Reddit Comment against LEGO investing

[Ed Mack]

WORD!!!

The guy had pics of tons of stuff that he had just bought, sitting in his living room or something. I don't believe people on the internet or LEGO employees, but this guy had pics so he was legit. Sure, everyone can't afford to buy 10-20+ of large sets, but all it takes is hundreds or thousands of people each holding on to one or two and the future supply will be far greater than what has been put away up until this point. I'm not sure what the current USA Today readership is online and in print, but in March of 2011 it what 3.2 million daily readers (not sure if that includes online). Sure, a lot of those people probably just skipped the article or didn't think too much of it, but even if a very small number of those people start picking up one or two of each set they like, that's going to create a very different selling landscape in the future.

Believe me, I'm not disputing the fact that there are plenty of people out there buying large lots of LEGO sets...take YOU for instance...LOL. My point was that there are a lot who say they do and don't. Maybe to look cool or whatever. I don't know.

As for the article itself, it is called an "evergreen article" by Matt Krantz, the author. Basically, the article finds its way to all sorts of different media sources over a long period of time...maybe a year or more in some cases. Jeff and I already have tracked dozens of different blogs and media outlets that the article or variation of the article has shown up. Here is an example: WIRED.COM.

I know many resellers and investors are not happy with the publicity(including yourself), but it's my belief that this will be a overall positive for the LEGO investment market. By getting fresh blood into the reselling business, many current holders of sets are bound to benefit. There are many other factors that can affect this market. Take for instance the Fiscal Cliff and our economy. If the US and world economy continues to sputter, well all bets are off on LEGO investing. We have been sheltered the last 5 years with positive growth among poor economic times. Will that continue if discretionary incomes shrink? Time will tell. You might need the new people to keep the secondary LEGO market vibrant.

[Ematics]

EDIT: just realized I was reading from the first page as if it were the only page.

[Ed Mack]

While on a macro level I agree that LEGO investors currently have a minimal effect on the ability of children to obtain a set, on a zoomed in scale there are almost certainly situations in which investment activity ruins an end users day. Where an investor might spend hours combing stores and sites, a parent looking for a Christmas present doesn't have that sort of time, and they may well see a stack of Black Pearls pulled out from under them by someone planning on putting them in storage. As a parent personally, I'd say "Oh well" and find a different present for "little Johnny", but I can understand the individual frustration of others.

Heck, I myself spent a fair amount of time trying to get a Minecraft set at retail and never scored, even though I've seen posts by people claiming they swooped up multiples even though the LEGO webstore claims that isn't allowed. I'm not whining about it, but I can see where others might.

The one difference between LEGO sets and Baseball cards and the rest of the collectibles is that LEGO sets are bought primarily by children, which could care less for ROI and CAGR values. LEGO keeps their inventories in check as of this date, as well as prices.

There was once a time when the primary buyers of baseball cards, comics, and beanie babies were childred as well (or parents buying for children). My fear for LEGO investing is that the ratio is moving too much too fast. You can't deny that a larger percentage of LEGO sets are bought today as investment vehicles then was the case even 5 years ago. As that balance shifts a tipping point is approached.

Personally, and by this I mean personally and in no way a recommendation or a comment for or against the strategies of others, I don't put any true investment money into LEGO sets. My retirement portfolio, my kids' college funds, my goal savings accounts, etc. None of those contain money in LEGO speculation. I buy sets that I would have no hesitation opening myself if they can't be sold for profit. I only rarely buy multiples of anything, and even then it's only of sets that I could use as gifts for others if the price falls below the profit point.

These are the reasons why I believe that LEGO bricks are still kids toys and adult investors have little effect on sales:

2011 LEGO Systems U.S. Year-end Highlights (source: The NPD Group U.S. Consumer Panel)

***Solidified rank as America's #1 preschool construction brand, adding +11 share points to reach 43.5% of the segment

***Responsible for 25% of all toys sold to American boys ages 9-11 in 2011 and 20% of all U.S. toys sold to boys ages 6-8.

The most popular themes, Ninjago, Friends and CITY are geared towards kids. While there might be more adults getting back into LEGO investing/collecting, I don't believe it's enough to change TLG's core philosphy.

