> But it is, because in the long run, assets without cash flows cannot increase in value more than the economy as a whole. If something appreciates faster than the whole economy in the long run, it eventually eclipses the whole economy, which is impossible.
No one is operating on an infinite time horizon in their investments, so this argument seems moot. You can certainly find collectibles that have grown faster than the economy as a whole over a period of O(decades), which is all any human needs.
e.g. a Black Lotus card from magic was about $15 in 1994 and about $11,000 (or more, depending on age and condition) in mid-2021. [0] In that same time period, the S&P 500 has gone up only about 10x.
The article is arguing that you aren't likely to be able to pick the ones that will grow faster than the economy as a whole over the time frame you intend, because it relies on an extreme amount of right-place-right-time luck. If you were looking for the next Beanie Baby for the last 20 years, do you think you would've found it?
I think it's also arguing that the particular appreciation you need to capture largely only happens at the "before you heard of it" part of the curve. I don't think it has quite enough specifics there, e.g. would buying a Honus Wagner card in 1990 compared to a bunch of stocks have paid off over the last 30 years? I haven't done that research myself.
Unfortunately this is why I've given up on investing anything more in stocks or crypto. Everything I invested since before COVID is down.
My coinbase account currently has only 34% of the value I put into it 2 years ago, and I spread my investment over the top 5 hot currencies at that time (ethereum, cardano, algorand, sushi, bitcoin).
My stock investments are doing better at 65% of what I invested (tech, engineering, infra, pharma). Most are doing ok (down about 10%) but one in particular has absolutely tanked even though their pharma products are doing great and they've got two promising drugs in clinical trials. It's value has gone down 65% in the last year.
People will tell you to do you DD but the simple fact is, you can't. The market doesn't operate on any type of logic, a cat can do as well as a stock broker at picking stocks, and huge investment firms only win out in aggregate because they can (usually) absorb gigantic losses.
Right now I'm "bag holding" for the foreseeable. I consider these things "back pocket lottery tickets" that might one day give me a small win. But for the future I'm maxing out my pension and saving enough to buy a rental property, because one thing that has never dipped through boom and bust (at least where I live), is rent.
Edit: I lie, part of my TC is stock, so wherever I work, I am "investing in them" too
> Unfortunately this is why I've given up on investing anything more in stocks or crypto. Everything I invested since before COVID is down.
My coinbase account currently has only 34% of the value I put into it 2 years ago, and I spread my investment over the top 5 hot currencies at that time (ethereum, cardano, algorand, sushi, bitcoin).
You may want to reconsider investing in crypto too if you are down %65.
Eth was -$100-300 about 2 years ago and now $3k and Btc ~$8-12k now up ~$40k, exactly how are you down investing in top 5 projects 2 years ago or am I missing something? You should be up significantly and I’m kicking myself for not investing.
What killed my investments was the advice to "diversify your investments" (or as I think of it, "spread your bets"). Look at charts for ADA, SUSHI and ALGO over the past 1.5y and imagine getting in at the wrong point in all of them. Plenty of opportunity for losing most of your investment. On average I've done poorly. If I had only invested in BTC and ETH I would have done great, but that would have been against all good advice.
There’s some predictability in terms of people trying to buy all the things they wanted as a kid when they finally have the adult income to afford it. Some examples include muscle cars, BMX bikes, LEGO sets, and other things that a large population of children were aware of and wanted. If you just stock-pile the big sellers or scoop up the used stuff when it bottoms out in value then you might be able to profit.
The big issue is carrying costs. If I could have parked a bunch of 70s/80s Porsches in a climate controller garage for 30+ years I’d be cashing in right now.
How are 90s baseball cards, pogs, and yo-yos looking? Or "regular" opened copies of NHL 94 or what have you? I think we often overlook all the shit we were into that hasn't gotten expensive. We'd have to basically index-fund this shit if we had really been trying to invest in it in 2000 or so, and I think the losers would be a big problem for our fund. Maybe you bought a 3000GT instead of a Supra because you didn't see The Fast and the Furious coming. Whoops.
Let's try to predict the future instead: which of things that 2022 kids are into should we be buying up for 20 years from now? Roblox items? New Pokemon cards? (I don't know if I actually can come up with any other things off the top of my head, lol.)
Regular copies of NHL ‘94 aren’t worth much (because yearly sports releases have a lot of copies and are typically fungible with the year prior or later), but is still a fantastic game and worth the $17 market price. That said, 16-bit games have doubled to quadrupled in market price in the last 3-4 years and are becoming increasingly hard to find. I’m interested in seeing how a recession affects prices, but some rarer, low print games have been expensive for a decade add and probably won’t lose much value.
Obviously, who would have known, but at least in video games you can watch prices start to rise about 20 years after a consoles original life.
