Sotheby's Auction House Predicts Collector Bubbles

[bnb123]

Interesting read on collector bubbles:

The Art of Bubbles: How Sotheby's Predicts the World Economy

Are record-setting auction prices a leading indicator of economic collapse? Some experts think so. And they're looking at China, whose blaze of auction records is looking eerily reminiscent of 1987 Japan and 2007 America.

See full article here:

http://www.theatlantic.com/business/archive/2011/04/the-art-of-bubbles-how-sothebys-predicts-the-world-economy/236852/#

[Mos_Eisley]

Maybe I'm not reading deep enough into this, but I don't see how this has any correlation with LEGO investing. Without getting really into this, I don't believe this article has anything to do with what we're doing here.

[bnb123]

Not the article as a whole, but just the concept. Like it says in the article:

"Overinvestment, overconfidence and easy money are conspiring to drive up the price of everything, from 18th century vases, to garlic, to homes, food and land."

LEGO also applies.

While I am an investor in LEGO, Overinvestment, overconfidence and the lure of easy money can lead to a false sense of value in any item and also huge stockpiles of it (in our case Brand New LEGO sets). Enter supply and demand here and things don't look so good. The only hope is that the windows of oppurtunity for profit are large enough to hold such large stockpiles of product.

These sets will have a 3 windows for profit:

1. A small window for modest profit shortly after the large retail markets dry up and continuing until the second window. Selling here will be slow because there will be many in the secondary sales chains (eBay, Bricklink, Amazon individual sellers, Barnes and Noble individual sellers, etc.)

2. A slightly larger window for potentially really good profits when the nostalgia factor kicks in. This can be 10-30 years after the original release of the set. This is when the majority of investors will begin the huge push to sell sets that have that extra audience driven by nostalgia. If you want evidence of this just look up items like: She-ra Dolls, NFL Huddles, Puffalumps, and 1,000's of other obscure kids toys from the early to mid 1980's on eBay. These items sell for good money because of the nostalgia factor. The difference is people didn't hoard these items so their are fewer to be found.

Selling in this window could be fast and furious with prices going high, but this window could very well be under the rules of supply and demand again, if these hoards of LEGO all come into this window all at once.

3. The last window a really long time from now. We are talking retirement cash. 30-40 years after initial release of an item. The odds of many people holding mass quantities of LEGO just isn't realistic. There are too many outside factors that go into this such as storage, moving, accidents, disasters, death, need for cash, etc.

Here the nostalia factor will be lower than before because the items will be past their prime and other items will take over.

There are examples of other spontaneous windows of profit that are created by really rare items such as some of LEGO's cut short product lines (old Batman sets) and other items that have super limited release such as LEGO giveaways at events like Comic-Con.

Will these windows of profit be large enough for all of us to make the returns we are expecting or is the LEGO group themselves truly the only winner in this plastic economic madness?

All I know is Overinvestment, overconfidence and the lure of easy money for any item including LEGO is never a good thing. It is only going to make turning your plastic into profits a whole lot tougher.

[stephen_rockefeller]

A slightly larger window for potentially really good profits when the nostalgia factor kicks in. This can be 10-30 years after the original release of the set.

I don't want to speak for anyone here but I am for sure not holding on to any set for anywhere close to 30 years. Seems like that with most sets, there is no reason to hold on to them for that long.......even 10 years is stretching it IMO.

[stephen_rockefeller]

Not sure how my reply got in the yellow box.....anyways I agree with Mos_eisley.

[Mos_Eisley]

1. A small window for modest profit shortly after the large retail markets dry up and continuing until the second window. Selling here will be slow because there will be many in the secondary sales chains (eBay, Bricklink, Amazon individual sellers, Barnes and Noble individual sellers, etc.)

