The near-zero interest rates of the past few years have thrown up plenty of frothy asset classes: emerging markets, gold, and junk bonds have all had a turn in the sun.
But few are as surprising as the craze for investing in Lego bricks.
True, almost anything can be labelled an ‘investment’ if the purchaser is sufficiently dedicated, defensive, or deluded.
I briefly dated a girl who collected ‘classic’ shoes. At least that’s how she justified the six or seven racks of rarely worn high heels in her closet.
No need for a pension for her? Not so fast. She got married last year, and a mutual friend and bridesmaid told me the collection had been “eBay-ed or Oxfam-ed.”
Back to the ISA, eh?
Nobody is immune from their passions. I hate buying stuff, but I do like my tropical fish. Every few years I wonder if I should start breeding some fantastical collection of expensive inhabitants – seahorses or soft corals or similar.
I’d have to move to the countryside to get more space, and I’d probably need to invest in creating some other product lines – special branded fish nets and food and so on – to make the numbers work…
Luckily my daydream always dies a speedy death.
An investment that clicks
Lego has caught many imaginations, however. US Today ran an article on David Schooley, a 49-year old who leases a climate-controlled facility to store his 3,000 boxed Lego sets.
For years the father of six has been buying Lego sets and then selling them a few years later. He claims an average return of 10-15% a year.
US Today crunched the numbers on Lego investment in 2012:
Let’s say two investors had $10,000 to invest at the end of 2011. One investor bought 174 shares of the Vanguard S&P 500 index exchange traded fund for $57.45 apiece, while the other bought 100 boxes of the Emerald Night Lego train set for $99.99 apiece. The Emerald Night is a 1,085-piece Lego set that, when built, looks like a classic steam engine with a tender and a passenger car.
Fast forward to today. The stock investors would have done pretty well, with a 15% gain, including dividends paid. But the Lego investor would be able to sell the Lego Emerald Night trains for $203 each, for a total 103% profit.
In other words, the Lego train would have outperformed the stock market by 587%.
And don’t think this is a pocket money market. As I write there is just one chance left to buy Lego box set 10179 on Amazon – a discontinued Lego replica of the Millenium Falcon from Star Wars.
The set has 5,195 pieces and of course every space ship needs a crew, so there are five figurines included, too.
The price? £3,300!
Resources for Lego investors
With prices like that, perhaps it’s understandable that a whole investing sub-culture has developed around the kids’ building blocks.
Sites like Brick Picker and Brick Link are not catering for children who want to test their parent’s mastery of the Heimlich Manouvre, or to leave Lego bricks underfoot like little plastic landmines.
These are investor-orientated sites, catering for specialists.
Brick Picker boasts a Brickfolio tool to ease tracking.
According to eBay’s Lego buying guide:
It’s a good idea for a collector to pick a focus for the collection. Collectors may want to select a special interest, such as ninjas, LEGO trains, or the military, or popular collectible themes such as Pirates of the Caribbean and Toy Story. Because sets and pieces can be relatively inexpensive, eBay makes it easy to start a respectable collection immediately.
LEGO has released a number of exclusives and special edition LEGO pieces in the past. Items like the Red Baron’s Fokker triplane, the U.S.S. Constellation, and the Death Star II (over 2 feet tall) are some of the more difficult to find pieces and, therefore, are highly desirable.
Some collectors may even attempt to collect every unique LEGO brick that’s ever been made.
While this is an enormous task, some enthusiasts relish the challenge.
eBay explains that Lego bricks can even be bought by the pound from lazy slatterns who can’t be bothered to sort before shipping. Handy if you’re looking for some missing bricks to complete a collection, or if you fancy your chances of coming across the torso of the elusive Lord Lucan figurine.1
Lego investing also has its own specialist media. JANGBRiCKS is a YouTube channel that reviews Lego sets and features custom creations. It’s nicely put together, and is just one of many.
Fan favourite videos include the ‘unboxing’ of fresh deliveries from Brick Link. The avid collector unwraps and reverently fondles a new box set, or else pours his hands through hundreds of unmarked bricks like so many Arabian gold coins.
No investment is child’s play
The question with any bull market is whether you have got in at the top or the bottom. Is Lego collecting a teetering plastic tower of speculation and greed?
This post from May from the EuroBricks discussion forum has a neophyte Lego investor expressing sentiments that would be familiar to J.K. Galbraith, the author of the The Great Crash 1929. The new collector asks:
… how long did it take [you guys] until you started at least breaking even and using the funds to also pay for future sets?
Of course you need to start with a set influx. Then you usually have to wait for your sets to retire (or snipe them just before they do). You make sure you buy sets that will be popular (some are obvious like the Falcon, others are not).
I dunno I just want to buy sets, buy multiples (especially of Star Wars, LotR, etc) and finance my own collection. Then start selling them but that part usually takes a few years!
What has your experience been like? I have more than enough $$$ to start up the process but I’m not sure when it’ll start giving back, or even start funding the original buys.
