Stuff Is Almost Never a Good Investment

I had a small chuckle at a yard sale the other day. The seller had tons of Beanie Babies for sale. All of them had the “tag protectors” on the tags and a few were in those little plastic display cases that were made especially for the preservation of Beanie Babies. When I commented on the sheer volume of the Beanies (there were hundreds), the seller said, “Yeah. I got caught up in the frenzy. I thought that I could get enough of them that I could pay for my kid’s college tuition. You know, they’d appreciate and I could sell them. It didn’t work, obviously, because my kid is in college now and here we are.”

I should say it didn’t work. Most of them were priced at $0.25 – $1.00. Even if I assume/estimate that there were three hundred Beanie Babies there, she probably couldn’t have made more than $200 at her sale, and that’s if she managed to sell every last one. That might buy the college kid a couple of textbooks. Given that Beanies retailed for between $5 and $7, we could take an average price of $6 and figure that she spent around $1,800 to amass that collection. (Assuming that she didn’t pay grossly inflated prices on the secondary market, but this is just a quick and dirty example.)

Let’s also assume that she spent most of that money in 1997, which was around the peak of the Beanie Baby craze. It’s now sixteen years later. Had she invested that money in a savings account/CD with a 2% rate of return, it would now be worth $2,471.01. At 5%, it would be worth $3,929.17. And had she put it into some winning stocks and earned 10%, that money would now be worth $8,270.95. Even if she’d just stuck it under her floorboards, she’d still have the original $1,800. None of this is enough to pay for a college education, but it’s a heck of a lot more than the $200 she might have earned at the yard sale.

This happens a lot. People get caught up in the frenzy of a trend and become convinced they can turn their “stuff” into a mega-profit. But in almost all cases, they’d be better off investing the money in more traditional investments.

The problem is that collectibles only become valuable after many years have passed. And most people aren’t willing to hold on to the stuff for that long, or it gets damaged. Beanies might be worth something in another fifty years, or they might not. The collectible market is fickle. For something to become valuable, it needs to be in good condition and so scarce that acquiring it is very difficult. Beanies are still easy to get on eBay and at yard sales. Fifty years from now, the number of mint condition dolls will have decreased through attrition and they might be worth something. But chances are that most of the original purchasers of those dolls will be dead and thus not around to reap any of the profits (if there are any).

This is the reason why most people who “hit it big” in the collectible/antique market are two, three, or even more generations removed from the original purchase. They clean out great-grandma’s house and hit it big with some piece of china or artwork because there simply aren’t any more of them on the market. Maybe all of the originals have been lost or damaged or, in the times before mass production, there just weren’t that many made. That can make something rare and valuable.

In our age of mass production, things are made in such large quantities that even “limited editions” aren’t that limited. It takes years before the supply dwindles to the point of scarcity. It isn’t very likely to happen in the ten to fifteen years you have before you have to send your kid to college or you want to retire. And it’s a mistake to assume that a hot trend today will still be a hot trend when you need to turn a profit. People didn’t think the interest in Beanies would ever die, but with the exception of some die-hard collectors, they’re just another casualty in the trend wars. Like Webkinz, Cabbage Patch Kids, and Giga Pets and all the other trends that were supposed to be valuable. The trend passed and along with it went the money.

People always ask, “What can I buy that will become collectible?” The truth is, there’s no way to know. Today’s seeming sure thing is tomorrow’s piece of junk. Trying to future cast the collectible market is harder than forecasting the stock market. Collectibility depends on so many factors, the most fickle being willing buyers. You may have the last one of something in existence, but if no one wants it, it’s worthless.

Banking on stuff to pay for your retirement, health care, or kid’s education is a mistake. If you’re temped to get caught up in a trend or start hoarding stuff that you think might become collectible, chances are that you’ll be better off if you put that money in some sort of investment product. Even if it’s a simple CD or savings account, your returns will be greater than the future selling price of your stuff. Sure, you might get lucky, and you might win the lottery, too. But the odds aren’t in your favor. If anyone ever reaps a profit from your stuff, it will probably be your descendants, not you.

(Photo courtesy of Lord Jim)