Are there counterfeits being made? Seems like those games would be relatively easy to copy for someone with a little skill. I don't imagine many buyers are able to verify authenticity.
There are counterfeits, but they are easily spotted by inspecting PCBs, packaging, printing, etc. There may be some skill involved in identifying a counterfeit, but that’s true of most collectibles. If you get a copy of Snatcher for less than $1,000 it’s probably a counterfeit, and if you can’t tell, you probably wouldn’t be spending that much to begin with.
fwiw Topps (one of the Big Two manufacturers of baseball cards) recently attempted to go public via a Special Purpose Acquisition Company (SPAC). Their pitch? NFT baseball cards.
Are you sure? I investigated once the Mercedes 300SL Gullwing. Despite the high price it fetches, it's still a lousy investment, if you consider inflation, compare it to S&P 500 returns, and account for all the storage costs, insurance costs, and costs to keep it in running condition.
Cars decay even in a climate controlled garage. I've had some problems with my '72 Dodge with plastic parts becoming very brittle, and some things just disintegrating when they're touched. Not that I mind, I didn't buy it as an investment.
Some of those things have a floor - LEGO basically never goes under $10 or so a pound even used, so if you can get unopened sets for that price or so, you’re basically guaranteed to make money someday.
Probably not worth it as an investment however - I’ve done it and sure some of the sets I was able to sell for much more but many just sit there.
Cars are an interesting example. They are very generational outside the premium outliers. What is raising in price now are those that people are nostalgic with, but they are different from ones that parents or grand parents were nostalgic about, those in current day are just bad bets.
It is about timing, in both buying and selling. And then in carrying.
Not quite true for MTG. It was insanely popular in the mid-to-late '90s, and you could still pick up a black lotus for $250. Dual lands, which are now $100+ each, could be had for $5 each.
For MTG, the problem was more "is this gonna keep increasing in value". In hindsight the answer is yes.
And in foresight, maybe further question how long will it keep going up? What is the size of new player base considering how expensive it actually is. And how long will the old guard or current active players stay alive and active.
>The article is arguing that you aren't likely to be able to pick the ones that will grow faster than the economy as a whole over the time frame you intend, because it relies on an extreme amount of right-place-right-time luck. If you were looking for the next Beanie Baby for the last 20 years, do you think you would've found it?
While that might be true for toys, it's not entirely true for art. Some old paintings of reasonable quality which aren't already sold at exorbitant prices will go up in price because of scarcity. After the buyers will decide they can't afford the best known ones and current favorites, their attention will switch to what can afford.
For modern art you have to find quality. Because at some point in time its value will rise.
So, it's possible to knowingly buy art which will appreciate, the only question is if it will beat the stock market.
As for that, if I'll buy something, I won't do it as an investment. I will be happy to not lose money.
$1 on Bitcoin ten years ago are worth over ten million dollars now. And I think people thought Bitcoin had potential, even back then. Definitely something you wouldn’t mind spending a few bucks on. But back in the day it was quite different for average folks without enough tech knowledge to mine or buy crypto.
"Bitcoin's price rose again on April 13, 2011, from $1 to a peak of $29.60 by June 7, 2011, a gain of 2,960% within three months. A sharp recession in cryptocurrency markets followed, and Bitcoin's price bottomed out at $2.05 by mid-November.4 The following year, its price rose from $4.85 on May 9 to $13.50 by Aug. 15."
So let's use that $2.05 price as "ten years ago," I'm willing to give you 10 and a half years ;). A dollar in bitcoin then would be worth about $20,000 now.
So sure, pretty good. Nowhere near tens of millions, though.
And that $30->$2 change, and a few more up/down cycles between 2012 and 2017, shows that plenty of people thought it had already peaked. See also the various "oh no I lost my hard drive with the bitcoins I'd mined since I didn't think it was that important" stories. So sure, getting in for just a few bucks before 2011 and holding? Yeah, you're looking super great! But most people hadn't heard of it by then, and that's not who the article is talking about... when they did hear of it, you had a huge wave of pump-and-dump shitcoins proving the point of the article: the average person getting in at that point was largely too late for the level of return they were looking for.
You'd have to go a little further back. The first real price for BTC was in 2010, when someone paid 10,000 BTC for two pizzas, worth about 40 bucks. From that to the current price of $40K per BTC is a gain of ten million times.
Of course, you had to be a serious deep-in-the-weeds enthusiast to get in that early. Maybe that's the sort of people who tend to make money on collectibles, too.
I had plenty of coins in 2010 that I'd mined, the problem was that they were just a toy at the time and so when I lost the keys that same year, I didn't give a shit. Now of course I have regrets :)
Getting in early on BTC, ETH, or crypto of your choice from this bull run was probably a pretty non-reproducible fluke though. Once the leverage in crypto markets gets cracked down on (up to 100:1 leverage is definitely contributing to the wild moves including to the upside), the return profile won't look like that any more.
