The following is a guest contribution from Jonathan from Joney Talks!
How to beat the stock markets? Invest in Legos! The New Alt Asset
It all started on a Friday morning when I looked at my Facebook feed and saw a post from my good buddy Jean-Pierre.
Here is a screenshot of what he shared :
In short, Jean-Pierre who is a die-hard fan of Star Wars (I remember visiting him when he just happily bought his Lego X-Wing set) was sharing his admiration for the future release of the Lego Star Wars Millennium Falcon UCS (Ultimate Collector’s Series). An incredible set (7541 pieces)!
What followed was an unserious discussion and even a sudden brilliant investment idea on buying several sets in order to “invest” in them for the future.
Geeks would buy them at outrageous prices anyway! And then out of the blue came Jean-Pierre´s friend with sharing his thoughts on the subject mentioning another friend who is investing in Lego! The return showed to be higher than if you had invested in the stock market.
This light-hearted conversation stirred both the inner child and inner investor in me! Can I combine something I truly enjoy while growing my wealth? It got me to do some research on the subject at once while reconnecting with my inner child (Yes, you can pull out the violins).
My Inner Child and Passion for Lego
Well, friends, needless to say, I took a trip down memory lane that day! Lego has been a huge part of my childhood. It was my favorite toy, it was a joy to assemble the tiny bricks into a castle, an airport, then destroying them, rebuild them into something else and just play with them over and over.
In the end, I had accumulated a whole city such as that one (it was smaller but I had most of the same stuff), thanks, mom and dad! I played until my teens and then the passion “faded” away, but somehow it was still there,… During my studies, I had the chance to spend a semester in Denmark and took the opportunity to go to Legoland. (Woohooo!)
Lego was actually pretty much all I knew about Denmark, but besides Legoland pay a visit to Copenhagen it is a great city. It was 2004 and back then Lego was suffering economically, I remember talking with my teacher Jens about how the Lego company was getting back on track after enduring some financial dark ages.
This coincides approximately with the release of the Harry Potter series, Bionicle and others, and since then Lego has performed extremely well, has grown stronger than ever financially and is now the number 2 toy company in the world (number 1 is Mattel).
In recent years I have kept an eye on the company in LinkedIn and the media in general and yes when I see Lego in a store I like to pass by and keep myself “updated” with the recent developments in their product catalog.
Are you an AFOL?
AF what? Yes an AFOL, an Adult Fan of Lego, there is actually such a thing as the AFOL community. I saw that phenomenon for the first time when I watched a documentary called Beyond the Brick: A Brickumentary.
While I would expect a bunch of nerds enjoying and collecting sets of Lego Star Wars and Lord of the Rings, I did not expect the phenomenon to be so huge. Those adult Lego-passionate hobbyists gather, discuss, organize conventions, display their own creation, etc. They even have their own acronyms.
Call them geeks, nerds or whatever you want but some creations are unbelievable. Check this replica of Rivendell from the Lord of the Rings for example. There are also a few noteworthy YouTube channels devoted to Lego run by adults, just everyday people with a passion at heart. Check the number of viewers for Jangbricks or for the BrickVault, you will be amazed.
Now, this might seem strange, what are 30+/40+year-olds doing playing with Legos? Isn’t that weird? Did they not grow up? For the sole purpose of finding that out (yeah right,…), I have spent two hours last week building the Ecto-1 car from the Ghostbusters and I can totally understand why AFOLs enjoy the building part.
Besides the nostalgia, it is a relaxing activity you can share with your kids, it makes you focus on one goal and for most of them, they get creative, just like any writer or painter would do. The thing is you assemble the bricks in a beautiful composition but unlike in your childhood you do not play with them, you admire your creation.
This article explains more in detail why adults do build LEGO and it ties in perfectly with my experience. If you are on a date and speak about your passion for Legos it will not sound as sexy as snowboarding, traveling or playing guitar in a band but as such, I cannot see anything wrong in it. And here is a fun fact for you, building Legos is popular with celebrities too!
Who would have thought Dwight Howard from the Charlotte Hornets was a Lego fan? Or even David Beckham who builds Lego to relieve stress. Do not be ashamed to “come out of the closet” as an AFOL! Ever since The Big Bang Theory series came out and gained massive popularity geek has become the new cool!
Investing in Legos
Now back to the comment thread with Jean-Pierre and his friend. While it started as a joke, it seems I had a good feeling about “investing” in Legos and in a way, I feel content about it but on the other hand, I did not reinvent the wheel. Lego investing has been a thing since limited Star Wars sets have been in production. Investing in Lego’s, who would do such a thing? Isn´t it just a toy for little kids?
Should I Start Investing in Lego to Save for My Retirement?
Lego, in case you didn’t know, is a contraction of the two Danish words “leg godt”, meaning “play well”. The initial purpose of the company is to produce plastic bricks for children (and bigger children nowadays) to “play well” with and not to produce a physical investment vehicle such as real estate bricks.
To be honest, I was a little torn with that question, I thought of my childhood and how I enjoyed playing with Legos. Legos were and remain a high-quality affordable toy for kids, the bricks can all combine with each other which improves the playability, the creativity, and the longevity.