2. A slightly larger window for potentially really good profits when the nostalgia factor kicks in. This can be 10-30 years after the original release of the set. This is when the majority of investors will begin the huge push to sell sets

I don't want to get into a debate about this, everyone is free to think what they will of the market, and honestly, I can only hope that more and more people who are thinking of investing in sets will decide against it because that's better for those of us who do it. But I will say that you are off the mark with your windows for selling. The best time for returns on LEGO sets is not 10 years down the road. The best time to sell is generally somewhere between 2-4 years after a EOL. Sure, in 10 years the prices will likely increase, but not at a rate that makes sense to continue to hold the sets for another 6 or 7 years after they spike around the 3 year mark. In fact, sets often start to decrease in value around year 4 as newer versions of similar sets are released, or the price has just gotten too high for anyone to buy it. The price generally comes back up as fewer and fewer sealed sets are available. Most of the people who are buying and selling sets do not have the kind of money it would require to buy lots of sealed sets and just sit on them for 10-30 years hoping to cash in one day. There is definitely not a majority of people who are considering using this model. We have been through some pretty rough years recently and LEGO values have continued to rise and plenty of sets have been bought and sold at those prices. Now I'm not saying that it will continue forever and it can't be stopped, but as long as people continue to buy LEGO products for their kids and nothing happens to tarnish the LEGO brand, there will be a need for people providing retired sets that those kids and others in their Dark Ages missed out on.

[Rich B]

I don't want to get into a debate about this, everyone is free to think what they will of the market, and honestly, I can only hope that more and more people who are thinking of investing in sets will decide against it because that's better for those of us who do it. But I will say that you are off the mark with your windows for selling. The best time for returns on LEGO sets is not 10 years down the road. The best time to sell is generally somewhere between 2-4 years after a EOL. Sure, in 10 years the prices will likely increase, but not at a rate that makes sense to continue to hold the sets for another 6 or 7 years after they spike around the 3 year mark. In fact, sets often start to decrease in value around year 4 as newer versions of similar sets are released, or the price has just gotten too high for anyone to buy it. The price generally comes back up as fewer and fewer sealed sets are available. Most of the people who are buying and selling sets do not have the kind of money it would require to buy lots of sealed sets and just sit on them for 10-30 years hoping to cash in one day. There is definitely not a majority of people who are considering using this model. We have been through some pretty rough years recently and LEGO values have continued to rise and plenty of sets have been bought and sold at those prices. Now I'm not saying that it will continue forever and it can't be stopped, but as long as people continue to buy LEGO products for their kids and nothing happens to tarnish the LEGO brand, there will be a need for people providing retired sets that those kids and others in their Dark Ages missed out on. I too agree with Mos

[Ed Mack]

I don't want to get into a debate about this, everyone is free to think what they will of the market, and honestly, I can only hope that more and more people who are thinking of investing in sets will decide against it because that's better for those of us who do it. But I will say that you are off the mark with your windows for selling. The best time for returns on LEGO sets is not 10 years down the road. The best time to sell is generally somewhere between 2-4 years after a EOL. Sure, in 10 years the prices will likely increase, but not at a rate that makes sense to continue to hold the sets for another 6 or 7 years after they spike around the 3 year mark. In fact, sets often start to decrease in value around year 4 as newer versions of similar sets are released, or the price has just gotten too high for anyone to buy it. The price generally comes back up as fewer and fewer sealed sets are available. Most of the people who are buying and selling sets do not have the kind of money it would require to buy lots of sealed sets and just sit on them for 10-30 years hoping to cash in one day. There is definitely not a majority of people who are considering using this model. We have been through some pretty rough years recently and LEGO values have continued to rise and plenty of sets have been bought and sold at those prices. Now I'm not saying that it will continue forever and it can't be stopped, but as long as people continue to buy LEGO products for their kids and nothing happens to tarnish the LEGO brand, there will be a need for people providing retired sets that those kids and others in their Dark Ages missed out on. Great topic. I strongly agree with the 2-4 year time frame for selling. I have a ton of older STAR WARS sets that have leveled off and slightly decreased. But I am that 10-30 year guy, so I can deal with some bumps. The most effective way to make money investing in LEGO sets is to flip them after 2-4 years and to reinvest in newer sets and redo the entire process over again.

On the topic of the article, very interesting point of view. While I can agree with the line: "Overinvestment, overconfidence and easy money are conspiring to drive up the price of everything," I do not think it applies to LEGO bricks at the moment. As I stated in my article about a potential LEGO Bubble, LEGO sets as a whole has appreciated the same amount(around 10.5% annually) for almost two years. Some sets appreciate better than others. Some depreciate...but on average, the LEGO secondary market is very consistent. No spikes as far as we have seen.