And with NFTs, there's just this endless sea of them. Even within one collection, most of the supply stays dormant so there's no telling who might wake up at any moment and completely flood the market.
> Because you can't go below zero. There's a floor to how much you can lose, and it's "everything you've put in", not "everything plus additional debt".
If you're leveraged, you are borrowing money, which means you can lose more than you put in as you could lose the money you borrowed and thus would owe on the debt. Further, if you are shorting bitcoin for instance, there is no floor.
You can't generally go beyond 0 though. You'll get liquidated before that due to the exchange's risk engines. If it goes beyond, that loss is passed on to the lenders.
Well, for starters the funding and borrow rate(s) are often positive because people just tend to be bullish. So things have to get pumped up somehow before they come crashing down, it's a much stronger tendency among the crypto faithful to be bullish than to be bearish. I also think the other commenter's insight about how gains on the short side are capped at $0 price is relevant.
So while there is downside pressure from liquidation cascades on the levered positions, the main point is that volatility in general will smooth out. The juiced up all time highs we've seen so far have been driven by leverage. Maybe BTC sells off to $12K but if there was no leverage in the system I think it would take a lot longer to bring up to $69K than it did before.
That relies on you being able to guess. You can retroactively see which collectibles gained value, but you are unlikely to know that ahead of time. If you somehow do know - congrats, you’ve hit the jackpot. Maybe you have a place in the art community that introduces you to rising artists before they hit it big. Maybe you have access to sales data for toys before it gets published.
But if you’ve read about it in the newspaper, you’re too late.
No, it's not. You can make decisions about buying stock based on fundamentals. You can choose to buy Apple stock based on their products, and on Tesla stock based on their technology. You can't reliably do the same for collectibles.
Nothing about Apple's products in 1995 would have told you to expect returns like you would have gotten over the last 25 years. Tesla's technology over the past couple of years hasn't really changed but their stock price has gone up 10x. There are no fundamentals that justify the current price, AFAICT.
I mean with stocks someone tends to keep historical data so you can measure risk.
With collectables this risk is much harder to quantify as it generally professionally recorded.
This inability to correctly measure risk, especially in markets with low liquidity dupes people into believing they have a much larger chance of 'winning' than actually exists.
The collectable market keeps growing with new products and new prices everyday. Something historically valuable will generally keep that value and increase over time (like the original Apple computer).
Hmm. I wonder if there is good overview of numbers on let's say stamps and coins. And I'm interested about mid and high-mid value stuff here. How well are those doing?
The market for Hummel figurines was large and growing for many years. Now they've fallen out of fashion and are basically given away in estate sales as the collectors die off.
Based on historical data, if you buy 1000 random stocks or bonds at a random time, in ten years you’ll have made money - on dividends and value appreciation.
If you buy 1000 random collectibles at a random time, in ten years you’ll have lost most of your money.
No different from buying random small name stocks.
Sometimes you luck out and your stock grows 20x in five years. Sometimes it doesn’t.
On the other hand, buying, say, Apple stock, is not much different from buying a first edition Charizard card or an unopened copy of Super Metroid. It’ll probably steadily grow in value over years and has been. But both could end up collapsing tomorrow for unknown reasons.
This is covered in the article in the cash flow aspect. Outside of a total economic collapse that took out "real" investments and collectibles both, the reasons the value of an Apple share would fall, or the price of land would fall, would be much more tangible and understandable.
The relationship for land is more obvious and immediate that business investment (you can charge rent!) but someone in 2010 who said "this iPhone thing seems to be generating a lot of cash flow for Apple, I think this is a good time to invest" is doing it not solely because they think the number of people interested in buying stocks is going to increase, but because they think Apple in particular is going to continue to do well financially because Apple is producing something people want to use.
People will also keep buying pristine copies of old games so long as that series has some popularity.
People aren’t going to lose interest in Nintendo series any time soon. Even if Nintendo made some awful business decisions, went bankrupt, and the developers and executives were all revealed to be violent criminals, people would still love those games and want to own them.
There’s a non zero possibility Apple could be bankrupt in 5 years and all those stocks become worthless. You never know what the next ENRON could be.
Just a few years ago that would've gone for a massively lower price. How certain are you that that rate will continue in the next five years? Would you seriously recommend that as a wise place to park two million bucks?
"Mario is going to remain popular" is a weak reason to expect massive returns on a $2M copy of a video game in a market that saw an extreme recent rise.
But collectibles have a finite length of value based on the generation to which they are of interest. Many old baseball cards from the 1950s and 1960s are actually going down in value as the people to whom they were nostalgic are dying off. It might be a while for Nintendo NES/Famicom nostalgia to do the same (and even later for subsequent consoles), but eventually the people who had those consoles as children will die and later generations just won't care.
