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  • Are LEGO Bricks a Better Investment Than Stocks?


    Ed Mack

    After the recent Telegraph article going viral all over the world stating that LEGO bricks and sets were better investments than Gold over the past few years, one has to wonder what other investment vehicles do LEGO bricks outperform. With the recent roller coaster on Wall Street and foreign markets, a question presents itself...Are the LEGO secondary markets and LEGO collecting and investment in general, more stable and profitable over the long haul than other more high profile investments? Let’s analyze some data…

    With 2015 coming to a close, the final financial year-end data on stock markets, crude oil and gold prices is available. Take a look at the major stock market and commodity returns for 2015 stated in an article from the USA TODAY:

    bp_vs_stock_chartimage2.jpg

    A quick analysis indicates an overall poor year for most major indexes and benchmark commodities. Only the tech heavy NASDAQ escaped the carnage and posted positive gains for the year. Now, compare the above chart to the “average” LEGO set returns over the past five years and this is what you find:

    bp_vs_stock_chartimage3.jpg

    Now, when I say, ”Average LEGO Set,” I am referring to the “mean” appreciation of all LEGO sets in our database. The Return On Investment is calculated from the Manufacturer’s Suggested Retail Price (MSRP). There are thousands of LEGO sets in our database that get aggregated into these figures, some new and available at retail, but most retired and no longer available at primary retailers. The data shows a very consistent pattern for LEGO sets over the past five years. Even when other major investment vehicles were having a hard time getting into the black in 2015, LEGO sets held their ground. In an overall bad year for investing, LEGO bricks and sets still appreciated close to historical levels. Themes like Jurassic Park, Mixels, Speed Champions, Ideas and Lord of the Rings all had banner years, while Friends, Monster Fighters, Minecraft, DC Comics and Marvel Super Heroes themes all took a huge hit. There are many sets that appreciated very well, while others stagnated or fell in value. Just like stocks, the trick is picking the right sets.

    Now, before everyone goes out there and dumps their stocks, bonds and gold for LEGO sets, a potential LEGO investor needs to realize the pitfalls of investing in little ABS plastic bricks. First off, they are difficult to store and take up a lot of space. LEGO boxes play a large role in their values. The better the condition, the higher the value in most cases. They are susceptible to moisture and sunlight. Boxes are large and delicate, and a person can easily fill up a small room with a moderate LEGO collection. Another issue with LEGO investing is their expense. Their impeccable quality comes at a high price. They are very expensive toys. Period. Unlike stocks, bonds and gold, they are not liquid. A person has to sell and ship them to realize profits. This takes time and effort. Buying LEGO sets is easy. Selling and shipping them is not. Speaking of selling them, many LEGO secondary market sites such as eBay and Amazon charge high commission fees...ranging anywhere from 10-15% (Unless of course you sell on Brick Classifieds with ZERO commission and fees). This takes a huge bite from your appreciation. Granted, if you choose wisely and pick the right LEGO sets to invest in, these negative factors can be overcome, but many people do not choose wisely and end up failing at this endeavor.

    So are LEGO sets a better overall investment and more stable than stocks, bonds, gold and crude oil? At this point in time, probably, if you choose the right LEGO sets to invest in and buy and sell them with some creativity and frugality. What they seem to be is more consistent. Take a look at the chart below:

     

    YJCrNE4bBMJ8zcMO4beBSJ6X7foUJ2BD6ifWiSW_


    A quick glance indicates a rather steady growth pattern for LEGO sets, while the various stock market indexes are quite turbulent. Even when stocks were down, LEGO sets yielded in the 10% range. Pretty solid. While the LEGO secondary markets will probably never take off into stratospheric levels like stocks did in 2013, there are multiple individual LEGO themes and sets that could explode in growth at any given time. To find those sets, one needs to research the markets and study the products. It also takes effort to find deals on LEGO sets when purchasing and work to properly list, package and ship LEGO boxes. Experience also matters. While a novice can make profits from investing in LEGO sets, it often takes experience in buying, selling, packaging and shipping to maximize profits. LEGO investing is no longer “easy” money as it once was, but if you educate yourself, make prudent choices, adapt to changing trends and get a little lucky, you can still see solid profits...

