by elmads

All of the information I learned and wrote here are all thanks to Hillians Bricks - https://www.youtube.com/c/HilliansBricks/featured and Brick Bukcs - https://brickbucks.net/about-us/groups. Kudos to these two groups, without them I wouldn’t be able to learn the basics about LEGO investing.

Introduction

LEGO cannot be valued, it can only be priced. This is what I’ve said in my previous blog “Are Lego Sets an Investment?”. But, this statement doesn’t mean that LEGO sets cannot be measured and be compared to its other set peers. Investing metrics for LEGO is a way for us to know if a certain set is out of the average price, and its both subjective and objective measurements across other LEGO Sets.

This is where investing metrics come into play. It acts as a means to quantify prices relative to its asset peers. It is not only used with non-cash flow generating assets, but also with its cash flow generating asset cousins, such as equities and real estate.

• Real Estate Investing Metrics such as; Cash Flow = Rental Income – Your Total Expenses. For Instance, Year 1 Rental Income is $18,000, your Year 1 Total Expenses is $14,400 (maintenance, mortgage if applicable & other expenses) which gives you $3,600 total Cash Flow for that year. Compare this net Cash flow yield from your invested amount, is it better than other properties within the same category?
  
  There are other Real Estate Investing metrics like, Cash on Cash Return (CoC), Net Operating Income (NOI), Capitalization Rate, Internal Rate of Return (IRR) to name a few.

• With equity Investing Metrics we have Price-to-Earnings Ratio (P/E), Price-to-Book Ratio (P/B), Price-to-FreeCashFlow Ratio (P/FCF), Enterprise Value to EBIT, Return on Equity (ROE), Return on Invested Capital (ROIC) and others more.

Investing metrics are applicable to most, if not all assets. It gives guidance in our investing endeavour by making a basic unit of measurement for comparative purposes. This is why any perceived asset will always have investing metrics.

LEGO Investing Metrics

Most investing metrics should be objective based on facts and available data, but there are instances where subjective data should also be taken into account. Why? well because market participants consist of human beings possessing emotions with different life circumstances.

We’ll breakdown LEGO investing metrics into two categories, Subjective and Objective. We’ll start with the former category.

Subjective Investing Metrics

1.) Affordability – Not all Lego Set has the same price. Some will be affordable while others expensive. Lego sets have price tiers as well, some will have more people transacting on a specified price tier level. Which one do you think would that be? the higher price tier, the mid price tier or the lower price tier?

Remember that where there are more people buying and selling, the more demand there will be for a certain asset, and the easier to buy and sell that asset. This is the same with LEGO investing, it is not expected that there will always be a large number of people who are willing to buy LEGO sets at the higher price point tier of sets, unlike with the lower tier levels.

In short, the more affordable the sets are, the more likely that there are more transactions taking place.

2.) LEGO Theme – I’ve discussed this in detail in my previous LEGO blog “Are Lego Sets an Investment”, where I emphasized that knowing which LEGO theme you are willing to understand is very important, as this will give you insights to the brand following and its supply & demand. Each Lego Theme has its own strengths and weaknesses.

Furthermore, some of the longest LEGO themes are the best to look into first, as there are more data to research and study about it, not unlike with the newer a few years old themes.

As per 2021 LEGO Group annual report, their top themes are LEGO City, LEGO Technic, LEGO Creator Expert, LEGO Harry Potter and LEGO Star Wars.

3.) Hype – Are there any buzz about the set before/after it got released in the market?

Hype is a non-quantifiable metric, but it is helpful to boost the popularity of an item, and it sure does apply with LEGO sets as well. It’s the type where people talk about it either through social media platforms, contents being made about it, and even via news media outlets and movies.

One of the best examples of this is the Ultimate Collector Series Star Wars “Death Star 75159”, where it was even shown in Tom Holland’s Spider-Man: Homecoming Movie.

