There have been a lot of changes since LEGO almost went bankrupt in the early 2000s: licensed sets became the norm, better designs started coming into production andLEGO became the world’s largest toy manufacturer.
All this changes and subsequent success created a new breed of investing: buying sets and holding after their retirement date. For years, this alternative market went unnoticed, propping up the prices of popular sets such as the 10179 Millenium Falcon. As expected, however, higher returns attracted new investors, inherently changing the way the secondary market behaved.
In this new era, with many more participants and higher price pressure, it is extremely easy for newer investors to get burnt out, make mistakes or even completely forget about their LEGO investing hobby (or business). For this reason, I decided to write this short article with some investment tips and strategies that can help the newer participants enjoy and make money from their favorite toy brand.
Golden Rule: Set your long term goals
LEGO investing is a lot like more traditional financial planning. If you don’t take the time to set some objectives, there will be no way to completely gauge success or even to properly develop an investment strategy. For that reason, the first step will be to figure out what exactly you are trying to achieve:
Do you see LEGO investing as a key part of your investment portfolio or more as a side business/hobby for extra cash?
To me, this is the most important question. Someone willing to seriously put some money into LEGO for the long term will need to consider a vastly larger number of factors than someone who is just willing to put in a small percentage of their funds. Insurance, proper storage and fund allocation take a more important role in the case of the former.
In the case you see this more as an online business, a good inventory tracking system, shipping supplies and time will be the main
Once you have determined you long-term strategy, it is important to figure out which types of sets you will be investing in.
To me, focusing on large LEGO exclusives is the “safer” way to lock in a pretty decent return in the long term. While the capital investment and storage space required to invest in these sets is significantly higher/larger than the average, most of them have also produced some of the most consistent and positive returns in the investment market.
It is easy to see why. We are talking about iconicand highly detailed sets, from both licensed and unlicensed themes, that the adult collector with a higher disposable income is very attracted to. That’s definitely the most attractive target market when investing in LEGO sets.
Furthermore, the higher price point and space requirements limit the amount of sets that can be hoarded by the average investor, thus reducing supply in the long term. While some people may be able to spend several thousand dollars and dedicate a whole room to store those dozens of Death Stars, most people struggle with at least one of those two key considerations.
This is not to say investing in smaller sets or even figures makes no sense. We all know that sometimes sets like the X-Wing 9493 produce outstanding percentage returns for one reason or another, so it is completely understandable for investor to consider these for investment. Also, non-exclusives get the advantage when it comes to acquiring them at significant discounts given LEGO’s policy of not allowing discounts on exclusives.
The problem with these sets, in my opinion, is that it is so much harder to pick winners and avoid purchasing the duds. Does Home One ring a bell?
Setting up an strategy
After deciding which blend of sets you will be pursuing, it is time to set up a buying strategy. I think it is extremely helpful to figure out how many copies of a particular set you would like to have before retirement, and making periodic purchases to make sure you meet that goal.
As an example, you could decide that you will purchase one Palace Cinema each month to make sure you get to your desired goal of 10 before retirement. Making sure you stick to your strategy will make it easier for you to achieve your minimum goal and avoid having to scramble to get multiple quantities when the set starts disappearing from the market.
How many times have you read someone mentioning that they would like to have a couple more of a particular set when it is already too late? Don’t make that mistake yourself! If by the time a set starts showing signs of retirement you already have your minimum quantity, then whatever you are able to acquire after that will be just an extra source of happiness instead of stress.
Of course, your strategy can be flexible enough to make sure that you are taking advantage of potential deals or discounts. For example, LEGO will be offering double VIP points in early October and it might make sense to hold this month’s purchases until then. Having said that, I recommend making this kind of behavior an exception rather than the norm; It just does not make sense to completely miss out of a set that ends up appreciating more than 50% because you waited a couple weeks to save 10%.
Just like in the stock market, you can insert a little variety into your investing life by following the core-satellite approach.
For example, let’s assume you have an investing budget of $1000 per month. You could divide this into a core fund of $800 that you will allocate to long term, safer investments (exclusives, Ideas sets or whatever you really want to add to your portfolio and keep for the long haul), while keeping the remaining $200 for riskier bets. You think Raptor Escape will be a Zombies 2.0? You can throw your money into some of those; want to try and flip some Wall-E sets before they are available? That works too!
By dividing your investments in this manner you pretty much guarantee you’ll invest the $800 every month, while still having some money to test your set-picking prowess.
This leads nicely into my last point. Personally, I believe that investing in LEGO should be not only profitable, but fun as well. It is easy to get inpatient or even bored when all you are doing is hoarding sets and not making any money out of it. While this is an essential part of any investment, I find that people should always try to keep things interesting and fun by trying to flip sets, sell minifigures or even re-selling used sets. Any of these activities will generate some extra income and make you feel a little more excited, therefore avoiding falling into a routine that can get boring over time.
Obviously, these tips will not work for everyone. Find what works for you, think about your goals and stick to an strategy and you will be in the path of having a pretty healthy alternative income stream in the long run.
Hope you enjoyed this article, thanks for reading!