Savvy LEGO Investing: Save yourself some money and...TIME!

Hello everybody,

Time is money as the old saying goes and that theory applies to Lego investing and reselling.

Allow me to introduce myself a little. I'm a critical analyst during work hours, a husband with beautiful kids in the weekend (of course) and ... English is my third language, so apologies for my grammar.  Lego was (and is again) one of my biggest passions as I picked it back up in 2012 after the traditional "Dark Age" which lasted more than a decade I'm not proud to admit. I've been reading the blogs of more than one site, listening to the videos of most renown Lego-connaisseurs. Most aspects of Lego are well covered on the web: set reviews for example have become a commodity. Some stuff was lacking. And since I've been growing some experience over the last couple of years, I thought it was time I tested some personal insights on the community. Please read this blog as story of me growing up as a Lego investor.

I hope the article will be somewhat different to what you've read until now... 

In my life, time has become the rarest commodity. I'm actually at a stage at work where instead of asking for a salary raise, I negotiate extra flexibility and free time to do other (obviously more) interesting stuff. Image that you have to manage two kids, a 50h/W job, family events every second weekend, garden/house  improvements... When would I find time for my  Lego bricks, games, sports and books I love so much?! It seems therefore paramount to allocate my time extremely effectively. Chose  my own priorities carefully:  boss - wife - kids - hobbies - family: in what order? And what if I started a new project? I'd have to do that even more efficiently!

As far goes theory, but what did I do? I started the "brilliant" idea of buying second hand Lego sets at steep discounts and resell through Bricklink for a "fat" profit margin... Was this clever? Nooooooo! Looking back at the plan, it seems pretty laughable now. (No offense to anybody - this is my personal experience on paper)

So I bought big lots from people who wanted to get rid of all their sets at once when they enter the dark age. Using the web to find second hand deals and driving from one place to another to get that  maximum discounts. After cleaning up the wares, I post them on BrickLink - easy money, I thought.

Let me tell you quickly why that was a bad plan:

TRUST: 

You cannot trust the second hand market. 80% of lots I bought were incomplete. 99% of the sets have bricks that are damaged or marked. Selling incomplete sets on Bricklink is next to impossible and requires to discount sharply. Worse are the astute sellers (on the 50 deals I made, at least 10%) who fake their ignorance and leave out that one rare flag, antenna and/or replaced that expensive hair piece of a minifig... You can't check everything even when you buy on location. Luckily I rarely had orders shipped, but the ones that did arrive by mail were even worse off.

Did you know "black plume (code: 4502a)" in 6066 Camouflaged Outpost ... is worth 20% of the set? I do now, after buying that set on a local market without checking the presence of that little black plastic ornament. 

I bought 6087 Witch's Magic Manor another day for 15E (50% discount to BL 6m sold price). Four elements were missing: Red Dragon Wing, the cape of the which and two shields. I had to order from three different stores to complete the set...

COMPETITION: 

As a buyer on second hand platforms, I am up against others who have more time and know-how. Any auction on Ebay was scrutinized by at least 50 other Lego-investors. I know for a fact of colleagues who spend their lunch breaks surfing for deals. And how many pensioners aren't sorting pieces and stacking them away just to make a day go by more quickly? How can I compete with them? I would need a sorting machine to beat them... Maybe I should've bought only during the Summer, hoping the biggest crocodiles are on holiday?

And again, I speak from personal experience... There was that "huuuuuge " star wars lot which I though would be an easy doubler/tripler. The discoveries I made were quite nasty. The seller had mixed Lego and Megablocks together to have the lot look larger. Some figs were missing, many smaller rare parts too... It took me several months to get everything sorted and as I didn't have the exact list of all sets that were junked together in those boxes the work of assembling the right sets was hard. The follow-up process of ordering the missing rarer pieces just was a nightmare. Expensive hard to find items are systematically spread over different shops. Therefore duplication of shipping fees is unavoidable. Costs, time and effort rise exponentially. A very good reason not to buy that second hand stuff...and I learnt it the hard way. After my family had waded for weeks through piles and piles of bricks, I  decided to throw the towel in the ring and make a discount clearance. The final P&L of the transaction will never be clear. There were so many "moving parts" and costs that it wasn't looking good. 

PRICE: Buy cheap! 

Nothing new there. Apart from finding the sets with the highest potential, the talk of the town on Lego-forums is about "the best" deals.  Obviously I knew that too. So as a rule I started buying second hand at a minimum 40% discount. (ha... ha...ha...) Pretty soon,as I bought almost everything during the first month like a donkey pooping cash, I raised the hurdle to a steeper 60%.But that angered some sellers  who  treated me of opportunist ( = crook) ... I don't like to be that treasure hunter who rips off the lazy adolescent or confused grandma . A good deal in my book is one both the seller and buyer can be satisfied about. Bargaining on the second hand market just didn't seem to be my thing apparently. But if you have the elephant skin, good for you I guess.

During the Summer I sell used sets for some cash and a good chat on the local street market. There are three king of buyers: First are those who love Lego from their childhood and buy for their kids and get a fair price. Second the ones who think Lego is good quality but too expensive for their hyperkinetic kids. And last them who ask: '50$ for everything?'...

