Throwing Money Away: Why Not Buy Everything?

[thoroakenfelder]

 There have been many recent articles, all over the web, in local papers and on the radio. They're saying that LEGO investing is better than gold. It's sensationalist. It excites the imagination. It sounds easy. These articles point up the sets that have increased in value many times above their initial costs. Dreamers sweep store shelves expecting instant returns and easy money. Conventional wisdom says that you'll never lose money on LEGO, it will always be worth at least what you bought it for. What if it's not?

I'd like to take a journey through the dusty backrooms of stores and the dark corners of investor's storage areas to look at some themes that proved to be so unpopular that if their demand and value hasn't remained flat, it actually got worse. These are themes that got the same market push as every other theme, but failed to capture the target audience.

Let's take a look at some licensed themes from recent history:

The first theme that we'll take a look at is Prince of Persia. Disney's attempt to turn a video game franchise into a profitable film franchise. LEGO released 6 Sets consisting of 7569 Desert Attack, 7570 The Ostrich Race, 7571 The Fight for the Dagger, 7572 Quest Against Time, 7573 Battle of Alamut, and 20017 Dagger Trap Polybag. All combined, this theme sold at retail for a total of $190.95 (Pre Tax of course,) the current value of these sets averages to $178.75. That's a return of 94% of the initial investment. It would be worse if not for the Polybag, which I calculated at retail of free because I couldn't find any data about cost.  (So, I assumed it was free.)

The second licensed theme that we'll discuss is The Lone Ranger. (Personally, I loved these sets and wanted more. {if I could get them on steep discount.}) Disney released the Lone Ranger to poor reception and poor reviews. The days of the Western might be dead, and this theme sure did seem like a nail in the coffin. This theme consisted of 6 sets and 2 Polybags. They are 79106 Cavalry Builder set (How they can be cavalry without horses I don't know. I guess Artillery is confusing,) 79107 Comanche Camp, 79108 Stagecoach Escape, 79109 Colby City Showdown, 79110 Silver Mine Shootout, 79111 Constitution Train Chase, 30260 Lone Ranger's Pump Car, and 30261 Tonto's Campfire. The combined retail total before tax is $291.92 but when I get the average sold price for the last 6 months on Bricklink they sold for a grand total of $283. Slightly better than Prince of Persia with 97% remaining value.

It's probably not LEGO's fault that these themes died on the vine. Some might argue that if the source material had been better received, there would be greater demand on the aftermarket. It's a fair argument, but you could also point out that if LEGO had done a better job on the sets, they might have succeeded despite the failures of the original properties. If you think it's the fault of the source material, let's take a look at a LEGO owned theme that they got very wrong.

For our non licensed theme  we'll look at the horror of Galaxy Squad. It is a continuation/expansion of the classic Space theme. Science Fiction has been popular for a long time, and little boys have always wanted to be an astronaut and kill space bugs. This theme had a whopping 10 sets and 2 polybags. The sets are 70700 Space Swarmer, 70701 Swarm Interceptor, 70702 Warp Stinger, 70703 Star Slicer, 70704 Vermin Vaporizer, 70705 Bug Obliterator, 70706 Crater Creeper, 70707 CLS-89 Eradicator Mech, 70708 Hive Crawler, 70709 Galactic Titan, with polybags 30230 Mini Mech, and 30231 Space Insectoid. That's about 4000 pieces of fun right there. All of those sets together would cost $479.38 at retail before tax. How much is Bricklink's average sold price for the entire series? $320. You're losing a full third of your initial investment if you bought these at retail and sold them for the average price.

Are these the only themes that have lost money? By no means. Early predictions are putting the future of Chima in the toilet. I'll let those of you inclined to do so research other past themes to see which ones should cause speculators to run for the hills.

For those people who jumped in head first, thinking that investing in LEGO would be like printing money, this should serve as a sobering wake-up call. If you had bought any of these themes at retail, you'd have saved yourself time by handing $5 bills to random people on the street, or better yet, save the money by burying it in a coffee can in your backyard.

With every success story and humble brag about the times when someone guessed right, there's someone cursing the hundreds or thousands of dollars tied up in inventory, eating storage space. What can you do with all those Ostrich Races or Crater Creepers? I hear Toys for Tots accepts any toy that is unopened and unwrapped. You could break them down for parts, but that's a whole different headache.

The average values that I list are not a complete indication of the value of these sets. Looking at Bricklink, many have sold or are currently available for notably less than the average. On the other hand, some bought these sets at significantly below average pricing. Prince of Persia has 2 unique animals (ostrich and camel) that have some demand on the parts market. Some people are making money on these sets. Smart money avoided these themes from the beginning, most even avoided them on clearance. Some, however, are wondering if it's possible to use these sets to make storage for their moneymaking investment. If you haven't thought about it, even if you sold at the listed average price, the amount of your return is at least 7% lower due to fees.