Objective Investing Metrics

1.) Price Per Piece Ratio (PPP) – This is a standard metric used in LEGO investing where investors divide the Recommended Retail Price (RRP) to a set’s number of Pieces. As an example, I’ll use LEGO Star Wars Luke Skywalker (Red Five) Helmet 75327.

The question is, what does the £0.08 PPP of this set mean? to answer that question, we need to compare its PPP to other set’s PPP. It’s just like with any other investing metrics such as the Price-to-Earnings Ratio of equities. If you’re interested to know more about a stock’s P/E Ratio, see my blog about relative valuations, link provided below.

“Price to Earnings Ratio & Price to Book Ratio”

The PPP of this set can be compared in various ways, either directly to its LEGO Theme Peers, or Sub-Theme Peers, Set Sizes and Based on the whole average PPP of LEGO sets. These are the 4 common ways to compare a specific LEGO set’s PPP.

• Let’s start with PPP relative to its LEGO Sub-Themes peers. In our Luke Skywalker (Red Five) Helmet 75327 example above, this will be under the LEGO Star Wars Helmets sub theme.

As we can see above, our Luke Skywalker Red Five Helmet is below the average PPP of the Star Wars Subtheme Helmets. Then again, does it mean that it’s really cheap? well with only 0.01 difference, I wouldn’t say that it’s a big of a deal.

• LEGO set PPP relative to its LEGO Main Theme – Let’s then move up a notch shall we? we’ll compare the PPP of the Red Five Helmet to the Average PPP of the whole Star Wars Lego Theme.

The average PPP of the whole Star Wars Lego Theme is £0.13 as per Brick Bucks (a LEGO investor/reseller group). They’ve collected the date of the price per piece breakdown of all of the LEGO themes in 2021, and that’s where I found the Star Wars Theme PPP data. If you’re interested to see Brick Bucks’ webpage, blogs and vlogs, I’ll leave a link her —> https://brickbucks.net/about-us/

Going back to the average 2021 Star Wars LEGO Theme PPP. We could then say that the Red Five helmet and the whole Subtheme: Star Wars Helmets, with PPP of £0.08 and £0.09, respectively, are slightly cheaper than the average PPP of the Star Wars Lego Theme of £0.13.

• LEGO set PPP relative to the Average of ALL Sets – This is an arduous task to take as we need to get the PPP of all LEGO sets, not just the sets this year, but also the sets in the past. Luckily we have Brick Bucks who made a 2021 list of all average PPP of each LEGO Themes. See table down below.

LEGO THEME	PPP THEME Average
Architecture	0.08
Art	0.04
Brick Sketches	0.12
BrickHeadz	0.07
City	0.27
Classic	0.63
Collectable Minifigures	0.65
Creator	0.09
Creator Expert	0.08
DC Comics Super Heroes	0.12
Disney	0.16
Dots	0.10
Duplo	0.84
Education	0.44
Friends	0.14
Harry Potter	0.11
Hidden Side	0.10
Ideas	0.08
Jurassic World	0.16
Marvel Super Heroes	0.12
Mindstorms	0.38
Minecraft	0.10
Minions: The Rise of Gru	0.11
Ninjago	0.11
Overwatch	0.10
Seasonal	0.10
Speed Champions	0.07
Star Wars	0.13
Stranger Things	0.09
Super Mario	0.28
Technic	0.12
The LEGO Movie 2	0.13
Toy Story	0.19
Trolls World Tour	0.13
Vidiyo	0.26
Xtra	0.26
PPP Average of all Themes	0.19

The average PPP of All Lego Themes as of 2021 is £0.19. This is way above Red Five’s PPP of £0.08, the Star Wars Subtheme Helmet PPP of £0.09 and also the Lego Star Wars Theme PPP of £0.13

Red Five looks a good deal in a PPP basis, but this must not be our only reason to buy this set as an investment, as there are other metrics and considerations we must look into before making an investment decision.