If you want to compare specific bets then plenty of companies have seen 500x returns over shockingly short periods. It’s picking the winners that’s tricky and not everyone can get lucky.
Stocks have a positive bias above overall economic growth in dividends. In other words if you owned 1% of the US stock market in 1980 then without luck or skill you could turn that into owning more than 1% of the stock market in 2020.
Yes a large part of this is IPO’s are uncommon and companies go public early on when they are much smaller. But the other half is dividends collectively add up to enormous amounts of money.
Microsoft’s ~0.8% dividend doesn’t sound like much but it’s ~15 billion dollars every year. It’s rare for a US IPO to be that large and few US companies IPO every year. Sure Facebook was $104 billion at IPO, but that’s the largest ever yet Microsoft’s dividend alone would have paid for it in less than a decade.
PS: That’s looking at US companies, global IPO’s are tricky.
VOO (SP 500 index) has a current dividend yield of ~1.6%, ignoring that it was likely higher yield in the 80s and honestly much of this time frame, you use the rule of 70 to determine it would take about 43 years (70/1.6) to double from just dividends.
Of course this ETF (the index did exist) didn't exist in the 80s, and you increased the valuation numbers much more due to inflation which was double this dividend rate for all of this period. Additionally somewhere in there, the US economy grew a lot in this time period.
I’d read it as being a combination of dividends being re-invested over 40 years (including indirectly for share buy backs) if you did basically nothing.
If you're going to choose a single particularly successful collectible, you should compare that to a single stock. MNST[1] grew by 2,987x since 1996, which easily beats the 733x that the card appreciated.
S&P500 would be more analogous to averaging out the growth across a large cross-section of collectibles.
To my mind, the top echelon of trading card games, really only MtG and Pokémon, have a different economy. The games are actively played and people do make a living by furnishing the card market, as well as the organized playing market. I don’t have a description of the exact mechanism, but I think the greater liquidity caused by changes in the meta game, and therefore which cards are valuable at any given moment, lends confidence to the earlier cards. MtG is further unique, at least insofar as I understand it, that a class of the earliest cards still see play in organized tournaments and are generally very powerful. Pokémon doesn’t seem to enjoy this same phenomenon, but I guess the games perpetuate the nostalgia for certain items in the first edition.
This is why I never understood sports cards. The literally have no utility, which is fine in itself, but I cannot see how this does anything other than produce a few highly valuable artifacts of the cultural phenomenon that is sports. I actually think that the major sports league should create an ever green strategy game, to which the collectibles are inextricably linked as game pieces. Then again, they already generate so much revenue, and they would not be good at all at designing a game, so I suppose anything derived from licensing is simply gravy.
I am pretty sure there are now sport card collectibles that are connected to online and offline games, e.g. Panini has produced collectible sport stickers (mainly European football) for decades, but now also produces trading card games using the same sport cards, the "adrenalyn" TCG. The EA FIFA imprint should have something too.
And what will happen in a couple decades when almost everyone moves on from trading card games into new forms of entertainment? When there are hardly any more players it will be impossible to sustain the collectibles market.
Many of the replies to me provide other arguments for why stocks are a better investment than collectibles. I'm not disputing that. I just don't think the fact that collectible returns can't outpace the economy forever is a relevant reason.
They can out grow the economy in the short term, if it lasts long enough it becomes the economy.
Differentiating between fad and valuable, especially with manufactured commodities, is a guessing game. Odds are someone will end up with a large amount of junk along the way.
Yeah your quoted passage seems more like a general argument against non income producing assets like gold or something. With a collectible (but honestly you could mostly say the same about gold), you are betting that it will become more scarce (because people use up or throw out or lose current stock) and / or demand will grow but they won't be made anymore. Both of these things are reasons why a collectible would grow in value faster than the economy. Like any investment, there is a bet being made. But as you say, you could argue that nothing can increase faster than the economy for the rest of time without overwhelming the economy, but that's irrelevant.
I believe collectibles are one of the two forms of investments, and capable of being good investments.
A normal, warren buffet-style investment is a good investment if you are better at predicting future cash flows than the average investor.
A collectible is a good investment if you are better at predicting future demand than the average collector.
I consider a collectible anything that there is a limited supply of… ostensibly more (or not enough more) cannot be created to fulfill future increase of demand.
Real estate, professional sports teams, gold, beanie babies, art, old video games, and bitcoin all fall into the category.
If you can predict future demand for something of a fixed supply, you can do well.
I wish I had bought more dual lands in the early 00s, when I started getting back into the game. I snagged a few volcanic Islands for $35 each, and Underground Sea was around $50 on eBay at the time. I thought it was "a lot of money" (and to be fair 2 me at the time it was a lot!)
What are those now, $700 to $900?
But yeah, like the article says: Taking care of things is hard!
