Alan Cole: Sorry, collectibles are terrible investments

[elontusk1119]

This article

https://fullstackeconomics.com/sorry...e-investments/

was trending on hackernews today:

https://news.ycombinator.com/item?id=31057464

Alan Cole is supposedly some economist who has 27K followers on twitter.

Snippet from his articles. Wonder if you guys have any thoughts on this

An ironclad rule keeps collectibles from beating stocks
Collectibles don’t generate cash flow like bonds or stocks. They can only make you money through appreciation. Perhaps that doesn’t sound like a big constraint. But it is, because in the long run, assets without cash flows cannot increase in value more than the economy as a whole. If something appreciates faster than the whole economy in the long run, it eventually eclipses the whole economy, which is impossible.

But stocks and bonds have a property that gets them around this problem. They can (and do!) get a total return that is larger than the economy-wide growth rate. They do this through interest payments, dividends, and buybacks. Suppose the economy as a whole grows at 5 percent annually. The stock market might also appreciate at 5 percent in terms of market capitalization, but also yield a 3 percent annual dividend, giving you an 8 percent return overall. This actually isn’t a hypothetical. It is pretty close to the real-life historical numbers. Stocks can achieve, and historically have achieved returns that are impossible without cash flow.

There’s a place for zero cash flow assets, and always will be. Some share of the economy will always be devoted to Picasso paintings, 1977 Kenner Star Wars figurines, or obscure 19th-century stamps. But that’s a limited pool of money and attention, and its value is bounded. If a new collectible becomes popular, it erodes the mindshare and the market share of at least some incumbents.

And as I mentioned earlier, collectibles usually have negative cash flow. You need to pay for storage to keep figurines or art or stamps pristine. Small items like baseball cards can easily be lost. Not even non-fungible tokens (NFTs), an entirely digital collectible, completely solve the depreciation and loss problem, because they have famously been lost or stolen.

It’s easy to imagine that you’re the sort of person who wouldn’t ever lose or damage valued items, so these critiques don’t apply to you. But the odds are you’re not.

Another big problem for collectibles is that the buying and selling process isn’t smooth. It’s a viper’s den of scamsters.

It’s also easy to imagine that you’re the sort of person who can navigate a web of scam transactions and bad information. But the odds are you’re not.

Even if you are, you’ll still have to go through a costly verification process to prove that what you’ve collected⁠—or what you’re about to collect⁠—is authentic. Often this needs to be proven and re-proven. The verification process will eat into your returns.

[Siberian13]

Yeah stay off your Twitter. You're welcome

[Kingofkings1281]

My bank account says otherwise.

[ninjacookies]

BO Alex Jones droppin' another emphatic gem on the pumpumentary platoon.



I'm here for it.

[GeechQuest]

Cards are investments in the same way that playing DFS is an investment.

[chiefsncards275]

Well jibbity crickets, from what I read my cards aren’t a good investment since they can be lost easily.

This is sarcasm but that part is dumb. Any investment worthy card will not be lost lol


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[Ericc5Bears]

Originally Posted by chiefsncards275

Well jibbity crickets, from what I read my cards aren’t a good investment since they can be lost easily.

This is sarcasm but that part is dumb. Any investment worthy card will not be lost lol


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Maybe not by you, but all it takes is one greedy USPS/Fedex employee

[cboog3105]

Originally Posted by Ericc5Bears

Maybe not by you, but all it takes is one greedy USPS/Fedex employee

speakin of

i wonder how our boy tommy c is doing in the joint after jacking that ultra stars jordan

[1dayshow]

IMO, cards are just a different type of investment. It is not as stable as perhaps, real estate or stocks, as the article mentioned because it does generate cash flow.

The cards themselves have values that fluctuates, which by definition is an investment because it has risks and rewards. This is unlike going to a casino because there is no tangible asset to invest. My issue nowadays is that these fluctuations are more influenced by hype and expectations, rather than by the performance of the players on the cards themselves. This makes for a more volatile and less predicatable outcome.

[regularp]

There have been a lot of cards that have appreciated more than 5% in the past five years. That was a wall of drivel to read.

[drobfan8]

You lost me at 27k followers.

The kid down the street has more followers and he only sells lemonade.

Imagine if the newbs stop calling cards an investment and start realising it's a Hobby and that there are people that won't ever leave, then they will start understanding.

Idiots

[rj.cataldo]

As someone who has an extensive card and memorabilia collection, I think his point is valid, but perhaps not always supported appropriately. The market for cards has exploded over the past few years - prior to that it was comparatively stagnant. Some of the bigger names may have seen modest increases, but nothing near the level we’ve seen recently. You can look at any of Card Ladder indexes across any sport to see just how drastic the spike is and how they generally all align with the last two years.