One last point. The article talks about Art investment in China. Well I can speak from experience and our WOOPRA data that tracks website activity and I can tell you that out of the thousands of people who use the site daily, only a few are from China. As of this moment, China is not a hot spot for LEGO activity as far as I can tell. Good stuff though...Thanks for the quality posts.

[stephen_rockefeller]

I think this post might have hit a nerve here for some people, not intentionally I am sure. I don't think that LEGO investing is the sole source of peoples income, as almost all of us on here have real jobs. Personally, my gains from LEGO sets go to purchasing more sets, and would be willing to bet most here are in the same boat. Most of us do this because we love LEGO.

[Rich B]

I think this post might have hit a nerve here for some people, not intentionally I am sure. I don't think that LEGO investing is the sole source of peoples income, as almost all of us on here have real jobs. Personally, my gains from LEGO sets go to purchasing more sets, and would be willing to bet most here are in the same boat. Most of us do this because we love LEGO.

I do the same, buy, sell a couple years after EOL, buy more, sell again, and so on, but it's still not enough to support me and like you said most do it as something part time but man would it be great to do it full time, but you'd have to be both buying a lot of Lego (like Ed Mack) and selling some serious Lego (unlike Ed Mack) sorry Ed but I had to say it after listening to your podcast where you said you just purchased but never got around to selling LOL. Any ways it would be nice to take it on full time but it would require some serious capital which most of us don't have.

Like you said Stephen I too do it because of my love for Lego, do you think people out there that don't build or aren't really into Lego (just investors and that's it) are at a disadvantage when it comes to Lego investing? I honestly don't know what it's like to just be an investor, but I sometimes wonder how people that are solely investors choose which Lego sets to invest in? I personally like to stick to themes I like, for me that's pretty much every theme haha, and if this so called bubble does come around I can build these sets and still be happy, however that won't be the same for those that just invest.

[Ed Mack]

LEGO investing has many forms. The "Builder" who invests in LEGO sets to further their hobby of building LEGO sets. The "Collector" who is an anal completist(me) and wants to acquire every set and cash in to buy a Ferrari one day or pay for their kid's college education(at least the books). The "Investor/Re-seller" who doesn't build or collect or care about sets/themes, just buys the optimal sets geared towards maximum appreciation and resells the sets after 2-3 years. The "Dabbler" who will buy and sell an occasional LEGO set(s) to make a quick buck. They will build LEGO sets and enjoy the hobby, but do not make a serious business of it. There is room for all types of LEGO fans on this site. The one type of LEGO fan that might have an issue with this site is what Jeff and I call the "Purists." They have an extreme love for the brick but believe that re-sellers cause LEGO sets to increase in value on the secondary market from speculation. These are the LEGO fans who hate the entire idea of LEGO investment and reselling. They might appreciate the Price Guide and non-investment topics, but the buying of LEGO sets to resell for a profit is sacrilegious. No matter what type of LEGO fan, collector, seller or investor you are, I don't think anyone wants to see the LEGO Bubble burst...if there is one at all. If the secondary market crashed, the primary market and LEGO sales would be affected. This in turn might affect prices(to the upside) and force LEGO to reduce production and set choices/themes.

[Spartikis]

Part of what keeps lego investing out of bubble territory is the supply & demand factor. Demand is simple, its fairly steady, but the supply factor is key. As time goes on there are fewer and fewer MISB sets available driving the price up as the group demanding it is the same size or maybe even larger, eventually the price gets too high and people who demand the sets cant afford it. The used market is a bit different. the price of a used set its typically proportionate to how many pieces and the rarity of the pieces of the set. if the set is small people just say "im not paying $500! i can take 10 minutes and buy the pieces off bricklink for $50 and build it myself" but as the sets get larger and more complicated you have people saying "i can build that for fraction of what theyre charging but it will take me all afternoon to order the 3000+ pieces in the set...ill just pay the $1000" In summary i dont think lego is in bubble territory, but i think the days of buying a $80 modular building and selling it for $1200 a couple years later have passed us. Im more than excited when i choose a set that ends up having a 100-200% ROI :-)