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    15 hours ago, valenciaeric said:

    Greed will entrap people, for sure - it always does. Promise good enough returns and they will invest in anything they don´t understand.

    Very true. I'm afraid that's what is going on with Lego currently judging by the last 2 months of some posts.  Additionally, for the last year quite a few of the people who post here about reselling , never build anything. I never understood people who invest in something that they either don't actually use or have a deep understanding about it (same way I pick stocks)

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    13 minutes ago, jaisonline said:

    Very true. I'm afraid that's what is going on with Lego currently judging by the last 2 months of some posts.  Additionally, for the last year quite a few of the people who post here about reselling , never build anything. I never understood people who invest in something that they either don't actually use or have a deep understanding about it (same way I pick stocks)

    Its human nature. The grass is greener on the other side and if you know a sector really well, you probably have a realistic view of the pros and cons. When something is flashy and new and other people are hyping it up, curiosity takes over and people lose rationality and take risks for the thrill, greed or whatever.

    To digress, I remember my days working in motorsport - the number of young lads that would do any number of badly paid work to live the dream was incredible. After they do it for a while they get jaded and either quit to get a better paid job or start their own teams to make money and employ the next generation of gullible souls.

    Edited by valenciaeric
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    You know this brings up a point.  In the stock market, it was interesting when everything crashed hard back in 08/09, and a ton of people got out of the game and moved on.  But those that can afford it rode the wave and continued to invest in it and have since reaped major rewards and even more gains then they could've imagined.

    I feel this needs to happen to Lego.  I think there should be a big enough bubble and then enough people liquidate all their sets and completely crash the secondary market.

    You'll get enough shell shocked people that will warn others to stay away and cull a ton of people that didn't know what the were doing.  And as long as Lego stays strong as a company, those that can weather a storm like that, can then reap the benefits of having, (pure speculation at this point,) thousands of less hoarders out there and being able to recoup and make good money again.

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    I suggest following the oil market closely then as they are having their crash. A lot of people who didn´t get out will have to ride the storm on the faith that it is a scarce commodity and will have to go back up at some point. It might actually be a good time to invest in oil.

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    14 minutes ago, citymorgue said:

    If You know this brings up a point.  In the stock market, it was interesting when everything crashed hard back in 08/09, and a ton of people got out of the game and moved on.  But those that can afford it rode the wave and continued to invest in it and have since reaped major rewards and even more gains then they could've imagined.

    I feel this needs to happen to Lego.  I think there should be a big enough bubble and then enough people liquidate all their sets and completely crash the secondary market.

    You'll get enough shell shocked people that will warn others to stay away and cull a ton of people that didn't know what the were doing.  And as long as Lego stays strong as a company, those that can weather a storm like that, can then reap the benefits of having, (pure speculation at this point,) thousands of less hoarders out there and being able to recoup and make good money again.

     

    some sort of scare is needed but I fear a correction (what some people call a bubble).  If a correction happens, will we  get the same type of demand back as say pre-2014 levels? We also have to worry if Lego (as a company) will suffer long-term damage as  others in the past.

    the diff between the stock, bond, fund, etc... markets are people always return to them.  Businesses rely on the exchanges.  

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    4 hours ago, ED-209 said:

    I personally reckon that the new Star Wars wave are pretty good. X wing, Tie, Freezing Chamber, Final Duel and Hoth Attack look pretty good in my eyes. As investments? maybe not so much. They are gonna be hoarded as all hell and if TLG don't realise what's happening to their brand, are likely to be over-produced.

    The problem I see here for TLG is how do they ensure that there product gets into the hands of end users and not stockpiled by resellers? 
    If the only place the average joe can get it is by the QFLL at an inflated price on eBay then it doesn't look too good for TLG.  Surely at some point people will begin to say enough is enough and the end users lose interest in Lego.
    The only way I can see TLG ensuring there product gets to enough end users in the usual product lifecycle is to over produce to account for the "hoard demand".  

    But i get your point.  What happens and how quickly can they react when the casual re-sellers move onto the next big thing? Suddenly that part of the demand isnt there anymore and TLG dont want to be left slow selling inventory.

