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I am really early in the game, which means my blacksmith skill is very low. Is it best to sell weapons and armour for the money right now, or should I start focusing on blacksmithing from the start?

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My suggestion is break down all you can, and sell the rest.

At low levels, some of the items you find can't be broken down, so start by going into the blacksmith interface and breaking down everything on the list. Then mark as junk anything you don't want to keep, and sell this to a trader. I've been tending to keep unique and set items, personally.

Even if you break down an item from a class of items you don't use, there's a chance you'll end up with an element that you can use on a different class of items. Furthermore, I've gotten components from weapons and armor before that have better stats than the original item did. Therefore, even if the item is weak or the wrong class for you, you're still better off breaking it down.

If you've got excess weapon or armor parts that are inferior or you have no intention of using, you can sell them individually, although the value of these components is quite low compared to the original item. However, the items you're likely to able to break down aren't going to be worth much anyhow. Note also that armor and weapon components don't take up space in your pack.

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Can you "create" value by smithing components together into a vendor-item that's greater in value than the sum of its parts? –  Raven Dreamer Feb 12 '12 at 20:30
    
Or even beyond that, smith them into random items, then break them down for another shot at something better? –  Raven Dreamer Feb 12 '12 at 20:31
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We took these sub-questions and experiments and took them over here –  agent86 Feb 12 '12 at 23:46
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I haven't had any problem having enough money for what I need to buy (which tends to be very little).

If the item is of the same type as one I would use, and I have the ability to salvage it, then I keep it for salvage. Otherwise, I'll only keep it for salvage if it has a state on it I'd like for some crafted gear. Everything else goes into Junk to be sold next time I'm back in town.

Remember that initially you can only salvage white items. Once you've leveled up your Blacksmithing skill enough you can salvage green and then blue items.

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