Reddit Comment against LEGO investing

[BrickBroker]

I would like to first state that Jeff and I appreciate any and all constructive comments, whether they are positive or negative. We have encountered such a high degree of intelligence in our short time as the creators of BrickPicker, that we often take member's ideas and incorporate them into the site. We have accountants, financial planners, engineers, etc...as members on our site and they help us with some basic financial and statistical facts and figures. Jeff studied computer science in school and I was a biochem major, so we have very little experience in financial formulas and terms. We listen to people and learn. You mentioned "carrying/holding costs" and I learned something. I knew what it meant, basically, but know I know the term to describe it. So thank you.

The way I figure it(because you told me so), you sell "brick" and masonry items, hence the name "Brick Broker." We all assumed you resold LEGO bricks...LOL. Silly me. This would explain a lot of your comments and how many of us misread them. I can also assume you probably found our site through the USA TODAY article, because you probably scan such publications for ideas on investing and LEGO investing intrigued you, but eventually learned that there was a lot of effort and time involved to achieve the ROI that we talk about. You probably have no real interest in LEGO bricks, just the money aspect of it.

LEGO "investing" is not for everyone. As stated numerous times already, it takes time, space, effort and some luck to make money...with an emphasis on space. I don't think LEGO investing can yield the total dollar returns you seek unless a concerted effort was made in labor and facilities to flip hundreds to thousands of LEGO sets. It sounds like you are willing to write a big check and take a big chance, but don't want to get too dirty. You just want to let your money ride the old fashioned way, through stocks, gold, bonds...the traditional methods. That's cool with me. Millions of people do it and do well with it. I have and still do as well.

I disagree with you on the control issue. Stock markets are way more volatile and unpredictable than LEGO sets. I can pretty much tell you what sets are going to be top performers, but stocks are way more fickle. Apple stock hit it's record high about a year after Steve Jobs death. People were predicting that Apple could hit $800-$900 a share several months back, yet it started tanking for no real reason. It might be a good value at $450, but tell that to the guy who bought it at $700. A LEGO set is never "worthless." The bricks have value, sometimes more than a set if parted out. A valuable stock can become worthless and the people who work for the company and own the stock have very little control in stopping the slide(Lucent).

As for the tax issues, I realize that all Americans have to pay taxes on income. I pay my fair share. That being said, many online auction sellers, whether legal or not, do not pay taxes on their sales. At some point, I would like to have a member who is an accountant write an article for the site explaining what a LEGO reseller is responsible for tax wise.

I am glad to hear that someone is doing well in this economy. I own a car wash and quick oil change in NJ and business is off 40% over the past 4-5 years. I speak to all sorts of business owners and they all tell me similar stories. Costs are up, incomes are down. There is a disconnect in this country from the "rich" and the rest of us. I'm happy that you can benefit from their resources. Good thing I have LEGO investing to make up for my losses. ;-) Thanks for your quality posts and look forward to hearing from you again...

Ed Mack

Life is an education unto itself. Society now benefits from more worldwide human interaction than we've ever had in the past (although, it may not always be physical). As long as we all keep our eyes and ears open and keep paying it forward, we all advance.

Yes, I chose the name BrickBroker because that is what I do. I did not think of the ramifications of that name on this site, hindsight. I learned about this site via BrickBlogger and joined back in early summer of 2012, I think the site had not been around for too long before that, but I'm not too sure.

Many forms of investing are not for many people. Most of the investments I participate in are not available to the general public. I did write a big check to get into the masonry industry, and I can tell you, you do not work with real stone without getting dirt under your fingernails. I'm very active in the investments that I want to be active in. A perk of my position, I guess. At the same time, you are correct, I have also written checks and walked away, leaving those in charge to handle things, and I have also written checks and provided a literal wealth of consulting along with the investment. Each situation is different.

I do not even think a concerted effort would yield a proper return. From all of the work I have done educating myself on the subject, purchasing thousands of LEGO sets (or hundreds of thousands, maybe even millions) is not even possible. You can only go so far picking up deals on Amazon or eBay before you've exhausted your supply source, and then you're in the horrible position of having idle money....and having to wait before you can cash out. I'm willing to bet this type of micro investing tops out at about $1M in yearly revenues, and just looking at the involvement, that is a ton of work for $1M in revenues. Anyone else reading please understand the difference between revenues and profits before you go flaming.