[TheOrcKing]

I remember saying that it was ridiculous to do this, and it peeved a few people. I stand by my statement though, I feel there is absolutely no need to by that many of one set.Exactly!! Agreed.

40 "Grand Emporiums" - at $149.99 each , that's a total of $5,999.60 you've spent there! Sheesh....

If I was a serious investor (and had the money), I could see stocking up with maybe 20 or less, but 40?

Dang. The modulars are guaranted investments I'll admit, but that's a little overkill.

Anyway, whether or not it's due to your own financial situation or whatever the reason may be, it is your own fault if you do not buy a set when it is currently available anywhere. Period.

The "Minecraft" set going the way it is is due to everyone trying to buy atleast one AND LEGO's own rather limited production runs. That is one set that some of it is our fault (more specifically, the 'stockpilers') but if LEGO would produce a higher volume of it in the first place there wouldn't be such a constant "out of stock"age. Course because of that, many investors can sell it for the $100 eBay listing.

[Mos_Eisley]

Correct me if I'm wrong, but when this so called bubble does burst, and it certainly could eventually, won't we see sets that are EOL drop from msrp or remain around msrp on sites like Amazon? For example, as of right now we know sets like 10219, QAR, 10216, 10231 are pretty much EOL, and their prices on Amazon have all increased in value from their original msrp. What I am saying is as of right now things are okay IMO (at least with most sets) but when they start to get bad, won't we be able to look at a large online site like Amazon and notice that the prices aren't increasing? The prices on Amazon are increasing on these just Eol'ed sets that I mentioned. This is because there is clearly still demand for them, right? This may not always be the case in the future however if too many people start investing. I could be completely wrong with the example I just gave about Amazon, but that's just my opinion (if prices on Amazon are increasing on recently Eol'ed sets, it's because there are still people willing to pay the higher secondary market price).

You aren't going to really see the effects of this for 2-4 years. In the short term, recently retired sets will likely increase in value faster than usual as new investors hurry to grab these freshly retired sets before the prices greatly increase as sets have done in the past. The problem (problem being less increase in value) is going to happen when the sets that are readily available now get retired in the next year or so, then 2 to 3 years after that, when in the past these sets would have reached their prime selling values, so many of the sets will be available on eBay and Amazon that they can't increase in value because supply well exceed demand. Trust me, I don't want this to be the case, but I really believe that the sets that were retired over the past couple months (Imperial Shuttle, Maersk Train, Fire Temple, Queen Anne's, Black Pearl, etc.) will be the last of the really valuable sets in the future. These all retired before the new glut of investors which are bound to appear. I think we'll start to see the impact with sets like Diagon Alley, which in the past would have seen huge gains. It's a great set, so new investor's we'll see that it's the last of the HP sets that they can still get at retail and they'll buy them up. It 'll still do well, I predict, but not as good as it would have before. Not only have they been available for a long time, but I think Fire Brigade, Grand Emporium, Tower Bridge and the Death Star will also be adversely effected as they are some of the oldest sets left in production so I expect new investors to jump all over them. Again, I'm not trying to be negative about it, just being honest. I have a lot of Fire Brigades and Death Stars and right now I wish I had more of those recently retired sets instead.

[StarCityBrickCompany]

While there will be an initial benefit of having new investors buying recently eol

[Talon]

I really believe that the sets that were retired over the past couple months (Imperial Shuttle, Maersk Train, Fire Temple, Queen Anne

[Mos_Eisley]

I didn't list every set that retired recently, but all of the DIno sets are gone from S@H, so they would fit in with what I said about sets that were retired before all the new investors showed up. I also mentioned in a previous message in this post that there will always be exceptions, and any short-run sets would naturally be sought after by people who missed them. However, it doesn't matter how awesome a set is, if down the road there are 50,000 MISB copies sitting around waiting to be unloaded by tons of investors, the value won't increase.

[StarCityBrickCompany]

The biggest fear I have are the macro economic events, if there is a recession, pandemic, depression or war, etc., then Lego sets will not do well! Of course, my other investments will also not do well in those scenarios!