[Talon]

Bubbles are defined using irrational investors basing investment decisions on emotion. But prices can change for many other reasons than those bubble related. Outside of wars, natural disasters and financial market stresses which would likely affect all investments there can always be an investment specific disruptive technology or product come along making the investment worth much less. What if a company came out with a wonderful building product that was significantly better quality and diversity than Legos while being cheaper? This is why diversity in investing is so important. Diversifying your investments so some are in stocks, bonds, real estate, collectibles, gold bullion, etc. is all helpful to reducing certain types of risk. For most people it is advisable to put lower amounts of your portfolio in riskier investments (such as collectibles) and higher amounts in safer investments (government bonds). Of course, even with diversity, there is a limit. For example, if a large meteor destroys the earth not much you can do to prevent all investments (and life) from being worth zero!

[Ed Mack]

Part of what keeps lego investing out of bubble territory is the supply & demand factor. Demand is simple, its fairly steady, but the supply factor is key. As time goes on there are fewer and fewer MISB sets available driving the price up as the group demanding it is the same size or maybe even larger, eventually the price gets too high and people who demand the sets cant afford it.

The used market is a bit different. the price of a used set its typically proportionate to how many pieces and the rarity of the pieces of the set. if the set is small people just say "im not paying $500! i can take 10 minutes and buy the pieces off bricklink for $50 and build it myself" but as the sets get larger and more complicated you have people saying "i can build that for fraction of what theyre charging but it will take me all afternoon to order the 3000+ pieces in the set...ill just pay the $1000"

In summary i dont think lego is in bubble territory, but i think the days of buying a $80 modular building and selling it for $1200 a couple years later have passed us. Im more than excited when i choose a set that ends up having a 100-200% ROI :-)

Supply and demand is a point that does play into speculative bubbles. The Baseball Card market imploded because the manufacturers overproduced billions of cards that ended up being worthless. I doubt that LEGO will do something similar.

[Ed Mack]

Bubbles are defined using irrational investors basing investment decisions on emotion. But prices can change for many other reasons than those bubble related.

Outside of wars, natural disasters and financial market stresses which would likely affect all investments there can always be an investment specific disruptive technology or product come along making the investment worth much less. What if a company came out with a wonderful building product that was significantly better quality and diversity than Legos while being cheaper?

This is why diversity in investing is so important. Diversifying your investments so some are in stocks, bonds, real estate, collectibles, gold bullion, etc. is all helpful to reducing certain types of risk. For most people it is advisable to put lower amounts of your portfolio in riskier investments (such as collectibles) and higher amounts in safer investments (government bonds).

Of course, even with diversity, there is a limit. For example, if a large meteor destroys the earth not much you can do to prevent all investments (and life) from being worth zero!

Diversification in investing is an excellent recommendation. By no means should people put all their eggs in the LEGO investment basket. That being said, whatever you decide to invest on LEGO sets should also be diversified. Mix up the LEGO sets and themes. Don't put all your "LEGO investment dollars" into a single theme.

[Talon]

I do remember there was a Lego ship (Armada Flagship, 6280) from 1996 that Lego started making again in 2001 with only changing the name and number (Spaniard Ship, 6291). It is always possible they might reintroduce any set without changes which would have a big effect on prices. I think I still have 6280 somewhere as I bought it for my future kids when it was on sale for $28, then forgot to give it to them. Most likely the oldest unopened set I have! ;-)

[Spartikis]

I do remember there was a Lego ship (Armada Flagship, 6280) from 1996 that Lego started making again in 2001 with only changing the name and number (Spaniard Ship, 6291). It is always possible they might reintroduce any set without changes which would have a big effect on prices. I think I still have 6280 somewhere as I bought it for my future kids when it was on sale for $28, then forgot to give it to them. Most likely the oldest unopened set I have! ;-)

Just recently lego re-released the TC-14 minifigure when you purchase the B-Wing set. This is quite frustrating for me as it has driven the price down and have over 40 of minifigs. I wouldnt be suprised if they release something like the cafe corner at some point.