Stocks are volatile, no argument there. I only know what I know from watching Bloomberg, the rest I leave up to my professionals. We can continue to dissect Apple, but it's history has already been written. Looking at the fundamentals, it is still a solid buy, and if you bought at $700 hoping for over $1K, well, hang in there, it will take a few years but the dividends will pay back the losses unless the share price continues to drop. Investments always have risk, and I mean no offense, but by taking the position of "well even if this market tanks, I'll still have LEGO bricks" position is simply a cop-out of that risk. It seems like a denial mechanism to avoid having to deal with actually losing. I have seen that position taken many times as I've read through the boards by many different people.

To me, it is the equivalent of someone who really likes ice cream, so they buy a Baskin Robbins 31 franchise, and declare their exit strategy as: "Well, I really like ice cream, so if this business tanks at least I can eat all of the ice cream!"

With the example of Lucent and other businesses that are transitioning....it happens, it is all a part of the cycle. Industries rise up from the ashes of their predecessors. It will happen again, and again, and again. When was the last time anyone picked up a newspaper? I think denial and fear of change are what get people hung up. When a door shuts, another opens...but you have to be brave enough to walk through into the unknown....sure you can keep pounding on the closed door to be let back in, but it's probably not going to happen.

With regards to the taxes, again, I'm no accountant, but if you are engaged in business and you are earning income on that business, you need to report that income and pay the taxes on it. The venue of said business (whether physical or virtual) does not matter. Think your accountant will be responsible if they made a mistake on your returns? They will not, you will still have to pay, and you will have to pay some nice penalties too. Unfortunately, I know this from experience. You'll also get the added benefit of paying your accounting firm for the hours they spend dealing with the IRS agents, you know, to really rub salt in the wound.

I do not subscribe to the have and have-not discussion. My earliest years were spent being raised in a trailer park in the early 80's, up until highschool it did not get much better. I worked my ass off to be able to go to school to get a solid education, then I worked my ass off in my first job post college. I did strike it lucky as the company I was working for was acquired and that triggered a decent payout for me. I could have blown it all like most of the people I worked with....but instead I put it all to work.

The opportunities for everything you want in this world are all around you, but you have to be willing to work very, very hard for them.

BrickBroker

[pickleboy]

So WTF are you doing here? Just here to tell everyone how dumb their side business/hobby is? I mean if we can't get into the investments you're in since we are general public then WTF are you even talking about? No one here but you seems to think anyone is trying to get rich doing this... ...you kinda come off as a condescending prick who likes to hear himself talk.

[stephen_rockefeller]

Very well thought out and written response......I do disagree with you on what you claim as a "cop out" for me anyway, I could care less if the market tanks because I really do want to build all the sets I am holding. I wouldn't loose one second of sleep if the sets were suddenly worth nothing......well maybe I would because I would be building.

[littlenicky]

I can assure you that there are quite a few sellers out there that EARN 1 million+ in profit (NOT sales) on flipping LEGOs. It can be done whether you believe it or not.

[Talon]

I can assure you that there are quite a few sellers out there that EARN 1 million+ in profit (NOT sales) on flipping LEGOs. It can be done whether you believe it or not.

Earning $1 million a year in profit on flipping Legos? Seems a bit of a stretch to me.

For example, to make $1 million a year you could purchase at $5 million in Legos and sell it at $7 million (40% markup). Minus about $1 million in costs (20% = selling, carrying, shrinkage, insurance, etc.) leaving you with $1 million in profit. That would be 20% in profit which is unusual but not unheard of in business. If your profit margin is less, say a more normal 10% to 15% then you would need to sell more than $7 million to make $1 million profit.

Selling $7 million a year is selling $19,180 a day, every day of the year in Legos. I'm sure Big Box companies do way over that but someone 'flipping' Legos doing that much? Still seems like a stretch requiring huge warehouse space and multiple people shipping, buying, accounting, etc. That is 192 hundred dollar Lego sets sold/shipped a day and there would need to be corresponding purchases to replace the inventory sold.

While it is certainly possible it would be difficult to sustain purchases that large at 40% off. But if you can't get 40% off retail sales price then you will have to purchase more than $5 million and sell more than $7 million to make $1 million in profit.

Anyway I look at it makes it hard to believe for me.

[Dundundun1]

I would agree that I do not understand the micro investing of LEGO...I will easily agree that there is a lot of labor involved, and it has to be time consuming, regardless of how seamless others make it out to be. I just look at the effort for the return...and it's simply not enough. I accustomed to earning much bigger returns. Then again, I have also sustained some pretty big losses. Regardless, I am still way ahead.