Lego sales & valuations soared right through the last recession (officially Dec 2007

[Ed Mack]

Here is a hypothetical question(s) for you Bubble believers. A couple of facts first... LEGO sets have always been pricey in comparison to other toys. Since I was a kid, 35+years ago, LEGO sets have been expensive. That being said, new LEGO set prices are approximately based on piece count/piece size/set size throughout history. This correlation between the amount of ABS plastic in a LEGO set box and price of that set is standard LEGO operating procedure. What is also fact is that these LEGO pieces in these sets are interchangeable throughout the last 20-30 years to say the least. A yellow brick from 1980, for instance, is the same as yellow brick from 2012. This goes for most shapes and colors of MISB LEGO sets. So there is inherent value to the actual bricks that make up a set. I assume that most of us agree that if there will is a "bubble," it will be in the LEGO "secondary" market like eBay, not the primary retail market like LEGO S@H. I am assuming most people discussing this topic believe what LEGO representatives say when they have no interest in the aftermarkets and will continue to do business as they have done over the past half century. In other words, produce quality merchandise, maintain proper inventories and stable, although expensive, prices. So my question(s) is this...How much can a retired MISB LEGO set actually drop in value if the secondary LEGO market crashes and the primary LEGO market remains strong and stable? Will a large retired 2000 piece MISB set, for instance, drop below the current price for a 2000 piece new LEGO set? Can't these sets be parted out? Isn't there value in the pieces? Will a 2000 piece LEGO MISB set ever be worth pennies? How can this be considered a bubble like the Baseball card and Beanie Babies bubble when the value of those collectibles dropped to pennies, while a LEGO set has a floor that is still quite valuable? How far do prices have to drop in order for it to be considered a bubble bursting? Just a couple of topics to toss around...

[Rich B]

^^ Good points! IMO only time will tell as far as this whole bubble thing.

[Talon]

How much can a retired MISB LEGO set actually drop in value if the secondary LEGO market crashes and the primary LEGO market remains strong and stable?

Actually the research in financial bubbles shows the price always drops BELOW fundamental value, e.***. the cost of the bricks in this case as people flee the market. It would also affect the primary market and would drive normal consumers into other markets, so if there really is a bubble the primary market would not remain 'strong and stable'.

There is a characteristic chart of value vs. time for bubble markets where there is a steep increase in price forming a rounded top that then quickly descends below fundamentals value, how far below is different in each bubble, but usually at least 20% below. There is then a much slower increase in price than the first steep increase until at least fundamental value is reached and likely a little above fundamental value as the price levels out. If enough investors are driven into other markets there is sometimes no recovery at all and the value evens out at a much lower fundamental value driving many primary manufactureres out of business. I don't actually expect that to happen with Legos as I would expect it to return to fundamental value, but it could take many years. But, if there is an investing bubble in Legos, then I do expect it to follow the normal bubble market value curve. How steep, high, low and the timing are always difficult, if not impossible, to predict.

[stephen_rockefeller]

I agree with Ed thatv retail prices of LEGO will never decrease. TLG has set a price where after all their expenses they still make a hefty profit and I think that if they start losing money (doubtful) they would gracefully ride into the sunset. that wont ever happen though IMO. LEGO has withstood the test of time. We won't ever see the end of LEGO in our lifetime and I would be willing to bet that our great grandchildren will be still playing with LEGO and also selling them for profit......

[StarCityBrickCompany]

^^ Good points! IMO only time will tell as far as this whole bubble thing.

I feel pretty confident that there is no bubble & if there was a crash, that it would be limited to newer sets (which have been hoarded) and that those prices would only drop to near their original msrp. Collectable toys will always sell at a premium & I see no reason that Lego sets shouldn't be able to appreciate 2-3 times their original msrp (plus adjustments for inflation). Now there are a few exceptions, such as the UCS Falcon - I don't see price increases like that as being reasonable at all. I have had a few of those & when they quickly hit 1,500 I happily sold.

[Talon]

The thing that scares me the most in financial markets is when people start telling me that I can't lose! I've heard that with emerging market stocks, with gold, with Internet stocks, with real estate, with high yield bonds and the list goes on and on. Lego may not drop its prices on sets, but don't think for a minute that is the floor. Lego retailers could easily be in a situation where they had to do massive discounting just to sell any set. I'm sure anyone here could come up with multiple scenarios where that would be true. I'm not trying to be a big party pooper here, just thinking anyone investing in anything needs to go in with eyes wide open. In any investment it is pretty clear that the higher the return the higher the risk!

