Fads and Bubble-Think
We’ve gone through the making of a collectible in three stages: rarity, obscurity, and demand generation. Some collectibles go through that cycle and transition from obscure niche collectibles to broadly collected items, like vintage sports photos. Others run up rapidly and crash just as fast and end up relegated to the bargain bin, like pogs. Figuring out which you have and how to handle them is the difference between profiting and having tubs of worthless beanie babies or Starting Lineup figurines in your garage.
So, how to tell the difference between a fad and an asset? An article in Vanity Fair about the rise and quick collapse of the NFT art market summed it up perfectly:
“When a market offers something for sale at a large sum, there is, at a base level, an understanding among the public that it has some legitimate importance. Perhaps the artwork is not to one’s liking, but it has provenance and the artist is in museum collections—or there’s historic relevance to something that makes it at the very least a curio…There’s like a deep cultural base that thinks Jordan sneakers are worth something…And the challenge with all of these NFTs was you didn’t really know that there was that broad, deep cultural base. It was just ‘Oh, my gosh, somebody just bought one for 200 grand.’”
That covers every craze that has crossed the card collecting skies for the last 30 years: pogs, beanie babies, relic cards, serial numbered cards, and now NFTs. Without that “broad, deep cultural base”, an item is just a fad. Tulipomania. Likely in for a bumpy, fast ride, up and down.
OK, so how to cope with a potential fad? The single biggest mistake that people who buy into potential fads is lack of an exit plan, which means not planning to get out with a profit at a given level. In other words, they become pigs. Be a pig about an investment and you are likely to get slaughtered. It is an investment adage that collectors tend to ignore, especially newbies in the FOMO atmosphere of rising prices. They just know it will always be like this. Wrong, and thank you for playing.
When a card or category of cards has a huge run and you have a lot of money into them, take some profits out, or better yet, trade into other stuff and diversify. Don’t think that 1,000% price increases in 6 months will be ongoing. If I was sitting on a stack of Aaron Judge rookie cards after he hit 62 homers in 2022, I would be pumping most of them out the door immediately into the craze. 62 dingers is a mark of excellence that Judge is unlikely to reach again. If he hits 50 in 2023, which is a fantastic total, he will be a disappointment and his card prices will fall.
Modern cards are particularly attractive for this sort of bubble-think, I suspect because it feels like the opening day every day. Just as all teams have a mathematically equal chance on opening day, all rookies have an equal chance to be a Hall of Famer and all new issues have the chance to go up. But do they, or are fans just ignoring the fact that their team sucks or their favorite player really doesn’t have the tools? And even if he has the skills, things can happen that can derail the gold rush in the snap of your fingers. I was at a card show in 2022. Ninety-five percent of the floorspace was shiny stuff made in the last five years, which is your first clue that you are looking at a bubble.: everyone is selling the same stuff. The crowd was lots of unkempt, obese young men lugging Zion custom card cases (the number of banged shins that day was epic) with slabbed ultramodern cards trying to buy-sell-trade with each other. At one point, one of the dealers was screaming into his cell phone at someone to "dump the Tatis!" I gleaned from his shouting that he'd been offered into six figures for a Tatis card, declined the offer to try and eke out an even more obscene profit, and had deep regrets when Tatis got suspended for steroids and his bubble popped.
If I want to have a card until I die, that's one thing, but if I don't, I prefer to set a price level I will be happy with, get out when it hits, and put the proceeds into the next deal, preferably something that has not risen lately or that has a proven track record. The odds are that a mainstream card that skyrockets in value for some reason (HOF election, documentary, etc.) will come back down, so I can cash in now and then wait to reacquire it. My favorite basketball player as a kid was Dr. J, Julius Erving. To this day I maintain that he was as good as Jordan. That massive from the free throw line dunk that Jordan pulled off in the slam dunk contest? Yeah, beautiful, but Dr. J did it first. But I digress. My point is that I bought an Erving rookie card before the price run on basketball, watched it soar during the craze for basketball cards, and pulled the trigger on a sale when it was over $5,000. It eventually crested over $9,000 a few months later. I have zero regrets that I didn’t hold on longer and eke out that remaining profit. I made crazy money that I reinvested into vintage cards because they were stagnant at the time. A year after the card was at $9,000, it had fallen back below $3,000 and the vintage cards I bought with the profit were rising fast. I reacquired an Erving for a fraction of what I got for mine and hung on to the vintage cards I purchased with the proceeds as they rose in value.
Of course, I don’t always listen to my own advice. 1912 T227 Honest Long Cut/Miners Extra is, by many accounts, the most beautiful T sports set ever made. The cards are nearly the size of regular baseball cards, have biography backs, and feature images that are not in other T sets of the era. There are five boxers in the set, and I picked up a Jack Johnson as my type card. Johnson is the superstar of prewar 20th century boxing cards. When the market ran up, the T227 Johnson ran with it and at one point sold for well into four figures for a low-grade example. Instead of cashing out, I turned piggy and decided to run mine on eBay just a bit ahead of the last sale, because I was so sure that it was going to keep going and I wanted to catch the top. Well, I missed the top, it didn’t sell, and a year later I am offering the card for sale at 25% below the high price with no takers.
One final word on buying into the next big thing: if you are going to gamble, don’t go all in. Last August, a guy came to my table wanting to trade for vintage cards. He opened his custom Zion card case and pulled out a stack of limited-edition autographed cards of Walker Buehler. Yeah, probably should have liquidated some of those before the 2nd Tommy John surgery. Sorry dude, not interested. Better not put all your eggs in one basket next time, especially on a pitcher with a history of arm issues.
A financial planner told me that crypto was a bad investment more than a year before it cratered, but if I really wanted to get into crypto, allocate no more than 5% of my assets to it. If it goes wild, you ride it; if it goes into the toilet, you flush it. Either way, you are not risking your future on a wildly speculative scheme masquerading as an ‘investment’. The same allocation should be true of a well-structured card portfolio: no more than 5% of your budget into the speculative stuff each year. Put the rest of the effort and money into finding good vintage cards with strong long-term prospects and hang on to those. If you must speculate with modern cards, I suggest buying and holding unopened boxes rather than buying one guy, because for every Mike Trout there are hundreds of Gregg Jefferies (look him up, newbs), and figuring out who will be the next great thing is way harder than drawing to an inside straight in poker. For that matter, so is busting packs chasing one player’s rookie. Better to sell the unopened and let someone else wish for it. I used to buy a Topps box or set every year and put it away. If a Henderson (got mine in 1980 in a pack, thank you very much), Jeter, Trout or Ohtani emerges, that box will be worth a small fortune. If not, you can bust packs for fun. When a card you have in hand is on a wild ride, though, set your price and when it gets there, get out and don’t look back. Just roll into the next deal. Pigs…get…slaughtered.