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:

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:

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:

 

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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As a student in the art of lego investing im still learning everyday, nice article!

Very nice write up, thanks.

The article is posted up on Reddit.  But be prepared for it not to get much traction over there, unless people go visit.

Thanks Ed. Nice article and poignant with the recent volatility in the stock market, and relevant to something I've been thinking about.  I also liked your sentence about storage space for Lego sets, because that is something very important that cannot be overlooked and I'm learning as I go.

For clarification, the y-axis in the graph represents average return on investment for Lego sets and the stock market indices?  The Lego ROI values follow your table values for average ROI from MSRP, but what reference buy-in time do the stock market values come from?  Thanks.

There a quite a few companies included in the Dow index that pay some hefty dividends so don't forget to include those. With dividends included the Dow gave an annualized return of 10.47% from Jan 2011 - Dec 2015. On the flipside lego returns should be quite a bit higher as most serious resellers will be purchasing far below MSRP.

As someone who's been trading the financial markets for over 15 years (I'm also a LEGO collector and small time flipper) , I'm always fascinated by articles like this. If there's one lesson that has stuck with me over these years it is that once you start getting stock tips from the shoe shine guy, it's time to get liquid (not saying this article reflects that. In fact the opposite as it's on a niche website). I'm not sure brickvesting has reached this point yet, but it feels to me the tipping point is near. Probably the most concerning thing I've noticed is that the msm (mainstream media) has picked up on the trend. Time and time again it has been proven that happens you are closer to the end of the trend than the beginning. Maybe it's time for a LEGO bear market? After all, the average bull market in stocks lasts somewhere around 6 years. After that one can generally expect the market to fall between 40-50% prior to reaching an actionable bottom. 

Anyone remember this magazine cover from 2005? TIME Magazine was almost entirely responsible for creating what's known as the magazine cover indicator. 

The article wasn't meant to be an in depth analysis.  I just wanted to point out some important data and trends.  Maybe if someone with a little more financial background wants to go deeper, Jeff and I can help with some more data.  I also wanted to include some negatives to LEGO investing as well after the Telegraph article anointed LEGO bricks as the greatest thing since sliced bread.  I think we all know that the LEGO secondary market is evolving, but how much and does it really matter?  The numbers don't lie and we are at a similar position growth wise as in 2011.  Some sets go up, some go down, but I think what's shaking people up is that the old stalwarts aren't so reliable any more.

i would also mention that shipping costs can really hit the cagr. While on a 1000 set obviously it's not a large percentage on smaller 100 dollar sets and below it can take u a significant percentage of profits and people should calculate that in

Thanks for the info. 

Every article should contain your sentence...

LEGO investing is no longer “easy” money as it once was...

It takes hard work, but in my first year made +46% return overall 

Great write up Ed. I'd just like to point out Amazon FBA fees are a bit higher than 10-15% (in Canada, anyway). They can charge up to 60% on cheap stuff, and my average for the year is 23%. Excluding storage fees.

After one factors in working hours and storage space, that 10.41% annual return gets real close to 0%.

35 minutes ago, Jackson said:

After one factors in working hours and storage space, that 10.41% annual return gets real close to 0%.

It really depends on whether you would be doing something more productive with the time, and the space, that is totally a marginal cost/marginal value call.

(If this has been mentioned sorry,)

LEGO is not Liquid. That is a huge difference. It takes time and effort to get your money out of LEGO. So, the ups and downs should be much less harsh. We just don't want the slow downward trend to go too low. We mostly hinge on the overall economy, because LEGO is a recreational product. Recreation almost never goes away when the economy is bad but it gets hurt badly.

1 hour ago, Robb said:

(If this has been mentioned sorry,)

LEGO is not Liquid. That is a huge difference. It takes time and effort to get your money out of LEGO. So, the ups and downs should be much less harsh. We just don't want the slow downward trend to go too low. We mostly hinge on the overall economy, because LEGO is a recreational product. Recreation almost never goes away when the economy is bad but it gets hurt badly.

From the article...Unlike stocks, bonds and gold, they are not liquid.

Buying and selling LEGO items is not investing; it's a job...and not a good one when looked at from an hourly-wage perspective.

7 minutes ago, Jackson said:

Buying and selling LEGO items is not investing; it's a job...and not a good one when looked at from an hourly-wage perspective.

Depends on what you buy and sell.  There is truth to your statement though.  It's a lot of work for little return at times.  Researching stocks and bonds is work as well.  Most successful investors just don't guess on stocks.  

55 minutes ago, Ed Mack said:

From the article...Unlike stocks, bonds and gold, they are not liquid.

Thanks and sorry, I skimmed it. Busy weekend.

Despite their illiquidity, one advantage Lego has going for it is your ability to get your money back. In my experience, there are few sets that cannot be resold at MSRP after EOL, and if you bought them cheaper than MSRP than even this is a gain. So if your set doesn't do well you can most likely get your money back. Good luck getting rid of your poor performing stock for what you paid for it. Wall Street doesn't do returns. To me, the negligible downside risk is a huge plus vs other investments.