Comparable to the medical field, before doctors arrive into their medical diagnosis of a patient’s illness or disease, they firstly do a series of diagnostic tests and physical assessments . This reduces the risk of medical diagnostic errors, and aid them to arrive into the most accurate and precise medical judgement. This is also the same in any investment process, where we consider all available variables before making a judgement, to reduce the risk of a complete investment failure. It is what we call risk management.

Furthermore, each LEGO Themes have their own unique characteristics, how the way it is built, purpose and set of followers. This is the reason why some of the Themes will have higher PPP than the others, but it doesn’t mean that they are automatically not a good set. Just like with what’ve I’ve said in the previous paragraph, one metric is not sufficient enough to make an investment decision.

• LEGO set PPP relative to the Average Set Size PPP – In here we will compare Red Five PPP to Set Sizes. What are set sizes you asked?

Red Five Helmet has 675 pieces which makes it a Small Size Set Piece. Well, all LEGO Star Wars Helmets are categorized as Small Set Size because all of them has less than 1,000 LEGO Pieces.

Again, Red Five and all LEGO Star Wars Helmets PPP are lower relative to the average Small Set Size PPP.

I’ll repeat it again, don’t make a final investment decision based on a single metric, in this case the Price Per Piece of a Lego Set.

NOTE: Sometimes, if not most of the time, the Price Per Piece of a set will be skewed when it has a minifigure included. Why? because minifigures in the secondary market have its own demand. There are instances where a minifigure’s price percentage change, appreciates faster than the whole set.

Does Price per Piece actually Matter? see what Brick Bucks said about this.

2.) Availability – There are sets that are not sold in retail stores, and are only sold in LEGO’s main webpage, these are called the LEGO Exclusives. One of the current example of this is the 75343 LEGO Star Wars Helmet Collection Dark Trooper Helmet. It is only being sold exclusively in LEGO.com and Target, the big-box store company in the US. Due to limited places to buy this set, this could directly impact the demand in the secondary markets, most especially when the set reaches its retirement.

Rare is also another one where, it is only being sold in LEGO.com and a few retail stores, but not in other online market places.

Medium is where it’s being sold in LEGO.com, in some retail stores and also in online market places.

Common are the sets that can be seen everywhere.

3.) Shelf Life – This is the difference between the release date of a set to its retirement date. The importance of this is actually to estimate the best time to buy a set before it retires, so that we could make our money work for us, as early as possible. Most investment gains in LEGO investing happens once a set retires. I discussed this further in my previous blog titled “Lego Investing”.

Most Lego sets have an average shelf life of 18-24 months. Usually buying it 6 months before the estimated date of retirement would be a good strategy, then again as like with all other projections, for most of the time it doesn’t pan out . Also, a specific LEGO Theme and Sub-Theme have its own average shelf life, which is different from others.

4.) Box Size – This is actually not a metric, but a personal preference. Remember that accumulating LEGO sets takes a substantial storage space, plus it impacts shipping fees depending on the size, once we sell the sets. So, the cost of shipping and the total investment gains, need to be taken into account here as well.

To sum it up

LEGO is not just a toy anymore for enjoyment, but also a piece of engineering and a form of art.

LEGO group for decades has been one of the top toy maker companies of this world, and they would most likely continue to be. They might have not openly said this, but it can be seen with their action that they are treading territories where they have not set foot before. Like what? like the picture below.

I’ve never thought that the company will be as bold as copying one of the best paintings of Van Gogh, the Starry Night. I am not an art enthusiast, but in my own opinion, the resemblance of this LEGO set to the painting is not too bad and was well copied.

The company’s purpose has always been to make toys for kids to enjoy and have fun, but it seems that they are starting to enter the market of collectibles and art with the aim to capture the adult market as well.

Continuing their research and development to make different sizes, shapes and forms of LEGO bricks will surely improve over time. Their gradual transition and bold move might be either a fluke, or a start of something big for the future of LEGO group and their products.

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.