Which is why I store that kind of thing in a plastic bin so that even if the roof sprung a leak I'm not totally screwed.
I don't own enough to warrant a fireproof safe, at least not yet :-P
(a) This is year old data (b) it was for a typical "low-end", unlimited (white border) black lotus (which is why I said "or more, depending on age and condition"). A mint alpha black lotus is a whole different story, but I was trying to be conservative in my return estimates. Most people holding black lotuses in the mid-90s did not have mint alpha copies.
I've heard of people using art to reduce taxes. Something like: Get the art appraised (the higher the appraisal the better), and donate it to a museum or other 503(c)(3) to reduce your taxable income by the appraised value. If you have an actual willing buyer you'd still be better off selling it. But whereas stocks and bonds have an obvious value upon donating them, there's a lot more potential for generous appraisals for this purpose. I'm happy with my stocks and bonds and a clean conscience, but I've heard that a lot of the money among collectors is made this way.
art is also easy to smuggle in case one's entire country is hit with broad carpeted sanctions, and less likely to be burgled since it has to be sold in the primary markets. not to mention the whole arts appraisals circle is a farce, and driven with just the right bars of subjectivity.
I get the impression that unless you’re going through an auction house or selling super high-profile items, there’s no 1099-Misc or whatever going to the IRS - in other words, cash sales and unreported.
I get the urge to collect, and I totally get why people feel their collections are valuable. But having personal feelings of value are not correlated well with financial returns! Indeed, as the Beanie Babies example shows, the more people have feelings of value the more incentive there is for others to profitably reduce the correlation.
In high school I worked in a library. Every once in a while somebody would want to donate their National Geographic collection. (For those unfamiliar, it is a high-grade, highbrow magazine that has been published for more than a century.) After subscribing for decades and lining them up on the shelf, they really valued those well-made treasuries of knowledge. But we were a library, so we already had sets. At least then, there wasn't much in the way of a secondary market. So we had to break their hearts and explain that we couldn't help them.
The other aspect of National Geographic is that people didn't throw them out, because they might be useful in the future for a school project or something. This was such a cultural factor that the Journal of Irreproducible Results wrote an article "National Geographic: The Doomsday Machine", projecting that the massive weight of saved National Geographics would eventually cause geological subsidence, flooding towns and eventually sinking the US into the sea. They concluded that "Publication and distribution of the National Geographic magazine must be stopped at all costs!" if the US was to survive.
If you want to invest, buy equities. If you want to collect, collect.
Is my promo copy of the Late Great's "Turpentine" ever going to be worth something? Irrelevant, burn it on the funeral pyre along with the rest of that stuff when I die.
As chance would have it, I'm at my parents and we were digging through beanie babies joking about how we could be sitting on a gold mine (sorry reader, we weren't). Even have that price estimate book.
We had one "rare" beanie, it last sold on eBay for 15 dollars. I can't image who was selling some for $1000 1 bid this year. If I had to guess: money laundering on eBay.
There are highly specific valuable toys and dolls, generally they weren't made to feed a mania like beanie babies. If you have an old mamod steam engine, or hornby 0 gauge clockwork (or more expensive German ones) or some dinky cast model cars made early in their production cycle, they may have appreciated above CPI. Most won't have.
That whole "Toy Story" sub-plot about the Japanese market for dolls has a thin edge of truth: Akihabera has/had a man whose entire stock of vintage hifi valves would fit in one suitcase, but a single KT66 valve sells for ¥100,000
Investment in anything this quirky is risky. You'd trivially outperform most purchase with more rational investment. Art investment works, at the medium high end but the cost of certification and ownership is non zero. You need climate control, conservation, insurance.
Wine is a bit of a busted flush. Lots of fakes, and substitution in storage, or outright fantasy of existence before purchase even: imaginary wine being sold amongst investors sight unseen, buyer and seller mutually unaware the market facilitator was lying.
Pink Diamonds are scarce: the Argyll mine shut down. Hard to know if the whole diamond scam is going to explode or not, it's been on the brink since the 60s.
Gold jewellery and diamonds sold for use sell massively below owners inflated expectations. Antique jewellery like collectibles and antiques depends on certification and forgery was rampant right back in the 18th century.
I wonder how many stamp and coin collections turn out to be harmless valueless hobbies?
I'm holding on to a huge box of pdp8 and pdp11 "flip chip" modules in original DEC cardboard boxes. I doubt they will ever be worth selling, but sentiment plays its part too. Unboxed they list for $5, arguably below cost!
Collectibles are a great investment if you're a dealer. Buy the collectible for 50% of it's selling value. Sell it to a collector for 100%. Pretty profitable, if you ask me.
If you are a collector, never buy anything less than the ones that are in the highest condition and very rare. Also make sure it's highly wanted by other collectors. Those are the ones that shoot up in value. Anything else tends to not keep up with inflation. I think that's why collectables are thought to be a bad investment.