[Ed Mack]

The thing that scares me the most in financial markets is when people start telling me that I can't lose!

I've heard that with emerging market stocks, with gold, with Internet stocks, with real estate, with high yield bonds and the list goes on and on.

Lego may not drop its prices on sets, but don't think for a minute that is the floor. Lego retailers could easily be in a situation where they had to do massive discounting just to sell any set. I'm sure anyone here could come up with multiple scenarios where that would be true.

I'm not trying to be a big party pooper here, just thinking anyone investing in anything needs to go in with eyes wide open. In any investment it is pretty clear that the higher the return the higher the risk!

I'll be the first to tell you that YOU CAN LOSE MONEY IN LEGO INVESTING!!! Let me repeat...YOU CAN LOSE MONEY IN LEGO INVESTING!!! Pick the wrong sets at the wrong price and you have the makings of a loser. I have plenty of weak investmenst in my Brickfolio. Thankfully, I also have some strong performers that outweigh the weak ones. For example...I have all the Atlantis and Pharaoh's Quest theme. They are losers. Why? I don't know. Creative minifigures, cool sets...but losers. If I invested more money there, I would be real upset. There are no guarantees.

[Formula]

Collectable toys will always sell at a premium & I see no reason that Lego sets shouldn't be able to appreciate 2-3 times their original msrp (plus adjustments for inflation).

This may be true of LEGO currently, but it's by no means written in stone. 2x your inital investment is the sort of investment performance that is simply unsustainable in the face of growing publicity.

It would be interesting to see the percentage of LEGO sets that are currently purchased for investment purposes. I think we can all agree that the ratio is higher than it used to be and I think it's no secret that it's increasing. Eventually, this will almost certainly affect LEGO sales figures, and almost certianly lead to increased production batches. When a set that used to move 10,000 units now easily sells 12,500 because of investment activity, sales go up. When sales go up, production goes up. Now, there may well be a market for 12,500 units. But at some point, as the ratio of investment activity increases, that might not be true. When 10, 15, 25, 40% of LEGO sales are investments, we're looking at a situation in which there may not be a true market for the increased production. That's the point in which things start to level off and potentially fall.

If there are 5,000 of a given set available on eBay and only 1,000 people willing to pay a premium for them, prices below the original retail are a real possibility.

[Ed Mack]

This may be true of LEGO currently, but it's by no means written in stone. 2x your inital investment is the sort of investment performance that is simply unsustainable in the face of growing publicity.

It would be interesting to see the percentage of LEGO sets that are currently purchased for investment purposes. I think we can all agree that the ratio is higher than it used to be and I think it's no secret that it's increasing. Eventually, this will almost certainly affect LEGO sales figures, and almost certianly lead to increased production batches. When a set that used to move 10,000 units now easily sells 12,500 because of investment activity, sales go up. When sales go up, production goes up. Now, there may well be a market for 12,500 units. But at some point, as the ratio of investment activity increases, that might not be true. When 10, 15, 25, 40% of LEGO sales are investments, we're looking at a situation in which there may not be a true market for the increased production. That's the point in which things start to level off and potentially fall.

If there are 5,000 of a given set available on eBay and only 1,000 people willing to pay a premium for them, prices below the original retail are a real possibility.

I agree that there are more sets being bought as investment/resale purposes. It is rather difficult to decipher whether a set is sold to kids or investors because adult investors can buy child oriented sets like Ninjago as investments. The one thing that would worry me is if I see LEGO pricing themselves out of the market or overproducing sets, but at the moment, all is well in that department.

[Eschdaddy]

I think it will all even out in the end. As LEGO investing gets more and more popular a crash will almost inevitably follow. It's happened over and over and over again. Baseball cards. Comics. Beanie Babies. Precious Moments. Action Figures. On and on. Sure, you can draw theoretical differences between LEGO and any one of the past bubbles, but there are a lot of similarities too, and history repeats itself. The USA Today story is probably the early beginnings of the peak before the fall. Publicity ramps up. As more and more people grab up sets because "These will be worth something some day", fewer and fewer people will be on the buyer side of the secondary market, supply outstrips demand, and prices drop like a lead balloon.

