Remember the Beanie Baby craze?
It started in the mid-1990s. Ty Inc., the company behind the phenomenon, deliberately limited production of each design. They’d restrict shipments to stores and retire older models and designs. As the toys got to be more popular, a secondary market emerged where people would buy and sell their favorite models.
After a while, this secondary market exploded. People looked at the value of the earliest designs and assumed every model would eventually be worth that much.
The internet helped too. At the height of popularity, people were buying the bears and flipping them on sites like eBay for huge profits. Profits were as high as 1,000%, and eBay reported at its peak Beanie Babies accounted for as much as 10% of its sales. There was even a magazine dedicated to the toys which ran for more than four years.
We all know how it ended. Beanie Babies that traded hands for hundreds of dollars in the late-1990s are barely worth $5 today.
Not just Beanie Babies
Beanie Babies aren’t the only collectable craze that ended up ending badly.
In the early-1990s, it seemed like every sports fan in Canada was collecting hockey cards. The value of cards from the 1950s and 1960s was through the roof. A Bobby Orr rookie card was worth upwards of $2,000. A Wayne Gretzky rookie card was worth $500. For the average kid collecting, that was a powerful incentive to keep your cards in good shape.
To keep up with the demand, card companies flooded the market with product, making sure that every kid who wanted the latest Mario Lemieux or Brett Hull card could have one. Some manufacturers even took it a step further, positioning themselves as the cheapest option for collectors. Since collectors thought every card was poised to be worth a lot of money someday, they bought up these cheap cards like crazy.
Twenty years later, most of those cards aren’t even worth the paper they’re printed on. A select few are worth something, while the others don’t have much use outside of kindling.
In hindsight, it all looks so obvious. Manufacturers react to demand by making more product. The market gets flooded with so much supply it ensures these new cards will never be worth anything. It’s basic economic theory at work.
Do it smart
I paint a pretty bleak picture when it comes to investing in collectables.
It’s difficult because you have to be good at predicting the future, something that eludes most of us. You have to pick something that has limited supply, that will become more popular as time goes on, and that has a market. You could buy the most rare item in the world, but it’ll never be worth anything unless somebody pays for it.
What you want to do is focus on items that definitely will not be made any longer that are somewhat rare. Toys are perhaps the best example of this. Toy manufacturers know a big part of their market is collectors, so they intentionally limit supply.
Your job as an investor in collectables is to figure out what toys will increase in value and which ones don’t have that potential. This involves a lot of close study of the popularity of the toy versus the overall demand of toys of that particular genre.
Take Star Wars. The toys made to accompany the first movie have value because over the years supply dwindled and demand skyrocketed.
It’s not simple enough to buy Star Wars toys today and hold onto them for 30 years. Lots of people do that. You have to figure out which movies will surge in popularity over the next 30 years and then buy the toys now, when they’re cheap.
Good luck with that.
And while you’re at it, watch out for a decline in the whole sector. A perfect example of this is athlete autographs. It used to be a fan would want an autograph as proof they met the athlete. These days it’s all about pictures. People want a picture with their favorite celeb. They don’t want to shell out hundreds of dollars for an autographed piece of equipment.
Just don’t bother
I have a friend who owns a hobby store. He constantly gives out this advice to people who are looking for the next collectable that’ll make them rich.
“Collect something because you like it. That way when it ends up worthless, you won’t be disappointed.”
That’s terrific advice. Since nobody can really predict what’ll be worth money and what won’t be, it’s best to buy collectables because you like them. Don’t treat them as an investment.