This article conflates multiple distinct mechanisms in a way that doesn't make sense.
For instance, the author implies that stock returns (in the long run) are comprised of economy-wide growth and dividends. The author provides a hypothetical example of 8% stock return being explained by 5% economy-wide return and 3% dividend return. This is wrong on so many levels.
First of all, dividends are a mechanism to transfer wealth from the company to its shareholders. Emphasis on "transfer". Dividends do not magically create new wealth out of thin air. If a company decided that - all else being equal - they will reinvest profits instead of paying dividends this year, the investors' returns would not be affected. Value of the skipped dividend would simply appreciate the stock price instead (when a company pays a $1 dividend, their stock price drops by $1).
Secondly, the author implies that without dividends a stock investors's returns would be constrained by economy-wide growth. This is nonsensical. You can own a company within a stagnating economy and that company can still turn a profit. Even if the economy is growing at 0%, a company might still make 10% profits per year. The connection between economic growth and company profits is not what the author believes it to be.
Combining capital growth and yield is quite standard across the industry for measuring total return. Yes the dividend is reflected in the share price (it doesn't grow as much as it might have if reinvested) but that's completely fine. Combine them to get the total return. Pretty normal.
> Combining capital growth and yield is quite standard across the industry for measuring total return.
Yes it is, but that's not what the author of the article was doing. They were not looking at capital growth of the stock, they were looking at economy-wide growth. Those are entirely different things. As I said, you can have a stagnating economy with 0% year-on-year GDP growth, and at the same time, the average company within that economy will be turning a profit.
I come from a family of collectors, motivated both by personal joy and sometimes potential dollar signs. No one on this side of my family is wealthy, quite a few struggle to make ends meet. To our credit, none of us spend more than trivial sums for any such collecting[1].
It is possible to make money collecting, but it’s very time sensitive and an active hustle. You pretty much only want to do it if also get joy from the collecting itself. Which is the thing.
Collectibles are a terrible financial investment. They can be an excellent personal life enriching investment. If you have a good healthy attitude towards it acknowledging it’ll probably yield low financial gain, and high positive emotional response… go nuts. Just don’t let it usurp your long term plans.
1: Except me. Anyone want to buy a really nice acoustic guitar that could use a more attentive home? I have a laughable number of them which I never play! I’m not in need for cash but it’d be nice to reclaim some space, and any proceeds would go to helping out my fam with much tighter budgets.
> You pretty much only want to do it if also get joy from the collecting itself
I think this is key. In my experience, the best (and usually most valuable) collections are by those that are very passionate in whatever niche it is. These people usually don’t set out to make money but to acquire pieces that they really want.
In my case, I collect vinyl because I love having physical copies of my favorite music. But I also enjoy seeking out rare albums and getting them for a good price, not because I want to resell them, but because I just don’t want to pay more than I can and I’m in no hurry.
The interesting thing to me is how much time it takes to develop your taste in these niche topics. It’s not something that you can even accelerate. You just dig deeper and deeper over many years until you find yourself listening to some bizarre album on repeat and then decide you have get the vinyl.
I collect toys. I don't think of them as investments. I just enjoy them and think they're cool. I feel like this is the way with collecting. If it's all about the return then you don't really get the full enjoyment out of it and you set yourself up for disappointment when you want to sell and your precious aren't worth as much as you thought.
This is the way. I don’t know about pop culture toys, but I’m a caretaker of items that will outlast me. Preserving them is my responsibility. Cashing them in is only a last, last resort, and when you think about value appreciation over generations, it changes how you think about items - they can be relatively inflation proof items, a way to store wealth, maybe not grow wealth unless your time horizon is at least measured in decades. But I definitely think of my ownership as temporary.
So funny enough, there _are_ some people looking at ways of generating cash flows with NFTs. For instance, some projects have offered a chunk of their fees from resales to users, or offer a token reward for staking the NFT. Or in Bored Ape Yacht Club's case, they just 'airdropped' a bunch of a new token over to holders, giving them free money essentially.
Yes, just about everything out there still feels pyramid-schemey due to its emphasis on increasing price, so I don't disagree with anything written in the article... _but_ it's not impossible that NFTs could generate some cash flow through a smart contract piece.
Dealing with regulation is tricky -- since an NFT that can generate cash flow is basically a security. The SEC is likely to shut that down hard, and it's safest to avoid as a builder. But anyway, unlike a beanie baby it's feasible that NFTs could generate cash flow (staking, lending as an item in an in-game economy... etc).
That's never going to happen in a real game because no game developer is going to spend time supporting some "item" bought somewhere else. There's no incentive for them. They can much more readily just sell their own in-game items and make all the money from the sale. This has the positive side effect for the developer that the in game item can't be taken to some other game.