People who collect because they like to collect LEGO sets will be fine. People already sitting on thousands of dollars of paper profits and unhatched eggs should really start paying attention if they want to ensure a profit. The people who are going to be coming into the LEGO investing game over the next few years are the ones taking big risks, in my opinion.

I only think there's a bubble if Lego increases production to take advantage of an increase in demand. Does anyone remember the comic book craze in the early 90s? Same thing there, but Marvel and DC substantially and greedily increased production to take advantage of the situation. In the end, the bubble burst and we were very close to not having The Avengers last summer. As far as I know, that's not happening there. In fact, Lego does the opposite by limiting the number you can buy. Yes, occasionally you can buy more, but not more than 5 at a time and they are being strict about the '1-only' for the Minecraft. I know... i tried. Bottom line: a bubble requires expansion to propagate and Lego (to their credit) limits that by limiting both production and individual sales.

Lets face it though, Legos ain't cheap to begin with. Plastics are a cheap industry and i'm sure there's a reason the Lego Group closely holds their profit each year. Yes, their quality and tolerances are expensive, but I'm sure Lego Group could reduce their price without a major change to their lifestyle.

So who's really to blame?

One more thing, my wife and I also invest in real estate. In 2003-2004, everyone blamed investors for the increased cost of housing. And they were... partly. It was also the home builders who raised the price of the homes to begin with, even though their costs stayed the same. It was also the fault of developers that bought and developed way more than they needed to, without any thought to supply and demand, because the investors (only the flippers, not those that bought based on value) would still buy them.

My point is that we aren't the only ones to blame if things go south with this investing niche. But, we will have played a part. As such, we have a responsibility to only buy what we need, not be greedy and not talk about people's income levels as if they had a choice to get a higher paying job. Trust me, there are still a bunch of people who would love any job, let alone a higher paying one.

Another thing Lego-My-Eggo is doing is creating what we call 'per-funned' sets. These are used sets that we sanitize, inspect, inventory and pack in plastic organizers and shrink wrap. This creates a product that we can sell as a 'feels like new' set that the kids get to rip into and has a permanent storage container for it. Best part is, we can sell them for about 60-75% the price of a new set. Our customers love 'em and it can help with the rising cost of Legos.

[TheOrcKing]

The thing that scares me the most in financial markets is when people start telling me that I can't lose! In any investment it is pretty clear that the higher the return the higher the risk!

I agree. Whenever anyone says "You can't lose!", or "This couldn't possibly fail!", or even "What could possibly go wrong?!", I run out the f***ing door! That sounds WAY too close to the 'used car salesman' pitch, those 'get rich quick' schemes, or "Cash-4-Gold" commercials and we know how much of a steaming pile of 'you-know-what' those are.

What you said is generally true, "Higher return, higher risk."

I'll be the first to tell you that YOU CAN LOSE MONEY IN LEGO INVESTING!!! Let me repeat...YOU CAN LOSE MONEY IN LEGO INVESTING!!! Pick the wrong sets at the wrong price and you have the makings of a loser. I have plenty of weak investmenst in my Brickfolio. Thankfully, I also have some strong performers that outweigh the weak ones. For example...I have all the Atlantis and Pharaoh's Quest theme. They are losers. Why? I don't know. Creative minifigures, cool sets...but losers. If I invested more money there, I would be real upset. There are no guarantees.

YES! (To everything.) There can never be full-on 100% guaranted investments. There are ones every now and then that almost always have good prospects, like the modulars or "Ultimate Collectors Series", but even those can go for less than any of us had hoped for. Heck, I really liked ATLANTIS and absolutely loved PHARAOH'S QUEST but, like you said, in the secondary market they suck. Even as popular as STAR WARS is, there are a few duds in that line as well. It's unavoidable and simply can not be helped.

Look, there is no sense in 'banging our heads against the wall' and stressing ourshelves out with forces we can never hope to control or fully comprehend. Just find what you feel good about, stock up on what you think is a good amount, then just let things take their course and live your life.