I'm confused about the capital gains statement though...paying taxes is just part of the game. I have never not invested because I would have tax implications. As far as I understand it with eBay, or with any business, report the income, and pay the taxes. If you are not set up as some sort of legal entity I think you can claim up to a certain amount as hobby income, but I'm no tax guru, your accountants can better advise you.

The control aspect of most investments is an illusion in my opinion. You may have control over one thing, but not everything. If I understand this particular class of speculation correctly, the control you have are what your entry price is, and I guess there is some satisfaction to looking in your closet and seeing your investment, although that is not really a control. But other than the entry price, what else are you in control of?

With the case of Apple...well it's pretty simple if you ask me. Their visionary is dead. No more magic devices are being innovated. The decline was predicted, and a lot of people made a ton of money shorting the stock down from 600-500, and there are still people out there doing it daily. Even at $450 it is still a bargain, and do not forget the dividends. The company will return an entire share purchase in dividends in 5 years. That's money making money.

I am also a business owner, and I'm sorry to hear that yours is off so much. I can not say the same for mine. I'm in the stone, concrete, and glass business. Our demographics are really, really wealthy people, and we do it all from the smallest stonework to huge retaining walls. It's all about positioning. I do know that people are hurting out there, and that really sucks, but it is not the same for everyone. Some people are thriving and have been.

I have read the consensus, and you are right on with your demographics. Everyone seems to be "doing this for fun." So I say keep having fun. Who really cares what one random person on the internet thinks?

Cheers,

BrickBroker

I would like to first state that Jeff and I appreciate any and all constructive comments, whether they are positive or negative. We have encountered such a high degree of intelligence in our short time as the creators of BrickPicker, that we often take member's ideas and incorporate them into the site. We have accountants, financial planners, engineers, etc...as members on our site and they help us with some basic financial and statistical facts and figures. Jeff studied computer science in school and I was a biochem major, so we have very little experience in financial formulas and terms. We listen to people and learn. You mentioned "carrying/holding costs" and I learned something. I knew what it meant, basically, but know I know the term to describe it. So thank you.

The way I figure it(because you told me so), you sell "brick" and masonry items, hence the name "Brick Broker." We all assumed you resold LEGO bricks...LOL. Silly me. This would explain a lot of your comments and how many of us misread them. I can also assume you probably found our site through the USA TODAY article, because you probably scan such publications for ideas on investing and LEGO investing intrigued you, but eventually learned that there was a lot of effort and time involved to achieve the ROI that we talk about. You probably have no real interest in LEGO bricks, just the money aspect of it.

LEGO "investing" is not for everyone. As stated numerous times already, it takes time, space, effort and some luck to make money...with an emphasis on space. I don't think LEGO investing can yield the total dollar returns you seek unless a concerted effort was made in labor and facilities to flip hundreds to thousands of LEGO sets. It sounds like you are willing to write a big check and take a big chance, but don't want to get too dirty. You just want to let your money ride the old fashioned way, through stocks, gold, bonds...the traditional methods. That's cool with me. Millions of people do it and do well with it. I have and still do as well.

I disagree with you on the control issue. Stock markets are way more volatile and unpredictable than LEGO sets. I can pretty much tell you what sets are going to be top performers, but stocks are way more fickle. Apple stock hit it's record high about a year after Steve Jobs death. People were predicting that Apple could hit $800-$900 a share several months back, yet it started tanking for no real reason. It might be a good value at $450, but tell that to the guy who bought it at $700. A LEGO set is never "worthless." The bricks have value, sometimes more than a set if parted out. A valuable stock can become worthless and the people who work for the company and own the stock have very little control in stopping the slide(Lucent).

As for the tax issues, I realize that all Americans have to pay taxes on income. I pay my fair share. That being said, many online auction sellers, whether legal or not, do not pay taxes on their sales. At some point, I would like to have a member who is an accountant write an article for the site explaining what a LEGO reseller is responsible for tax wise.

I am glad to hear that someone is doing well in this economy. I own a car wash and quick oil change in NJ and business is off 40% over the past 4-5 years. I speak to all sorts of business owners and they all tell me similar stories. Costs are up, incomes are down. There is a disconnect in this country from the "rich" and the rest of us. I'm happy that you can benefit from their resources. Good thing I have LEGO investing to make up for my losses. ;-) Thanks for your quality posts and look forward to hearing from you again...

