of large lump sum payments. Not only that but it is far easier to predict what your current demand for any product is right now than at a time in the future when demand may be completely unknown.
While both methods are viable for making gold it can be much less risky to have a consistent stream of gold running into your hands versus investing everything into potential future profits that you can get by stockpiling materials.