[Ed Mack]

I do remember there was a Lego ship (Armada Flagship, 6280) from 1996 that Lego started making again in 2001 with only changing the name and number (Spaniard Ship, 6291). It is always possible they might reintroduce any set without changes which would have a big effect on prices. I think I still have 6280 somewhere as I bought it for my future kids when it was on sale for $28, then forgot to give it to them. Most likely the oldest unopened set I have! ;-)

Yes, LEGO does seem to remake older sets at times. They can be just newer versions of older sets or very similar sets with different names. Quite disappointing in most cases. There are so many creative avenues that LEGO(see CUUSOO models for examples) can go down, that redoing older sets is a little stale in my opinion. A new version of an older set can work two ways. If the remake is well done, it can lower the value of the older set. If the remake is done poorly, the older set can increase in value.

The one thing LEGO investors and collectors must remember is that LEGO sets are sold mostly to children. There are new children every year that are introduced to LEGO bricks and LEGO likes to enable new fans to have sets available to the new fans that have sold well in past. For example, the STAR WARS X-WING Fighter. Look at how many versions there are, but there are always new STAR WARS fans that want access to those types of sets.

[Mos_Eisley]

Just recently lego re-released the TC-14 minifigure when you purchase the B-Wing set. This is quite frustrating for me as it has driven the price down and have over 40 of minifigs. I wouldnt be suprised if they release something like the cafe corner at some point.

When this happens, like it did for the Legends line when they reintroduced sets like the Armada Flagship, Metroliner, Guarded Inn, etc., the original values go down for a little while, but once the rerelease goes EOL, the originals generally climb right back up to where they were and even the release can become quite valuable if the set is great, like the Metroliner. With the Legends, they were not exactly the same, some parts were no longer in production, printing was slightly different and the boxes were not the same as the originals. In the end, the original versions will still carry a premium over any rerelease because there will be collectors out there who want the original version. In the case of the TC-14s, it's pretty common for promo figures to show up again during the year they were first given out. The price will fall for a little while, but they'll go back up. Unless they produced a ton more and wind up with lots of extras, people have to spend $200 to get the TC-14 now, so that will help it hold its value.

Edited to add: this doesn't always apply for Star Wars remakes. Since every couple years there is a new Slave I, TIE Fighter, Falcon, X-wing, etc., the values of these ships can fall and not recover. But some of the less reproduced vehicles like the AT-TE and Gunship can still maintain a nice value for the original and rerelease.

[Ed Mack]

Just recently lego re-released the TC-14 minifigure when you purchase the B-Wing set. This is quite frustrating for me as it has driven the price down and have over 40 of minifigs. I wouldnt be suprised if they release something like the cafe corner at some point.

When this happens, like it did for the Legends line when they reintroduced sets like the Armada Flagship, Metroliner, Guarded Inn, etc., the original values go down for a little while, but once the rerelease goes EOL, the originals generally climb right back up to where they were and even the release can become quite valuable if the set is great, like the Metroliner. With the Legends, they were not exactly the same, some parts were no longer in production, printing was slightly different and the boxes were not the same as the originals. In the end, the original versions will still carry a premium over any rerelease because there will be collectors out there who want the original version. In the case of the TC-14s, it's pretty common for promo figures to show up again during the year they were first given out. The price will fall for a little while, but they'll go back up. Unless they produced a ton more and wind up with lots of extras, people have to spend $200 to get the TC-14 now, so that will help it hold its value.

Edited to add: this doesn't always apply for Star Wars remakes. Since every couple years there is a new Slave I, TIE Fighter, Falcon, X-wing, etc., the values of these ships can fall and not recover. But some of the less reproduced vehicles like the AT-TE and Gunship can still maintain a nice value for the original and rerelease.

I agree with your take on the STAR WARS remakes. Most of the sets have been redone at least once and on the whole, there are just too many sets to keep people that interested in the theme, especially with no new movies on the horizon. There are still a ton of great investments in the STAR WARS theme, but gone are the days where every STAR WARS set is a sure fire winner.