That only makes sense if there was a fundamental shift in the dynamics of the market, and at some level you can argue that has happened. But the reality is, we’ve seen this in sports cards before. Hype that cards are a great future investment - a flood of money that comes into the hobby to either sell new product or sell complimentary products, and new people buying cards driven by FOMO.

Ultimately though, it only matters how “sticky” that new money is. If new money is more motivated by the financial gains rather than the utility of collecting, the “losers” are likely to exit to other avenues, taking a large chunk of capital with them. It’s always easy to say - “it’s different now”, but we’ve already seen evidence of a pullback in several spaces. I think eventually people will get bored and move on to new things, and the floor will settle somewhere higher than where it was before, but lower than today, and perhaps not high enough to support some of the infrastructure that has been built around the hobby.

Does that mean you can’t make money in sports cards in the short or near term - no. Does that mean you shouldn’t buy cards if you like them - no. But treating cards like other investments or retirement assets isn’t likely a sound strategy, unless you can afford to ride through market cycles which could take up to 20 years.


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[bmf]

Someone is butt-hurt because he missed out or bought the wrong collectibles. He comes off as bitter and dumb.

[mc1]

Anyone that invested in $10k bass topps Kobe or Jordan 700k PSA gem Fleer RCs might agree with this guy.

[DS1991]

Originally Posted by mc1

Anyone that invested in $10k bass topps Kobe or Jordan 700k PSA gem Fleer RCs might agree with this guy.

Those people that bought at those levels on those cards were likely not very knowledgeable of the market and had money to burn. Cards can be an avenue to much greater returns than conventional investments if one is knowledgeable, aware, and proceeds logically into buying and selling cards.

[gomiamigo]

Cards are a hobby, not an investment. The vast overwhelming majority of cards go down over time. A tiny tiny % go up a lot. The transaction fees, shipping fees, insurance are much greater than on stocks.

We're still coming off the covid bubble. If you weren't making an economic profit pre-2020 you probably won't make it from this point forward. If you made bank over the past two years, congrats! My collection went up a ton and I'm very thankful.

[grade]

For many people, Cards is the investment and Stocks/crypto is the hobby.

Both can be hobbies or investments. Being able to change sectors is the best way to invest or have fun.

[Wings]

That’s like saying I’m not gonna buy a house because it might burn down or get hit by a tornado. Really bad article.

[mindcycle]

Originally Posted by rj.cataldo

As someone who has an extensive card and memorabilia collection, I think his point is valid, but perhaps not always supported appropriately. The market for cards has exploded over the past few years - prior to that it was comparatively stagnant. Some of the bigger names may have seen modest increases, but nothing near the level we’ve seen recently. You can look at any of Card Ladder indexes across any sport to see just how drastic the spike is and how they generally all align with the last two years.

That only makes sense if there was a fundamental shift in the dynamics of the market, and at some level you can argue that has happened. But the reality is, we’ve seen this in sports cards before. Hype that cards are a great future investment - a flood of money that comes into the hobby to either sell new product or sell complimentary products, and new people buying cards driven by FOMO.

Ultimately though, it only matters how “sticky” that new money is. If new money is more motivated by the financial gains rather than the utility of collecting, the “losers” are likely to exit to other avenues, taking a large chunk of capital with them. It’s always easy to say - “it’s different now”, but we’ve already seen evidence of a pullback in several spaces. I think eventually people will get bored and move on to new things, and the floor will settle somewhere higher than where it was before, but lower than today, and perhaps not high enough to support some of the infrastructure that has been built around the hobby.

Does that mean you can’t make money in sports cards in the short or near term - no. Does that mean you shouldn’t buy cards if you like them - no. But treating cards like other investments or retirement assets isn’t likely a sound strategy, unless you can afford to ride through market cycles which could take up to 20 years.

I agree with this 100%. We saw all this play out in the 90's yet it seems most can't make that connection even if they lived through that time period. Lots of guys back then thought they'd retire on their 89 Griffy Jr RC's and cases of 92 Stadium Club.

I think actual collectors will help keep the hobby alive well past this current post covid pump phase. "High end" pump phase? Idk what to call it now..lol. However, I think it's also fair to assume that even good number of collectors will come out in the negative, despite probably knowing what they are doing a bit more than the average person. The hobby as a whole will be fine but I do worry about the non-millionaires pumping thousands or tens of thousands into unproven talent, false scarcity "low" print runs, and "low pop" graded.

Back in 92 $200 for a Griffy Jr RC or whatever it was may have seemed like a lot, but now you've got guys spending 10k + on stuff that you know is likely way overprinted but has some serial # slapped on to make it seem like it's not. Lots of stuff that won't be worth a tenth of the value in 5-10 years.