I said affordable, not cheap and if you thought Legos have become more expensive over time, well you are wrong, have a look at this article! I have as well recently found pleasure in giving a Batman Lego car to a friend´s child because I shared the same passion for Legos myself at his age and I hope more kids can play with them. My initial fear with investing in Legos was that it could lead to an artificial increase in the price of Lego sets through speculation and hence hindering some kids to “play well”.
On second thought I discovered that the Lego sets that have shown to be fantastic investments are mostly expensive Star Wars sets, some of the Lego creator series and some of the Architecture ones. Those are in general aimed at a more adult fanbase than the Lego City Police Station for example (which is awesome if you are 6).
If I invested in exclusive or rare sets geared at a more adult population, I would feel less guilty about making a profit by investing in them. My inner child and inner investor would also then be in balance, so let us dig into the specifics now my conscience is “clean”. On a side note, many AFOLS actually invest to support their expensive hobby not to make a profit per se.
To start off, here are the top 3 Lego investments I wish I had made in the last 10 years :
- The UCS Millenium Falcon 2007 – 499 EUR retail price – Today´s price 2 500 EUR – 17,49% return annually!
- The Grand Carrousel 2009 – 249 EUR retail price – Today´s price 2000 EUR – 29,75% return annually!
- The Taj Mahal 2007 – 299€ retail price – Today´s price 2000 EUR– 20,93% return annually!
There are a few more examples and as you can see the return clearly beats the stock market average return of 7%.
This sounds fantastic and now you are ready to take a shot at Lego investing, what should you look out for?
Check the Ratings on Brickpicker
Just as you would go to Morningstar.com for stocks, the Lego community has its own “rating agency” called Brickpicker where you can find all the price related info. They even have a live banner display as you may have seen from the Nasdaq Building in Times Square. But instead of seeing: Apple (+0.3%), Coca-Cola (-1.2%),… you will see Star Wars X-wing (+3.4%), Harry Potter Train (+5.7%),…
Here is their mission statement on the website:
“The mission of BrickPicker.com is to educate the Lego enthusiast and collector of the most up to date and current prices of new and used Lego sets. Through our partnership with eBay, we have access to thousands of current and past auction results from the ‘thousands’ of various Lego sets sold on eBay. By utilizing this information and putting it into easy to understand charts and graphs, the BrickPicker member can make intelligent and cost-effective choices when making their next Lego purchase.”
Choose the right sets
What makes a set the right choice?
- Special mini figures (think Harry Potter, Chewbacca,…),
- Rare and unique items that can potentially be sought after by collectors after their production time. (think UCS Millennium Falcon, Disney Castle,…)
- Limited editions
- Timeless pieces
This sounds just like investing in other consumer goods as Hermès or Chanel bags, shoes,…
Buy on the Primary Market
In traditional brick real estate, the money is made when you purchase a property not when you sell it. The same can be applied to the plastic bricks, the money is made when you buy them from the primary market (i.e. stores) at the retail price or even better at a discounted price.
Check your local toy store for discounts, the official Lego online Shop,… Do not buy from the secondary market hoping that your investment will still rise in value.
As with other types of investments, time is your friend. To make a serious profit once you picked up a potential winner, do not sell it just right after it has run out of production. Give it some time, it will become an even more rare piece and its value will still increase provided it is high in demand set. (The 2007 Millennium Falcon retired in 2009). Be careful as well as Lego might release a newer version making your long-held set “obsolete”.
Do Not Neglect the Mini-Figures
Some rare mini figures can be very valuable, think of Disney figures or Star Wars.
Do not build!
Should you choose to invest in LEGO treat it like any other investment; professionally. Don’t mix business and pleasure. Keep a cool and rational head, define your investment objectives. Legos in unopened boxes stacked vertically will hold their value through the years. If the Legos are used you will still be able to sell them but your profit will be much lower.
Buy 2 Sets
In case you cannot resist the temptation to start building a set for yourself or to offer to a loved one, you will then always have the other one for long-term investment purposes.
Pay Attention to Storage
The boxes as they add up to your “investment portfolio” will take up important space. You can minimize that by buying retiring sets. Make sure you have what it takes to store them safely, away from moist and these should ideally be insured as well. In other words, protect your assets!
You can read the tips for handbags here, and as you can see these are unsurprisingly similar. Isn’t it fascinating how alternative investing seems close to more traditional forms of investment?
Bringing it all Together
Whether you chose to invest in Legos or not is up to you, however as mentioned above if you choose to go ahead; do it professionally.
Warren Buffett’s advice stands true for Lego investing as well: Invest in what you know. Do not start piling up on Lego boxes or Hermès bags in a frenzy, make informed decisions and follow the tips above and other online advice.
Now, I will not advise you to convert all your stocks, bonds, and retirement savings into Legos or women’s purses but I just thought it would be fun to explore alternative ways to make creative, yet great investments and broadening one’s horizons.
Have you ever heard your banker, uncle or Wall Street friend tell you to invest in 3 Hermès Birkin bags and 4 Lego Millennium Falcons to help you with your initial down payment for your home loan? I did not think so.
So, friends, will you consider this type of investments as part of your financial planning? Are you doing it already? Did I just shake the inner child in you? And for Jean-Pierre in particular, have you made up your mind? Will you buy or invest in the new Millenium Falcon?
Thank You, Jonathan this is just the motivation I needed to “Invest” in a Lego Vultron – Michael
The post How to Beat the Stock Markets? Invest in Legos! appeared first on Your Money Geek.