LEGO Investing
by elmads
Introduction
There are two things that we must understand about Lego sets. The two sides of its coin, the sets for building purposes and the one for investment endeavour. Let me explain further.
- Lego sets for building – As the name implies, these are the Lego sets that people build, enjoy, play with, collect and put on display in their homes. These are the Lego sets for consumption and enjoyment purposes. This is the real intended purpose by the Lego Company. Unfortunately, enjoyment and investment in this space shouldn’t be mixed together.
Once a Lego set has been removed from its box and has been built, it immediately loses almost half of its value in the secondary market. Why? well because the enjoyment of buying a Lego is through its building process. Most people buy an unbuilt, in the box Lego sets for themselves to build. That’s why assembled Lego sets’ demand and price immediately go down the hill.
- Lego sets for investment – This is buying LEGO sets for the purpose to sell it in the future, without building it at all. In short, purchasing it as it is, inside and intact in a sealed box, then selling it once its price appreciates in the secondary LEGO market.
The downside, it’s purely for investment purposes and not for enjoyment.
In summary, we must be clear with our intent when purchasing a LEGO set. Is it for play or for investment purposes?
Collect or Invest? or can we do both?
I’ll answer you now, we can absolutely do both!! just purchase two of the specific Lego set that you want for enjoyment and the another one for investment. Provided that your own budget buckets for enjoyment and investment allows it. It’s a matter of efficiently allocating our money.
I’m a Star Wars fan and who also started to like building Lego sets, which I’ve talked about in detail on my previous blog titled “Are Lego Sets an Investment?”. Being a fan who wants to collect Star Wars merchandises and also an investor who wants to ride the Lego Group’s, the company and their Lego Themes’ growth, gave me an initial dilemma before. Can I even do both?
Firstly, the Lego Group (the company) is a private corporation, meaning they do not trade the shares of their company in the stock market, and the ownership of the said business is in a privatized corporate structure. Secondly, built Lego sets quickly depreciate in price from the exact moment we open the box and remove it from its plastic.
So, I did my research and found out that there are a lot of individuals like me, who also had this initial problem before. These people are the experienced Lego investors and small LEGO retailers who are both collectors and investors themselves.
They all said that we can do both, although we cannot own shares of the LEGO group due its privatized corporate structure, we can still own their products that have the law of supply and demand working into play in its secondary markets. Collect and invest/retail if we want to, no one will be able stop us from doing it anyway, which actually makes sense. Hence, where I am now in my Lego investing and collecting journey.
I started first with a direct niche of Star Wars Lego, then I zoomed further into the sub Star Wars Themes, which is the Star Wars LEGO Helmets.
From left to right (Stormtrooper, Boba Fett, Darth Vader, Scout Trooper, Tie Fighter Pilot). The Photograph above was taken during the Christmas day of 2021.
The above photograph shows 5 Lego Star Wars Helmets. These are the collection I started under the Star Wars Lego Theme. It gives me joy and fulfilment to build, collect and display the 5 of them, but they’re not for investment purposes. This is the reason why I still bought another set for each one of the Lego Star Wars Helmets that I already have.
I stored each boxes into a humid room (around 40%-60% humidity), in order to reduce the risk for the box to breakdown. Boxes need to be preserved too, so as for it to be presentable when the time comes for me to sell it to others.
NOTE: The best way how to know if the room is humid, is by purchasing an air humidity sensor, but if there’s none we could do the Ice Cube Test. See photograph below on how to do this.
Both infographics were taken from: https://www.innovativedehumidifiers.com/faq/how-to-gauge-if-your-indoor-humidity-is-too-low-or-too-high/
The Investment Process
- Understand what are Lego sets, the company, the brands, the market and its participants.
- Find your Lego Theme Niche
- Start to buy the specific Lego theme that you want
- Have a specified place for storage and it should have a good humid area
- Hold it for years, and sell when the price appreciates to the level you find it attractive already or when you’ve achieved your target percentage return.
- Sell it via the secondary markets (Facebook marketplace, Amazon, eBay, BrickLink and others more). Be aware of the selling fees and shipping fees of your chosen platform.
- And most importantly, never stop learning. Continuous learning is the key in any kinds of investment.
It sounds easy isn’t it? but there’s more to it than that. Let’s now talk about when is one of the bests time to buy a Lego set.
Strategies into Buying LEGO Sets
1.) Buy at a discount: We cannot specifically value Lego sets because it doesn’t produce any cash flow like Stocks (Dividends), Property (Rental Income) and Bonds (Coupon). This just means that, we would not know what will be the possible future cash flow of our investment so that we could discount it in its present value, which subsequently gives us the approximate value and know if it is cheap, fairly or over priced.
