An investment of passion for small budgets
Investments of passion have long been the domain of the rich and uber-rich. Billionaires buy themselves football clubs while the mere millionaires have to make do with art collections, classic cars or wine. You can even turn your seats at Wimbledon into an investment, since the debentures for Centre Court or Court No. 1 are freely tradeable and have a decent yield.
And for the riff raff that cannot afford an art collection or a couple of classic cars there is: hardly anything. Unless, of course you are into collecting stamps or coins, but then again, the really valuable stamps and coins are by now out of reach for most of us.
But things are changing. There have been several efforts to launch retail funds and ETFs that invest in wine, art or collectible cars but now there is also a passion investment that is available to retail investors: LEGO.
Since its inception in 1932, the LEGO Group has become the world’s largest producer of toys and LEGO toys have been voted the most popular toy of all time in 2010. Because every child in almost every country in the world knows and plays with LEGO at some point, the identification with the toys is high and since the turn of the century a very liquid secondary market has developed with tens of thousands of transactions on sites like Brickpicker.com. Enter Victoria Dobrynskaya and Julia Kishilova from the Russian National Research University in Moscow, who clearly either had too much vodka or were bored during a long winter and decided to study the investment returns for LEGO sets.
It is well-known that luxury items like classic cars or high art have historically had very high returns, often outperforming the US stock market – especially since 2000 when Eastern European and Asian investors started to compete with Western investors for the most sought-after collectibles. But it turns out that LEGO toys show similar characteristics even though there is so far no report of Chinese billionaires paying outrageous prices for a “Pirates of the Caribbean” set. The researchers find that LEGO sets produced between 1981 and 2014 had an average return of 18.5% per year, albeit with a massive variation in individual returns from -53.6% to 613.3% per year. Speaking of sets, the researchers find that the smallest sets tend to have by far the highest returns, followed by the biggest sets. As always with collectibles, the rarer a set is the higher its return. This means that limited editions like Star Wars sets or seasonal sets and LEGO Ideas yield the highest returns. Overall, the return on LEGO sets is about the same as for US equities, and quite a bit higher than for US bonds. The drawback is of course that transaction costs for collectibles are much higher than for stocks or bonds and thus, holding periods have to be quite long to justify the investment.
Oh, and did I mention that you cannot open the box and play with it, because then the toys lose their value as collectible items?
Lego as an investment 1987 - 2015
Source: Dobrynskaya and Kishilova (2018), Bloomberg, Fidante Capital.