Royal Bank of Scotland: "We're all boned."

http://www.theguardian.com/business/2016/jan/12/sell-everything-ahead-of-stock-market-crash-say-rbs-economists

Edited January 12, 201610 yr by zak001

Anyone has an idea what sets of the last three a four years are not popular for the big public but are a good buy for parting out and selling brick by brick? 

I know a store nearby that has quite some old sets but I bought the major load for flipping. 

For me, since I'm not reselling Lego as a job but as a hobby, and because it's a way to get a higher margin / interest on my personal savings money than leaving the money on the bank (at 0.9% interest currently), even if I make 10-20% profit on my Lego after selling fees are subtracted, I still get back a LOT more money than leaving my money on my savings account. And as it has been said: with very little risk as well. In the worst case, if the world-economy would completely crash and nobody would buy LEGO any longer, I could still enjoy myself by building the sets myself.

So it all depends on what you compare it against. Surely there might be other investments to be found that offer higher returns. But they invariably also come with higher risks. So Lego investing for me is a pretty safe way to get a (much) higher interest on my savings than the bank's interest rate.  

Anyone has an idea what sets of the last three a four years are not popular for the big public but are a good buy for parting out and selling brick by brick? 

I know a store nearby that has quite some old sets but I bought the major load for flipping. 

Creative towers/suitcases bought on the cheap

10 hours ago, Haay said:

For me, since I'm not reselling Lego as a job but as a hobby, and because it's a way to get a higher margin / interest on my personal savings money than leaving the money on the bank (at 0.9% interest currently), even if I make 10-20% profit on my Lego after selling fees are subtracted, I still get back a LOT more money than leaving my money on my savings account. And as it has been said: with very little risk as well. In the worst case, if the world-economy would completely crash and nobody would buy LEGO any longer, I could still enjoy myself by building the sets myself.

So it all depends on what you compare it against. Surely there might be other investments to be found that offer higher returns. But they invariably also come with higher risks. So Lego investing for me is a pretty safe way to get a (much) higher interest on my savings than the bank's interest rate.  

 

On ‎1‎/‎12‎/‎2016 at 3:38 PM, jeff_14 said:

Despite their illiquidity, one advantage Lego has going for it is your ability to get your money back. In my experience, there are few sets that cannot be resold at MSRP after EOL, and if you bought them cheaper than MSRP than even this is a gain. So if your set doesn't do well you can most likely get your money back. Good luck getting rid of your poor performing stock for what you paid for it. Wall Street doesn't do returns. To me, the negligible downside risk is a huge plus vs other investments.

Both of you may be right, you probably won't lose your shirt over it. However, some people are using credit (much like with stocks) to buy sets. If they over-extend themselves, there could be trouble as Lego is not so liquid.

@Haay, I would also keep some money on the bank. If all one's money is in Lego and the unexpected happens, then it might be fire sale time.

By way of illustration, here in Aus on the Facebook Lego sales page I've seen two mass liquidations advertised in one week. One guy was asking 20K for all of his hoarded stock. Another person had many boxed sets and polybags, plus absolutely every UCS and large SW set ever produced in used condition. His price = 50K AUD.

On ‎1‎/‎10‎/‎2016 at 7:44 PM, vroom34 said:

As someone who's been trading the financial markets for over 15 years (I'm also a LEGO collector and small time flipper) , I'm always fascinated by articles like this. If there's one lesson that has stuck with me over these years it is that once you start getting stock tips from the shoe shine guy, it's time to get liquid (not saying this article reflects that. In fact the opposite as it's on a niche website). I'm not sure brickvesting has reached this point yet, but it feels to me the tipping point is near. Probably the most concerning thing I've noticed is that the msm (mainstream media) has picked up on the trend. Time and time again it has been proven that happens you are closer to the end of the trend than the beginning. Maybe it's time for a LEGO bear market? After all, the average bull market in stocks lasts somewhere around 6 years. After that one can generally expect the market to fall between 40-50% prior to reaching an actionable bottom. 

Anyone remember this magazine cover from 2005? TIME Magazine was almost entirely responsible for creating what's known as the magazine cover indicator.

When Time gets a Lego investing cover, we'll all be screwed. My shoe shine boy, however isn't giving me Lego set tips yet lol.

4 hours ago, ED-209 said:

@Haay, I would also keep some money on the bank. If all one's money is in Lego and the unexpected happens, then it might be fire sale time.

By way of illustration, here in Aus on the Facebook Lego sales page I've seen two mass liquidations advertised in one week. One guy was asking 20K for all of his hoarded stock. Another person had many boxed sets and polybags, plus absolutely every UCS and large SW set ever produced in used condition. His price = 50K AUD.

When Time gets a Lego investing cover, we'll all be screwed. My shoe shine boy, however isn't giving me Lego set tips yet lol.

Don't worry, ED-209.  I am only using my personal savings (or pocket-money) to 'play' with Lego both as investment and to buy & build sets for my own fun. I wouldn't dare using the household savings for that. My wife would kill me.  

I fully agree with you that it's a dangerous game to speculate on Lego using borrowed money. Then not only do your Lego profits have to counter the positive interest your money would have gotten on a savings-account, you also have to make up for the negative interest you have to pay back on the loans. I was taught by my parents to only have a loan for a house while for everything else to first save the money and only buy it when you have the money for it.