> For instance, some projects have offered a chunk of their fees from resales to users, or offer a token reward for staking the NFT.
Something feels off about that, but I’m not sure what. It seems like a fundamentally different kind of “cash-flow” than what the article is referring to. It’s still capped by the total appreciation of the asset.
The concept of the Masterworks thing that they are talking about was tried previously with other collectables, notably Mythic Markets with Magic: the Gathering cards. You can do a quick google search to see how that turned out and the controversy that surrounded it.
I'm a guitarist, and have been buying / selling guitars for some 20 years now - and while I agree that the vast majority of guitars that are seen as collectibles would lose against the stock market, there are some exceptions.
The "holy grail" of guitars would be the 1959 Les Paul Standard, though any from 1958-1960 with high grade of flames (that is, wood figuring on the maple top) is very collectible. And there are some others that will fetch lots of money (Flying V in Korina, from same period, for example).
In 1959, said guitar with case would retail $307.5 - that's equivalent to $3038.06 in current money / purchasing power.
These days, such a guitar will cost you minimum $200000. That's almost 11% annual ROI.
If it's a beautiful "case queen" that's been laying in its case for most of the time, you could easily get $500k. That's almost 12.5%.
Or if it's a celebrity owned, the sky is the limit - though your initial investment would have to be much higher, unless the guitar was acquired ages ago.
Same goes for Fender Strats and Telecasters from the same period (up to the early 60s) - though these are in much higher abundance. Nice ones can be had for $25k-$50k, which would give you a return right around, or above, the stock market.
But of course, few would have known this, back in the day. These guitars didn't become collectible until the 70s, and certain artist playing them helped the hype.
With that said, I don't think people that bought these as an investment, are too much into investing. It's a nice alternative/side investment that you can enjoy as you age - if you play guitar. They don't generate rent, they don't generate dividends, but that was never the point either.
So far, they've proved to be investments on par with the stock market - even beating the stock market if you have the right item. In fact, some of them have outperformed the stock market by magnitudes for the past 2-3 decades. Those $200k Les Pauls only sold for a fraction back in the 90s, so the majority of appreciation is a more recent thing.
Great article, yes, Masterworks is a joke or their price index is disengenious
Yes, past performance is not indicative of future results, its also the best metric we have for future results
Not responding to a request for comment means nothing
But the Beanie Babies… there was a rational trade there, a supply constriction when a supplier wasnt able to fulfill the beanie baby production contract. The founder resolved this and flooded the market and the prices tanked. Beanie babies arent the best example of irrational exuberance. Yes there were people far removed from active trading that merely believed in price appreciation, do these people matter? They exist in the most rational markets too
The exception to the cash flow argument, if you’re willing to stretch the definition of “collectible” a bit, are rare items that can be used to generate revenue by skilled artists/artisans who might be willing to pay a premium to rent the collectible. I’m thinking things like Stradavarius violins.
There are NFT projects that are trying to operate in this way. That NFT game that recently got robbed is one example. Players are apparently being staked by investors who are loaning them valuable characters. People trying to license their NFTs for use in media are another.
I don’t think any of this will work for NFTs, mind you.
I just like little cute miniature things that are all just a little bit different. They all look like they go together like a family but are all unique. But when you put them all together they look complete.
NFTs really have a brain virus to them that it's hard to understand until you buy your first ones and kick around in the communities. Nothing new under the sun so I'm sure there are beanie baby, wine, fine art meetups and communities too but the hyper-charged and Internet nature of NFTs and crypto really creates an interesting phenomenon. Doesn't mean it's a good idea to ape into them, but it's certainly curious.
I am sure NFTs perform terribly in the short term too, in aggregate. Most NFTs are not celebrity endorsed and will just languish even in the bull run. (Like most shitcoins).
Real estate is in between IMO - kind of a collectable but there is cash flow but it doesn’t have the upside growth of stocks, unless it is some kind of rezoning or redevelopment.
Gold is more like a collectable (no revenue stream) as is any other commodity.
Real estate that isn't being used for anything and won't be for the foreseeable future is sort of kind of like a collectible. But even then presumably there's the idea it will be used for something someday.
Basically any best selling Lego set will sell pretty high if you can store them in mint condition during 20 years (the time for the kids playing today to become 30).
But I guess it’s not that easy to store enough of a high volume toy (when boxed) during 20 years for the operation to be really valuable.
(Edit : imagine just having kids and a room full of brand new legos)
It's almost impossible to predict which trading cards will be worth more in the future. Unlike investing in an index or Apple where there is a very good chance they will be bigger and more successful in the future than they are now.
One way that collectibles can generate dividends is by renting them out to others. For instance, video game items like CS:GO skins. The popularity of a Chinese skins renting site caused increases in the prices of mid-tier items as investors bought them to lend to others.
To the best of my knowledge, he's still storing them and working to keep them from getting moldy in his garage. I don't think he's ever had an offer to buy that's been close to what he put in.