Some old hands have already started exiting the scene. The author of Brick Update, a self-confessed Lego fanatic, has been letting go of his collection. He’d earlier voiced fears of a Lego bubble:
In the past few months, I have been feeling more and more as though the investment value of LEGO is peaking. It seems that the moment a new theme or set is announced, there are discussions about it’s potential aftermarket value years down the road.
I remember hearing some story about a famous banker who pulled out of the stock market before the Great Depression in the 1920s because the person who was shining his shoes tried to give him a good stock tip. The moral was: if the investment value of something is so “hot,” that everyone knows about it, then there is clearly some mania in the market.
I come from a collector and investor mindset with lots of things. I grew up in a family where we collected things and where we had some businesses based on that.
For instance, we had a baseball card business in the 1980s, and I watched that hobby grow and then crash in the 1990s. Then I saw it again and again, with things such as Beanie Babies.
So will Lego go the same way as the Cabbage Patch Kids?
As a toy it seems vanishingly unlikely. Lego is no fad. And while making plastic bricks seems indefensibly easy at the dawn of the 3D printing era, Lego has the deep pockets required to keep its products hot, even if it has failed to win legal protection for interlocking blocks.
But what about as an investing phenomenon?
I’d be bricking it
It’s easy to get apocalyptic about this sort of thing, or to read too much into a fad.
Long before a negative yield on bonds was even a twinkle in Ben Bernanke’s eye, certain toys would become crazily collectible for a time – right up until they weren’t.
Everything is so much more visible in the Internet era. I’ve enjoyed a good few hours reading up on this Lego collecting craze, whereas 20 years ago it would have been an invisible sub-culture. The various tools and sites that support the craze give it a further faddy air to an outsider.
I do wonder whether serious investors would be suggesting Lego as an alternative asset class if the interest rate on government bonds was a more normal 4-6%, and you could get 3-5% on cash.
But I also think many strange niches will emerge over the next few years – novel new ways to make money from your passions and hobbies. The world is much bigger than it was – even as it has been shrunk by travel and telecommunications – because the granularity of everything has increased so much.
And stuff in the loft is not junk anymore – it’s an eBay listing you haven’t created yet.
On the other, while I’m no Central Bank Conspiracy theorist – quite the opposite – I’m sure that at some point in the next few years it will be clear that certain asset classes were distorted due to the deliberate lowering of rates.
Contenders might include:
- Central London property prices
- Various alternative assets
- Particularly desirable antique furniture
- Precious metals
- Farmland
- Lego
The price rises of some of these will prove to be a rational response to a world of increasing wealth and corresponding scarcity, as well as the ceaseless search for uncorrelated asset classes.
But other assets will see their prices deflate whenever the fears or manias that pumped them up subside.
So best not throw out that Lego you stowed in the garage. Just in case!
Further reading:
- More about investing in Lego from TheBrickBlogger.com
- Four tips for successfully invest in Lego from Snazz Industries
- Brick by Brick chronicles Lego’s incredible rise and near-fall
- Note: There is no such figure. I’m joking. [↩]
Haha. Love it.
I used to enjoy playing with Lego when I was a kid. Sadly enough, prices for everything is so high in Australia, it’s probably cheaper to buy those collectables on eBay than it is from a store.
I wonder if that guy’s ‘average return of 10-15%’ is before or after the costs associated with his ‘climate-controlled facility to store his 3,000 boxed Lego sets’. That in itself appears to be pricey.
The biggest issue I have with Lego as an investment (and many similar ‘collectable coin’ style schemes) is they can just go on year after year making a new series. There is no finite limitation to the resource (as a whole) beyond simple production. Sure they artificially limit its’ availability by only producing 100 of XYZ thus creating demand. But they can do that for a billion years. And in the end, you just have a huge pile of plastic with very little real worth.
I love this tongue in cheek article – is it meant to be a parody about investing in gold?
Following a recent clear out I was amazed how much people were willing to pay for 1990s computers, gaming magazines and Doctor Who videos.
On the other hand my Charles and Diana royal wedding memorabilia was completely worthless, perhaps because everyone thought it was ‘collectible’ at the time.
For me, this is what puts ‘investment’ in Lego or any other toys firmly in the speculation category – you are reliant on a ‘greater fool’ to pay more for your asset in the future, as there is no intrinsic value in an asset which pays no income (imputed or otherwise).
I think I’ll keep my (unboxed) Lego collection for my children!
> a parody about investing in gold?
Gold Lego Bricks – that’s what the world needs. Maybe gilded ones for the rest of us plebs. Then we could have a box set Lego model of the BofE’s vaults 😉
The problem with farmland prices in the UK is that it is seriously contaminated by the housing market, planning expectations and other associated problems. It isn’t the same sort of proposition as, say, a different sort of UK – the Ukraine, where the Chinese are very happy investing in farmland. Not to stick rabbit-hutches on, but to, er, grow food… The Rothschilds’ RCP are in farmland in Brazil.