If you're buying LEGO for investment and you don't know or don't care about the themes that you are buying, chances are that you're throwing money away.

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[Phil B]

Thanks @thoroakenfelder for this insightful and sobering article. On selling these for parts, the current BL 6 month average for all Prince of Persia parts combined is $298. Using my standard "threshold rule" of (purchase price * 2) > (75% of BL value), this would mean that you have a chance at actually making money (excl. labor) of these parts if you bought the combined sets for $111.75, or 41.5% off of RRP. So even selling this for parts is unlikely to make a good return .....

[exciter1]

Don't ask some people here how much they made with Lone Ranger and Galaxy Squad.  It will make you sick, with envy.

[Huskers1236]

Small correction.  PoP didn't have an elephant, that was back in the old Adventurers line.  I actually think most of the Lone Ranger line and at least Battle of Alamut are really well done.  Just bad source material so nobody cared.  Bought at the right price, even junk can make you money and a lot of this was had at 50% off or better.

[Muffin Cup]

Seems like a bit more emphasis could be put on the clearance bit. If you bought some of the niftier sets for 50% and sold them for anywhere near retail you probably did fine for yourself. There are relatively few things worth buying at full retail really. The average set is more likely to be a stinker than a big winner, but even duds like those mentioned here can be worth it on deep discounts. 

[thoroakenfelder]

Why did I think there was an elephant? That's weird. I will make a couple corrections as soon as I can get on from home.

[KShine]

Basing performance on MSRP can sometimes work, but can also be deceiving - I prefer using the average daily retail price (of large retailers), over the life of a set.

Edited February 12, 2016 by KShine

[gregpj]

To anyone who has read this, my apologies. The parts in red were from my review of the article and were only meant to highlight that I didn't fully understand the author's intent. The article is being taken offline until it can be corrected.

[Phil B]

1 minute ago, gregpj said:

To anyone who has read this, my apologies. The parts in red were from my review of the article and were only meant to highlight that I didn't fully understand the author's intent. The article is being taken offline until it can be corrected.

No problem I was also confused about the "handing out $5 bills" comment in his article, good to see you had highlighted it as well

[thoroakenfelder]

1 hour ago, exciter1 said:

Don't ask some people here how much they made with Lone Ranger and Galaxy Squad.  It will make you sick, with envy.

 

1 hour ago, Muffin Cup said:

Seems like a bit more emphasis could be put on the clearance bit. If you bought some of the niftier sets for 50% and sold them for anywhere near retail you probably did fine for yourself. There are relatively few things worth buying at full retail really. The average set is more likely to be a stinker than a big winner, but even duds like those mentioned here can be worth it on deep discounts. 

 

1 hour ago, KShine said:

Basing performance on MSRP can sometimes work, but can also be deceiving - I prefer using the average daily retail price (of large retailers), over the life of a set.

 

All of these points are valid. I do not dispute that a savvy investor, someone with more time in the saddle as it were, could and probably did make money on even these turkeys. You could even cherry pick the good sets out and show that it's still possible to profit on certain things.

However, the point of this blog was to illustrate the folly of running headlong into LEGO investing without knowing the product, the history, and assuming that all LEGO is gold that will increase in price. Also, it points up the assumption that even if it doesn't go up, you won't lose money. I could have lingered longer over the costs of long term storage of sets, needing to allocate shelving and space for each item, the financial aspect of storing them for a long time as they wait to be sold.

[Guest]

Everyone got their sets at different prices. You have to have a baseline or you can't discuss and compare these things. MSRP is as good as a baseline as any. Or daily average retail price as someone mentioned, but I am sure not going to calculate that for every set. Just because Frank got a set for $1 at a closing Kmart doesn't make it a winner. Maybe for Frank, but we aren't only talking about Frank, much to Frank's chagrin.

[Phil B]

8 minutes ago, thoroakenfelder said:

 

 

 

All of these points are valid. I do not dispute that a savvy investor, someone with more time in the saddle as it were, could and probably did make money on even these turkeys. You could even cherry pick the good sets out and show that it's still possible to profit on certain things.

However, the point of this blog was to illustrate the folly of running headlong into LEGO investing without knowing the product, the history, and assuming that all LEGO is gold that will increase in price. Also, it points up the assumption that even if it doesn't go up, you won't lose money. I could have lingered longer over the costs of long term storage of sets, needing to allocate shelving and space for each item, the financial aspect of storing them for a long time as they wait to be sold.

And that is why you need to _love_ LEGO, the product, to make the best out of this game .... there are tons of cool MOCs you can make with PoP or Lone Ranger parts ....

[thoroakenfelder]

1 minute ago, Phil B said:

And that is why you need to _love_ LEGO, the product, to make the best out of this game .... there are tons of cool MOCs you can make with PoP or Lone Ranger parts ....

Yeah, I even said how much I liked the lone ranger sets.

[jbacunn]

I have to disagree on the comment about the quality of the LR sets. I thought most of them were pretty cool and I did make money with them when buying at 50% discount.  