[Spartikis]

Just recently lego re-released the TC-14 minifigure when you purchase the B-Wing set. This is quite frustrating for me as it has driven the price down and have over 40 of minifigs. I wouldnt be suprised if they release something like the cafe corner at some point.

When this happens, like it did for the Legends line when they reintroduced sets like the Armada Flagship, Metroliner, Guarded Inn, etc., the original values go down for a little while, but once the rerelease goes EOL, the originals generally climb right back up to where they were and even the release can become quite valuable if the set is great, like the Metroliner. With the Legends, they were not exactly the same, some parts were no longer in production, printing was slightly different and the boxes were not the same as the originals. In the end, the original versions will still carry a premium over any rerelease because there will be collectors out there who want the original version. In the case of the TC-14s, it's pretty common for promo figures to show up again during the year they were first given out. The price will fall for a little while, but they'll go back up. Unless they produced a ton more and wind up with lots of extras, people have to spend $200 to get the TC-14 now, so that will help it hold its value.

Edited to add: this doesn't always apply for Star Wars remakes. Since every couple years there is a new Slave I, TIE Fighter, Falcon, X-wing, etc., the values of these ships can fall and not recover. But some of the less reproduced vehicles like the AT-TE and Gunship can still maintain a nice value for the original and rerelease.

I agree with your take on the STAR WARS remakes. Most of the sets have been redone at least once and on the whole, there are just too many sets to keep people that interested in the theme, especially with no new movies on the horizon. There are still a ton of great investments in the STAR WARS theme, but gone are the days where every STAR WARS set is a sure fire winner.

Yeah, you would need $100,000+ and a several thousand square foot house if you wanted to collected every star wars set and display them all. Just way out of the league of the average lego collector. Thats why i feel sets like modular, pirates, castle, etc are way more manageable and will actually have a lot better return...just my guess bet tho :)

[Ed Mack]

Just recently lego re-released the TC-14 minifigure when you purchase the B-Wing set. This is quite frustrating for me as it has driven the price down and have over 40 of minifigs. I wouldnt be suprised if they release something like the cafe corner at some point.

When this happens, like it did for the Legends line when they reintroduced sets like the Armada Flagship, Metroliner, Guarded Inn, etc., the original values go down for a little while, but once the rerelease goes EOL, the originals generally climb right back up to where they were and even the release can become quite valuable if the set is great, like the Metroliner. With the Legends, they were not exactly the same, some parts were no longer in production, printing was slightly different and the boxes were not the same as the originals. In the end, the original versions will still carry a premium over any rerelease because there will be collectors out there who want the original version. In the case of the TC-14s, it's pretty common for promo figures to show up again during the year they were first given out. The price will fall for a little while, but they'll go back up. Unless they produced a ton more and wind up with lots of extras, people have to spend $200 to get the TC-14 now, so that will help it hold its value.

Edited to add: this doesn't always apply for Star Wars remakes. Since every couple years there is a new Slave I, TIE Fighter, Falcon, X-wing, etc., the values of these ships can fall and not recover. But some of the less reproduced vehicles like the AT-TE and Gunship can still maintain a nice value for the original and rerelease.

I agree with your take on the STAR WARS remakes. Most of the sets have been redone at least once and on the whole, there are just too many sets to keep people that interested in the theme, especially with no new movies on the horizon. There are still a ton of great investments in the STAR WARS theme, but gone are the days where every STAR WARS set is a sure fire winner.

Yeah, you would need $100,000+ and a several thousand square foot house if you wanted to collected every star wars set and display them all. Just way out of the league of the average lego collector. Thats why i feel sets like modular, pirates, castle, etc are way more manageable and will actually have a lot better return...just my guess bet tho

My collection is more than half STAR WARS sets, but most are older, retired sets. A lot of Battle Packs and mini sets. I love the new UCS sets, but most new STAR WARS sets, with a couple of exceptions, are boring to me at this point. I would rather mix it up. I have a gut feeling that most LEGO fans, even the die hard STAR WARS fans, are getting overexposed to the theme.

[Spartikis]

yeah im a big starwars fan but theres way to many sets. Plus everything in the last year or two is all related to the clone wars which i have no interest in.