Another thing Lego-My-Eggo is doing is creating what we call 'per-funned' sets. These are used sets that we sanitize, inspect, inventory and pack in plastic organizers and shrink wrap. This creates a product that we can sell as a 'feels like new' set that the kids get to rip into and has a permanent storage container for it. Best part is, we can sell them for about 60-75% the price of a new set. Our customers love 'em and it can help with the rising cost of Legos.

I think that's a brilliant setup. I would have no problem buying anything from you for putting this much pride and effort in your business.

[Formula]

The one thing that would worry me is if I see LEGO pricing themselves out of the market or overproducing sets, but at the moment, all is well in that department.

With no handle on the real volume of the investment market though, how can we reasonably recognize overproduction? To me that's the risk in this sort of speculation - that some day there will be as many LEGO sets purchased explicitly for investment purposes as there are bought by people planning to immediately gift or open and build. If/When the secondary market becomes more about circulating sets among investors rather than reselling to end users is when it will all fall apart.

[slobey]

I don't mean to generalize as I'm sure there are people out there who have a genuine- albeit misguided- moral outrage to Lego investing but the majority of it boils down to jealousy. I know up until recently I didn't have the disposable income to buy the sets I wanted for myself much less put some away as investments. Its easy to be jealous of someone who can aford to put mutiples of a set away that you couldnt afford and disguise it as a "think about the children" argument. Just my 2c worth.....

[TheOrcKing]

I don't mean to generalize as I'm sure there are people out there who have a genuine- albeit misguided- moral outrage to Lego investing but the majority of it boils down to jealousy. I know up until recently I didn't have the disposable income to buy the sets I wanted for myself much less put some away as investments. Its easy to be jealous of someone who can aford to put mutiples of a set away that you couldnt afford and disguise it as a "think about the children" argument.

Just my 2c worth.....

Jealousy, the ugly side of all humanity.

Generalization or not, you are right. Who knows how many people see collectors as a bunch of 'hoarders'. (I hate that term.) It's understandable to be envious of other people that can walk up and purchase about $300-$500 worth of items on a whim, but outright jealousy is like being angry at the person who grabbed that last box of cereal you like off the shelf just right before you even got in the aisle. It is absurd.

Sure, I'm envious that many of the members here are able to buy and store away 8 "Death Stars", or 6 "Super Star Destroyers", or 15 "Grand Emporiums". But do I resent anyone for being able to do so? No. Not ever. No never. Period.

In fact, if it wasn't for you investors, collectors like me would not be able to buy a set that has long since been discontinued. Maybe at a higher cost perhaps. But that's the price anyone must be willing to pay for another person's time and effort.

[stephen_rockefeller]

Jealousy, the ugly side of all humanity.

Generalization or not, you are right. Who knows how many people see collectors as a bunch of 'hoarders'. (I hate that term.) It's understandable to be envious of other people that can walk up and purchase about $300-$500 worth of items on a whim, but outright jealousy is like being angry at the person who grabbed that last box of cereal you like off the shelf just right before you even got in the aisle. It is absurd.

Sure, I'm envious that many of the members here are able to buy and store away 8 "Death Stars", or 6 "Super Star Destroyers", or 15 "Grand Emporiums". But do I resent anyone for being able to do so? No. Not ever. No never. Period.

In fact, if it wasn't for you investors, collectors like me would not be able to buy a set that has long since been discontinued. Maybe at a higher cost perhaps. But that's the price anyone must be willing to pay for another person's time and effort.

these two posts sum it up for me.....nothing else to say about these ridiculous people who feel the need to complain because they can't afford or don't want to invest in LEGO

[kutaone]

"a lot of $$" is relative... Someone who has a lot of cash and decides to invest in LEGO sets isn't going to buy one or two sets so they can make a few bucks in a year. Someone with a lot of cash is going to buy a lot of LEGO sets if they do decide to put their time and effort into it. And yes...I am the reason some child cried on Christmas b/c he didn't get his favorite LEGO set in my area. I guess I love $$ more than they love their children (I'm obviously joking...I didn't buy that many LEGO sets.)