[exciter1]

19 minutes ago, MarxMarvelous said:

Everyone got their sets at different prices. You have to have a baseline or you can't discuss and compare these things. MSRP is as good as a baseline as any. Or daily average retail price as someone mentioned, but I am sure not going to calculate that for every set. Just because Frank got a set for $1 at a closing Kmart doesn't make it a winner. Maybe for Frank, but we aren't only talking about Frank, much to Frank's chagrin.

If you never buy sets at MSRP, is that really your baseline?

[c_rpg]

It's definitely more risky to invest in new themes like Lone Ranger and Prince of Persia. But if we consider only exclusives/hard to find sets I don't think there are a lot of sets that have decreased in value.

If you spread out your investments and buy mostly 'safe' sets you'll be fine. I do think a lot of people here take a gamble from time-to-time and buy something from a new theme like Lone Ranger if they like the sets, but I doubt most people would put a significant percentage in that. Besides, most of the time it's quite obvious which sets/themes will do well.

[lobo1969]

11 minutes ago, jbacunn said:

I have to disagree on the comment about the quality of the LR sets. I thought most of them were pretty cool and I did make money with them when buying at 50% discount.  

Agreed, nice sets just not very investment worthy.

[Travel125]

22 minutes ago, Phil B said:

And that is why you need to _love_ LEGO, the product, to make the best out of this game .... there are tons of cool MOCs you can make with PoP or Lone Ranger parts ....

I agree that you really need to have a passion behind the Lego products and not just a desire to make quick money. If you are only in it for the money you are more likely to fail in my opinion. I've had a passion for Lego ever since I received my first Lego set decades ago and the Lego secondary market is a fun way to continue this passion and hopefully make a modest profit. I only buy sets for re-sale that I personally find fun to build and think are of a quality design. If the theme doesn't appeal to me I'm not going to invest in it unless they are on super-deep discount. Like anything, invest cautiously.

[Guest]

16 minutes ago, exciter1 said:

If you never buy sets at MSRP, is that really your baseline?

It's not about me. The baseline is for EVERYONE to compare and discuss. Clearly when making your own calculations and data, you would use your buy in. When talking about a set in GENERAL terms with EVERYONE else and comparing you have to have a baseline. Not everyone could get the set for the price I did. Everyone could get it for MSRP.

Edited February 12, 2016 by MarxMarvelous

[Phil B]

8 minutes ago, MarxMarvelous said:

It's not about me. The baseline is for EVERYONE to compare and discuss. Clearly when making your own calculations and data, you would use your buy in. When talking about a set in GENERAL terms with EVERYONE else and comparing you have to have a baseline. Not everyone could get the set for the price I did. Everyone could get it for MSRP.

Exactly ... it's easy to see how you can make money off of Spaceports bought for $1. The question is if the same SpacePort bought for $89 (still a 25% discount over RRP) is going to make money or not ..... let alone those bought for $119.

[ZULU]

Good article. 

I like to fact that you allude to these stacks of unsold inventories. Clearly the loss of flexibilty through a high working capital with low turnover is an important element which makes the difference between a good and a mediocre business. 

On this, a whole article should be dedicated. Why are metalbeard SC or HC tricky investments for me, but do i have maxed out exposure to Red5? 

For exactly that reason. How fast can you move the product! Keep it in mind. Nobody wants a stock full of galaxy, lone ranger and fire stations...

[thoroakenfelder]

1 hour ago, jbacunn said:

I have to disagree on the comment about the quality of the LR sets. I thought most of them were pretty cool and I did make money with them when buying at 50% discount.  

The sets may be good, but they would have to be exceptional to counteract the negative momentum of the toxic property.

[Alcarin]

3 hours ago, KShine said:

Basing performance on MSRP can sometimes work, but can also be deceiving - I prefer using the average daily retail price (of large retailers), over the life of a set.

Basing performance on MSRP is the only fair way to go really, not everyone in the world can buy from USA Walmart or Toys are Us etc.... so for statistics to work MSRP has to be used... 

 

Its only logical. 

[thoroakenfelder]

9 minutes ago, Alcarin said:

Basing performance on MSRP is the only fair way to go really, not everyone in the world can buy from USA Walmart or Toys are Us etc.... so for statistics to work MSRP has to be used... 

 

Its only logical. 

Also, and maybe I misunderstood, I thought that the cagr was based off msrp.

 

[KShine]

12 minutes ago, Alcarin said:

Basing performance on MSRP is the only fair way to go really, not everyone in the world can buy from USA Walmart or Toys are Us etc.... so for statistics to work MSRP has to be used... 

 

Its only logical. 

It could be done by country. Besides, MSRP's vary by country as well

1 minute ago, thoroakenfelder said:

Also, and maybe I misunderstood, I thought that the cagr was based off msrp.

 

Yes, CAGR is off msrp.