Nevertheless, it’s not the end, we may not be able to know a Lego set’s value but we can still play it through the pricing game. This is where its Suggested Retail Price (SRP) becomes a vital and starting point for it, which the LEGO company dictates. The following below are the SRP of 4 Star Wars Lego sets as of January of 2022.
Once we know the SRP of a specific Lego product, we can now look for discounted prices of the same Lego set in other retailers. There are instances where there are toy companies, hobby shops, and online marketplaces where they sell Lego sets at a discount. That’s an opportunity that we wouldn’t want to miss because that will immediately give us a definite return on our investments.
For instance, Let’s say we found a discounted AT&T Lego set in Walmart selling at a £629.99. We could buy that specific Lego set, then sell it immediately at its SRP worth £699.99. That’s automatically a 10% gain from our initial buy price of £629.99.
We can acquire Lego sets at a discounted price mostly during sale season like Black Friday, Cyber Monday, Boxing day and others more. It’s a matter of being patient and determined into looking for great Lego discounted price deals. We can also maximize coupons if we’re able to get hold of one.
It’s just like with the value investing equity investment strategy, where some value investors buy companies at an undervalued price compared to its business intrinsic value (this will be like the SRP of Lego sets). Then, they sell it once the company reaches its intrinsic value price.
2.) Buy before its date of Retirement: Most Lego products are not manufactured and produced forever, most of them will eventually be discontinued in the future. This is how some discontinued Lego sets’ price skyrockets.
For example, Let’s say that the Lego company made a total of 50,000 Lego Star Wars Death Star sets, then after a few years they retired the product. This makes the Lego Death Star scarce by means of Supply. If the demand for it still continues and exceeds its supply, then for sure the price of the said Lego set in the secondary market will soar than its pre-retirement SRP.
That being said, what’s the significance of buying it before the date of retirement? my answer to you is the cost opportunity. Most Lego sets that have not been retired yet always stays at SRP. It doesn’t go up that much because it is still being produced and sold by Lego. No scarcity has taken place yet.
Just imagine a scenario like this. You bough a Lego Set Millennium Falcon thinking that it will go up in price. You waited for 5 years, but the price did not appreciate that much compared to other Lego sets which was retired by the Lego company about 2 years ago.
The problem here is that the Lego Millennium Falcon you bough is still being sold by Lego and has not been retired yet. So, your invested money on the said set became stagnant for 5 years and was not able to work for you.
Instead, you could have invested that money into another asset that could have given you way better returns during that time period. Meaning your money would have worked for you already and didn’t stagnate.
Buying a Lego set before Lego group confirmed its date of retirement is a good strategy in Lego investing. At the least, our money will be able to work for us sooner than later.
Nevertheless, not all Retired Lego sets and themes will appreciate in price. It is still dependent on the supply and demand side of the Lego secondary market. There are times where a retired Lego set does not appreciate that much, while some sets although haven’t retired yet, are already selling at a higher price than its SRP in the secondary market.
How do such things happen? massive demand that caused for its products to be sold out in the primary retail market. Meaning, we wouldn’t be able to find any of it in big box retailer stores anymore, not even in the Lego webpage, despite it not being retired yet.
It happened a few months ago with LEGO Star Wars 75274 TIE Fighter Pilot. It wasn’t discontinued early to mid last year, yet its price almost double in the secondary markets. There were a lot of people both LEGO consumers and investors saying that it was out of stock in stores way before its retirement date.
To know what are the Lego retiring sets in the near future, check the main Lego webpage . They have a portion there for their planned retiring sets, or I’ll just give you the link here (https://www.lego.com/en-gb/categories/retiring-soon). I said planned because sometimes Lego group changes their minds and remove some sets in the list.
Moreover, in the webpage for retiring sets, the Lego webpage doesn’t specify the exact retirement date or month of a Lego set, they’ll just indicate “Retiring Soon”. So, sometimes we’ll need to wait for specific news from Lego or search it online. This is why my go to page for this, other than Lego.com is the Brickeconomy, link provided below.
LEGO sets’ historical Price Appreciation
No one in this world will be able to know what will be the future returns of a specific Lego set. It either can be one of the best sets with massive returns or be just a poor investment.
That being said, our goal here is not to speculate which of the thousands of Lego sets today will be the golden set. Our aim here is to enjoy the process of Lego investing while also beating inflation. We do this by sticking to the Lego themes that we understand and have strong brand support and following. I’ve discussed this deeper on my previous blog titled “Are Lego sets an investment?”.
Just to add, if you’re wondering what are the top best investment returns that a Lego set has ever produced. I have that list and photograph down below.
Source: http://brixinvest.net/top-10/
Remember that these are the best returns, not the average returns. Not all Lego sets will have these kinds of returns, and some of it might even give you poor investment rates return in the intermediate and the long run. All investments will have risks and Lego investing is not excluded from it.