Sadly, farmland isn’t farmland in the UK, leastways if it’s within 5 miles of any settlement. It’s about half housing market expectations with a half actual farming value, which presumably is why the Chinese are investing in UK nuclear power but not inflated UK farmland 😉
If you really want a portfolio that’s diversified amongst the key asset classes, then Lego is an important building block.
Thank you, and I’m here all week.
Thanks for this TI. It put a big smile on my face.
Does anybody remember beanie babies (ty)?
Interesting post, I’ve never really thought of Lego as being an investment. My brother is a Lego fanatic and has spent thousands of dollars on it over the years, but he buys the sets to build and play with, not to resell later. I doubt any of his sets would hold any value nowadays, or at least much less than what he paid.
I liked the relevance reference to Baseball Card dealing in the “Brick Update” quote.
I’m just reading Kahneman’s “Thinking, Fast and Slow”, and he cites research (on the Endowment Effect) showing that novice baseball-card collectors “like” their purchases too much (they value them too highly, and no-one will buy at that price), while the minority who survive to become traders (and make a profit) are not emotionally attached to their cards.
Most fans of Lego (not uncommon amongst engineering and software blokes) make terrible Lego investors, because they want to build the stuff, or “treasure” it. The best Lego investor is someone who’s not at all interested in its intrinsic beauty, just the financials, and can vaguely appraise the future desireability, without being seduced herself.
Buying discounted ends-of-line might be a profitable strategy. However, like all physical commodities, storage and security are killers, long-term. Reports of returns are riddled with survivorship bias. In retrospect, that Millenium Falcon kit was an “obvious” winner (apparently). In reality, no-one’s analysing the returns of all investors in collectibles — but we can guess that the average return is very low indeed. Those vintage shoes probably went for a few percent of their purchase cost (if we include the donation of the unsellables).
I’m not sure why there’s the snootiness about gold investment here. It’s certainly a risky and unpredictable store of wealth, but there are plenty of people who desire to “consume” it as jewellery in places India, because of its perceived intrinsic beauty and value, as well as speculators. It’s therefore not entirely a “greater-fool” asset. Bitcoins are a bit weirder to analyze. The supply is mathematically limited, which gives inflation-proofing, but that’s not enough for a commodity to become valuable on its own.
@ ermine
Yes, I’ve never understood why UK farmland is so much more expensive than its equivalent in countries with more predictable weather and up to three harvests a year. Political risk of having your asset seized perhaps?
One thing that will affect the price of Lego is the cost of oil, as the basis of the plastics used. I’m not sure 3d printers will reduce the cost of bricks much, as they will have to *dramatically* improve in accuracy and resolution to be able to make a useful brick or technics part (on the other hand, mini-figs and similar parts are likely to be much easier to achieve) – apparently Lego make parts to an accuracy of 2um.
I suspect the boost to prices is at least in part to the number of baby-boomers who played with things like Lego, model aircraft kits etc, and now want to continue with the things they never had as children or young adults (as the relative cost was much higher in the 50s, 60s and 70s). A similar effect was seen about ten years ago in calculators (especially HP ones).
Anyone care for A Random Walk Down Brick Lane?
We have an interesting collection of old jams – oops, I must mean Vintage Confitures.
Roll up, roll up; what am I bid for damson and marrow 2002, or bramble and raspberry 1976?
Quince too; redcurrant ……
There’s definitely an arbitrage opportunity if you’re willing to spend some time sorting and packaging. You can find great deals on legos in bulk, multi-pound lot on eBay. I’ve bought several large lots for our kids.
If you were so inclined, you could then sort them and sell smaller lots of specific brick types at a significant markup.
Would I do it? Nope, it’s too much trouble for too little in the way of (absolute) returns. But it’s definitely possible.
@Michael
> If you were so inclined, you could then sort them and sell smaller lots of specific brick types at a significant markup.
>
> Would I do it? Nope, it’s too much trouble for too little in the way of (absolute) returns. But it’s definitely possible.
The question is whether it could be done profitably with all the costs associated with employing small-scale casual labour to do the tedious but simple sorting.
Doing grunt-work oneself is a loser’s game.
I am not sure this discussion has really got to the root of why Lego investing has the potential for long term sustainable returns.
Investing in Lego may be described as a fad but building Lego is not. Lego is a proven toy “leader” and continued increase in demand over supply is certainly a lot more guaranteed most other investment options. Sets are discontinued, more people want to build them from new and the number of available (discontinued) sets decreases all the time. Unlike metals, stocks, bonds, interest in a savings account etc Lego will actually one day give real joy to someone as they build it.
Now I am not trying to say that putting X number of pounds into your savings account for interest that is eaten by your banks charges is not exciting, but personally a chunk of that type of money of mine is in Lego.
Now not many people will be investing large sums of money in Lego but for those that will be retiring in 20 years like me, that a section of affordable shelving in your garage containing (selected and mint) Lego in sealed plastic boxes is going to generate a hell of lot more return than most of your investments, and is an option that easily available to a lot of people.
I am not expecting a run on the Banks after this article but don’t forget Lego is about fun and money and that goes a long way when dealing with people.
Cheers