I count myself in category 1. 

DISCIPLINE:

Parts need to be clean, checked, counted, listed and packed. Without making mistakes! It seems I'm not the perfectionist who can re-assemble sets with 2000+ pieces. If a (in most cases Dutch ;)) buyer complains about one or two pieces and asks for a refund, I can't be 100% sure he bluffing. Standard reply is a 5% discount, in order to close the deal and move on. And that mean a lower ROI of course.

Did you notice that light blue grey becomes light grey after being exposed to the sun? How can I be sure the old castle sets were in fact complete? This uncertainty is a source of frustration for the buyer and seller. And that makes the business modem of reassembling used sets unreliable

  SPACE

My house is no castle. Space = value. And assemblage and sorting requires a large table and lots of boxes/stacks. It's cold in my basement and there are no windows. It's just not a great place to be. The spiders couldn't disagree more. Second, even though I have success in selling used Lego-sets on the local toy-market, it requires them to be built and showcased. But that takes up even more space! And did I already mention the BrickLink buyers who demand a picture of the set to judge of its quality? That means three steps more: build it first, take a picture, decompose it again and only then box it back... sigh...

Selling used sets on Bricklink? Not for me thanks. Many buyers are too demanding in my opinion. "This white has yellowed, the grey is light blue, there's a scratch, the box is dented, ... Seems easier to assemble and sell at the local toy-markets during the Summer. Because these sets take up large chunks of storage space which I'd rather fill with new sets, that process needs to be accelerated. I price myself below the market, take the cash and reinvest in higher ROI new sets. And by the way: MISB take dust on the box, used sets have it all over the bricks.

DEMAND - SUPPLY:

When strolling through the second hand websites, I noticed the police and fire sets were really cheap. Pretty quickly I could build a super safe town full of police stations and fire departments. But when I wanted to sell them, things became quite complicated. Kids want the latest police station from the folder. Adults have already one set for their town. No need for a second. When I had figured that out, and tried to bid similar (50%) discounts on star war sets or Technic boxes, systematically I got outbid! And the "really attractively priced" exclusive set offers were scams. By choosing to pay cash at reception, I avoided those traps.

When the rarest sets went systematically above the BrickLink price, a little bell started ringing. The laws of supply and demand were working. LEGO on the www is an efficient market.

MATH:

The net margin on my sales were disappointing. I bought sets on average at a 45% discount. After ordering the missing parts that margin goes to 30%. Take the additional discount I offer,  there's only 20% left. The size of the average used set is in general also smaller as I cannot rapidly check and sort that many loose parts. That means reverse scale effects (the more valuable the set, the harder it gets), making it a low volume low margin affair...

I understand that parting sets is a very popular and to some a lucrative business. Others re-assemble Green Grocers, Cafe Corners and Market Streets to make the extra bucks. I have the utmost respect for the $/hour return they accept. 

And this brings me to the crux of the article:

"ROI"? NO!

N.I.C.H.E.: YES!!!

The lesson I have learnt from all these misadventures  is now very clear in my mind. I will never again go for return on investment. This is just a flawed metric. Every purchase has to be ranked according to the "NICHE": the Net Incoming Cash per Hour and Effort

Let's take for example Viking set n° 7019 I bought at 60$ last year. Getting it was an hour drive. Another second hour of sorting, ordering missing parts, paying, tracking, completion. And it's not even sold yet. It has been sitting on Bricklink in its original box for more than a year at the cheapest rate of the lot, laughing at me and taking a large chunk of space in the stockroom. In fact, it cannot be stacked vertically nor at the bottom of other sets because the box was opened and is therefore weaker.

Analysis:

Expected ROI: 50% = 30/60 = great!!

Expected cash return? 30$. = less great

Cash /hour invested = 30$ / 2 = 15$ (that's below the minimum wage in Germany!)

Net Incoming Cash per Hour x Effort = 15$ / 3 = 5$

Remember: This set has taken me at least 3x more time & effort to get ready and sold than any MISB.

So I've become wiser. Maybe not clever yet, but at least learning fast. I respect a new set of rules before I buy anything: 

1. BUY LOW (you knew that) and LARGE: this way the cash value is high and the NICHE goes up.
2. BUY sets with structural demand traits that ship easily. Make sure the end market is large. As I'm writing, I'm not sure Hero, Chima, Ninjago, Mindstorms have deep enough end markets. Star Wars, Technic, Friends, City, LOTR have it. This is food for another article. Time is value.
3. Don't look at ROI. Do I like selling polybags? No. Are these ROI interesting? No. I haven't calculated the minimum cash amount a set should offer as I haven't set the minimum threshold for my NICHE yet. But I can guarantee it is higher than 5$.
4. Take the NICHE strategy and maximize it. Make up your own personal mind what factors you attribute to "effort". It should take into account: storage, quality, risk, insurance, end markets, shipping complexity (on extremely large sets)...

Conclusion

Did it seem to you as well that this article would never end? Well that's because there are so many factors I underestimated when I started lego-reselling. What seemed to be low hanging fruit - reselling used sets - appeared to be a rotten idea from the start.  Through this article I hope other "start-up" investors like me will save some of that precious time.

Thanks for hanging in there and good Luck Brickvesting!