The Disadvantage of Lego Investing
- Quantity: Just imagine this scenario. You have £10,000 to invest in Lego sets. You did your due diligence of studying everything, you acquired the conviction and became ready to buy sets with the capital that you have.
Sorry to burst your bubble, but you wouldn’t be able to buy only a Lego set worth £10,000, instead you’ll be purchasing multiple Lego sets that would total the amount you’re willing to invest.
To give you context, let’s just look at the most expensive Lego sets being sold in Lego’s webpage (www.Lego.com), as of this writing January 2022.
In our example above, to maximize your £10,000 capital, you could then buy the most expensive Lego sets which are the AT-AT or Millennium Falcon sets, both worth £699.99. Let’s say then that you decided to buy the Millennium Falcon Lego Set, this means that you’ll be purchasing 14 sets of it in total (£10,000 capital / £699.99 = 14 Millennium Falcon Lego Set).
That’s a lot of boxes, plus the size of Lego Millennium Falcon 75192 is L:33 x W:22 x H:8 inches. It’s approximately the same size of a travel luggage bag.
- Storage: We invest in tangible products, so that means we’ll be accumulating space to store it. Also, just as what I said previously, the larger the amount of money we have the more Lego sets we need to purchase. This gives us then a dilemma of finding an are to store all of these sets, most especially if we do not have any extra space at home.
Individual Lego investing is like a small retailer of Lego sets. We capitalize the price difference of it, and buying it cheap while selling it at higher. The downside is, the more capital we have for this endeavour, the more inventory we will accumulate, then the more space it will require for just to store it.
- Inventory care: Taking care of a Leg box set for years could turn out to be a hard task. Too much moist in the storage area can cause the following:
>Moulds can build up which can damage the box of the set.
>Too much sunlight can alter the colour of the box and its design
>Too much dust can cause bacterial build up, which can eventually be detrimental also for the box causing it to breakdown.
- Selling: It’s easy to buy than to sell. There are a lot of hassle in selling, it’s not just with Lego, but with selling in general. The hassle of negotiations, and deliveries.
Nonetheless, thanks to our current technological developments most especially in e-commerce, which massively changed how we do transactions. They made buying and selling easier and more convenient than it was pre-electronic commerce. Yet, increase in taxes and online platform fees are not within our control. We have to take not about these two factors, as it will have a substantial impact on our net Lego investment income once we sell the sets.
Holding Period
How long do we need to hold the Lego sets before we sell it? The answer.. It depends to your own financial goals.
Personally, I plan to hold my Lego investments for the intermediate term (3-7 years). My reason behind this is based from the frequency where Lego reproduces a specific set again.
Let me explain, while the Lego company retires a certain Lego set, they also reintroduce previous retired sets with some changes (either they add something or change a few details) after a few years. So, the average time where Lego does this, from retirement to reintroduction of a certain Lego set is around 2-5 years period. Okay, but what is its significance?
The reintroduction of the set can affect the previous line of the same set’s price. For instance, let’s say we have a Star Wars Lego Tie Fighter 2018 version, then it retires a year after, in 2019.
Suddenly, Lego reintroduces again in 2021, the almost same size of the Tie Fighter but with a few changes. This reintroduction of the Tie Fighter could impact the 2018 Tie Fighter’s price in the secondary markets, just because a new one has been released again.
Basically, there will be different opinions about this, most especially from the buyers that build Legos. Like, why will they buy the 2018 Tie Fighter version that sells higher than its SRP back in 2018, when there is a new release of it in 2021, which is just being sold at SRP in retailers and the Lego webpage. It actually makes sense.
Despite that, there will be others who still actually prefers the older variation due to some certain differences from the reintroduced sets. Such as, the minifigures, the small changes in the building process and the number of Lego pieces included.
So, all in all, it is actually more dependent on our own personal preference and investment goals. To think of it, knowing when will the Lego group reintroduce a certain retired set is actually the same as timing the market in stocks. There’s no point of doing it because it’s mostly about guess work and not based on present available facts.
To sum it up
Lego is a good alternative investment outside the traditional asset sphere. Not everyone will enjoy and understand this path, but anybody can certainly be a participant of such collectible investment journey if they wish to take part in.
Investing is placing capital in an asset with the expectation to increase in price in the future. There are certainly a lot of ways to do it, and finding which one will jive with your time, goals and personality is very important. And most especially, my own personal golden rule, we must always understand even the most basic things of what we invest in.
Investing shouldn’t be about sacrificing one’s happiness or restricting one’s desire, it should be done in a process where growth and understanding takes place, while enjoying each and every moment of our life.
Knowledge is my sword, and patience is my shield
elmads
This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.
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