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    7 minutes ago, josh_676 said:

    If anyone is buying lego on the CC or finance, they are probably in trouble. Anyone spending 5 - 10 g and storing it in a cupboard, whats the worst that could happen? 

    Rat infestation of the cupboard.

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    11 minutes ago, Lego_Yoda said:

    I was going to say getting burgled but this defo tops it! Especially if they carry the plague.

    Both options, you lose it all, it is sad but it's only a bit of money lost. My point probably is invest what you can lose. 

     

    All markets have perma bears and bulls, both will be right at some point. 

    Edited by josh_676
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    I can see some creative lego investment vehicles being created. There are ways to invest in musicians right now. David Bowie being a very timely example. 

    Another thing that distinguishes lego from certain other investments is that it has a certain intrinsic floor value below which it can't really go. Stocks and bonds are basically priced based on the market's confidence in the company's/country's reputation. The actual item you own, the certificate, is just paper and is worth next to nothing. Similar with the baseball card and comic book booms and busts from the 90s. At the end of the day, you were buying paper at far more than its cost to produce. Lego on the other hand has a certain basic cost to make. We quote the ten cent per piece formula routinely and that is highly connected to what it costs the Danes to actually build these things. It is impossible to imagine a scenario where lego can become worthless. Someone will pay x price for y amount of bricks so no one should ever be stick with product that is literally worth nothing. Lego is more like a commodity in that sense. 

    The real danger is if Lego gets worried that not enough of its customers can get its products at retail and then floods the market to provide choice and wipes out the secondary market. This is why it's always advantageous to get it on sale. Then you can still compete with retail, which is still a much better return than bank accounts.

    On the topic of paying down the mortgage vs other options, one thing a lot of people overlook is their amortization schedule. If you're still early days on your mortgage, the amount that goes to principal and the amount that goes to interest is often 1 to 1 or even a situation of more going to interest than principal. So while the lifetime mortgage rate might be 3-4%, at those times it's effectively 100% so far better to pay down early with any extra dollars. In such circumstances, every extra dollar you pay on your mortgage results in a corresponding 100% or more savings on interest. Or, paying $10,000 extra will save you $10,000 in interest.

    Edited by jeff_14
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    11 minutes ago, plastic passion said:

    -if oil hits $20 a barrel ( or close ) - i will be dumping tumblers if i can replace them with 12 or 13 barrels per car.    lol       

    I was about to post "oil" ha 

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    22 minutes ago, plastic passion said:

    -if oil hits $20 a barrel ( or close ) - i will be dumping tumblers if i can replace them with 12 or 13 barrels per car.    lol       

    Our Alberta oil is already trading in the mid teens in USD. 

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    26 minutes ago, Ed Mack said:

    As of a couple of minutes ago, the DOW was down almost 500 points.  I can safely say that as of this moment, LEGO bricks are a better investment than stocks....LOL

    I dunno the cheaper the Dow gets the more attractive it is. A couple more weeks of indecision and fear by the masses and I will come in and make money hand over fist. I love me some blood in the water :) 

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    7 minutes ago, asharerin said:

    I dunno the cheaper the Dow gets the more attractive it is. A couple more weeks of indecision and fear by the masses and I will come in and make money hand over fist. I love me some blood in the water :) 

    True dat. As Saint Buffett sayeth - Be greedy when others are fearful, and fearful when others are greedy. I'll be watching to see trading volumes return to normal as a sign to buy because the lemmings will have safely plunged over the cliff by then.

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    11 minutes ago, jeff_14 said:

    True dat. As Saint Buffett sayeth - Be greedy when others are fearful, and fearful when others are greedy. I'll be watching to see trading volumes return to normal as a sign to buy because the lemmings will have safely plunged over the cliff by then.

    Funny that, as there is an Ebay user calles buffett_FTW who has just listed over 100 exclusives.

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    As of a couple of minutes ago, the DOW was down almost 500 points.  I can safely say that as of this moment, LEGO bricks are a better investment than stocks....LOL

    I dunno the cheaper the Dow gets the more attractive it is. A couple more weeks of indecision and fear by the masses and I will come in and make money hand over fist. I love me some blood in the water  

    Blood in the water can come from people trying to catch falling knives. And stock markets are fundamentally castles in the air.

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