Ed Mack

Just to shed a little light on your tax responsibility for selling LEGO online - if you sell LEGO online and take in payments through Paypal, then Paypal will report your activity to the IRS if you have more than 200 transactions or $20,000 worth of sales in one calendar year.

So if you hit one of those marks than look for the 1099-k in the mail because you will receive one, and the IRS will have your numbers.

[emazers]

You have to Make over $20,000 and do over 200 Transactions before Paypal sends you a 1099-K and the IRS. Its not one or the other its both. And say during last year you bought 10 items, anything and you returned them, well the 10 things you returned are called Charge backs and the 10 things you returned count toward the 200 transactions.

[Veegs]

Am I the only one who really enjoyed BrickBroker? If nothing else, a reminder that turning a profit can be tricky in any pursuit.

[stephen_rockefeller]

Am I the only one who really enjoyed BrickBroker?

No you weren't.

[Teeird]

No you weren't. Who was BrickBroker?

[Ed Mack]

Am I the only one who really enjoyed BrickBroker? If nothing else, a reminder that turning a profit can be tricky in any pursuit.

Brick Broker had some quality points and posts like his serves as a wake up call to many who pay attention. As for taxes, yes the $200.000 limit and 200 sales is known by many sellers, but they find ways around it I'm sure(multiple PayPal accounts). Right now there are major tax loopholes in the system and people take advantage of them, but they are slowly closing, as the Feds and State agencies need more to support themselves. The internet tax issue will be a huge tax boon for them in the near future.

As for profiting a million dollars a year flipping LEGO sets...It's possible, but I guess it is a retail business at that point...isn't it? It is no longer investing or what we are talking about on this site in my book. I really don't know of a LEGO retail site, besides the major ones, that do that much business. These Mom and Pop LEGO sellers on eBay and scattered throughout the internet charge way too much to sell the volume needed to "profit" a million a year after expenses.

[exciter1]

So Ed, have you seriously never sold any of your Lego investment items yet?

[littlenicky]

Earning $1 million a year in profit on flipping Legos? Seems a bit of a stretch to me.

For example, to make $1 million a year you could purchase at $5 million in Legos and sell it at $7 million (40% markup). Minus about $1 million in costs (20% = selling, carrying, shrinkage, insurance, etc.) leaving you with $1 million in profit. That would be 20% in profit which is unusual but not unheard of in business. If your profit margin is less, say a more normal 10% to 15% then you would need to sell more than $7 million to make $1 million profit.

Selling $7 million a year is selling $19,180 a day, every day of the year in Legos. I'm sure Big Box companies do way over that but someone 'flipping' Legos doing that much? Still seems like a stretch requiring huge warehouse space and multiple people shipping, buying, accounting, etc. That is 192 hundred dollar Lego sets sold/shipped a day and there would need to be corresponding purchases to replace the inventory sold.

While it is certainly possible it would be difficult to sustain purchases that large at 40% off. But if you can't get 40% off retail sales price then you will have to purchase more than $5 million and sell more than $7 million to make $1 million in profit.

Anyway I look at it makes it hard to believe for me.

It is a stretch but can be done. I know a few people who are in that league.

I'm not going to give out the way it can be done but if you look at third party sellers on 3rd party selling sites. Monitor some of the larger sellers (non big box retailers). Monitor their sales and how many they sell. Then, do some research and try to figure out what the cheapest price was for those products. Then, you'll begin to see how they do it. You just have to figure out when to buy and then grow exponentially. Understanding the competitors and how they do it gives you a bit of an insight, you just need to figure out how to better them.

To make $1m, it does not take $7m in sales. Purchasing at the right time, understanding the market, know your retail prices, know when to attack when you see the right price to buy, maximizing all resources available to you, and selling at the best possible time will garner larger profits.

You just have to think of the bigger picture. If you take a look at last year even, by Christmas time, there were multiple sets which allowed for 100%+ profit. You pick the right ones and your profits shoot through the roof. You buy a couple hundred to thousand of them and you can easily earn quite a bit. You just have to have the money/space to hold out for the best prices.

Just some food for thought.

[brickbuyer230]

I agree with Mos Eisely. Most of my collection is polybags and promotional.[TC-14 anyone?] I like them for the price,simplicity and the promise of seasonal returns. [Good stocking stuffers!]