Have to disagree. I would say choosing the right collectibles is an acquired skill that takes a long time to develop and usually applies to a niche market, and that's why it seems like collectibles overall are a bad investment. Not only do you need to be good at estimating future value/demand, you need to be good at acquiring items for a good price + ensuring they're not fakes. If you blindly buy "collectible" items then yes, you will lose money because the "collectible" moniker is usually a cheap marketing tactic to crate the false impression of scarcity/value.
I have been buying/selling collectible video games (and related hardware/paraphernalia) for over a decade and many items are still sitting in a storage unit waiting to be listed because they continue to appreciate so quickly. My only regret is usually that I didn't buy more of each item.
It's extremely difficult to work out which things will be valuable and after the effort and time spent holding the item, you didn't really do that well. Incidental profits from reselling stuff you happened to hold that gained in value.
Most stuff never goes up in value. Most technology, even the famous/popular stuff has only gone down in value. With a few exceptions of things which were later seen as iconic but rare. Stuff like the original Nintento gameboy can be bought now for less real value than they were new. Almost certainly because there are so many around. So you have to be a fortune teller to work out what item will be more popular in the future than it is now.
I completely agree - anything mass produced is not going to fall into this category. Also collecting from new is always pretty iffy. But buying used and holding onto gear for a few years is not going to lose you much money.
Definitely do not quit your day job but its not particularly hard to make a little money on the side.
As someone who sells and genuinely enjoys collecting NFTs, it always boggles my mind when I find people who genuinely believe that they're good "investments".
A $50 million painting isn’t considered a “collectible”, is it? I wonder where that boundary is. A part of a collection isn’t necessarily a collectible.
I assume you are talking about a personal home you live in.
In this context a house generates income by reducing a non-optional expense. [1]
In other words, once paid off, you are living rent free[2]. Since housing is usually a large part of any budget, this is a significant cash-flow gain.
While paying it off it also has the effect of "fixing" rent [3] - potentially over a long period of time. This can work as a hedge against inflation - or to put it another way, in inflationary environments it can cause your housing cost to diminish.
Ownership also provides a hedge against rampant house price inflation,which drives up rent.
Lastly it acts as a store of future value[4]. If the market goes up then "downsizing" on retirement can free up cash. If the market goes down, then you have a place to live rent free. Either way you have a place to live.
Whether home ownership is the right option for you depends on your circumstances. It can be a critical investment for some, or a hindrance to others.
[1] there are clearly enormous differences in housing costs based on location, size and condition. You may get better returns by simply renting a cheaper house, and investing the difference.
[2] while you won't pay rent, or mortgage, you will encounter very real maintainence costs and taxes. These will be less than rent, but still a very real number > 0.
[3] if your mortgage interest rate is flexible then inflation will likely drive up interest rates, but this is a secondary effect and applies to the interest portion of loan repayment, not the capital portion. This can change literally overnight, a renter typically is insulated from this for the duration of the lease, but may then see an exaggerated increase on the next lease.
[4] assuming you buy a house you can afford. If you reach for something you can't ultimately afford it will likely end badly.
I was once the world's largest seller of Beanies, back in the 90s. Ty even tried to buy me off. I gambled the fad would last two years. It did. I made a fortune and then pissed it all away.
Crypto isn't fully a collectable as it's quite hard to have hidden transactions using Beanie Babies or Picassos. The latter aren't terribly anonymous and only valued if known. It's also damned hard to e-transfer physical objects unless Musk or Bezos have their transporters working.
Not sure exactly what you mean here, is it the idea of using NFT sales as a way of laundering money or such? (I'm making the same distinction as the article of talking just about NFTs vs crypto in general.)
Seems like any sort of physical collectible would be great for under-the-radar transactions - claim you found them in the attic or something when it's time to turn them into cash, nobody's going to expect original receipts. Anything on a blockchain seems far riskier. Using Beanie Babies would've worked better before the bubble burst and people would still pay crazy prices for common ones compared to now, of course...
How are crypto assets on public blockchains more anonymous than physical exchange in the real world? Art or beany baby exchanges could easily occur without leaving a trail.
> But it is, because in the long run, assets without cash flows cannot increase in value more than the economy as a whole. If something appreciates faster than the whole economy in the long run, it eventually eclipses the whole economy, which is impossible.
No one is operating on an infinite time horizon in their investments, so this argument seems moot. You can certainly find collectibles that have grown faster than the economy as a whole over a period of O(decades), which is all any human needs.
e.g. a Black Lotus card from magic was about $15 in 1994 and about $11,000 (or more, depending on age and condition) in mid-2021. [0] In that same time period, the S&P 500 has gone up only about 10x.
[0]: https://infinite.tcgplayer.com/article/A-History-of-the-Pric...