Mr. Toad’s Wild Ride

This Ain't Disneyland...

I’d not normally run a column this week but given the economic chaos that we’ve had lately, I guess we gotta talk about the stock market, tariffs, and macroeconomic events, and how they will affect this thing of ours. A popular question across the card chat world and blogosphere when stock market volatility rises or other macroeconomic events occur is what the effect will be on card sales (and by extension on the values of collector-investors’ portfolios). This past week has been no exception.

Let’s start with the basics; cards are not stocks and vice versa, so they react differently. You can get in and out of stocks quickly and cheaply, so they are highly reactive to events. There are significant financial, physical and temporal barriers to entry and exit from card ownership, so the time needed and financial costs to liquidate a portfolio are not trivial matters. My totally unscientific observation from collecting through multiple recessions is that cards tend to lag stock markets by anywhere from 3-10 months, depending on the card market segment. To the extent that macroeconomic policies and events affect cards, they seem to do so at a far slower pace than the stock market. If you really believe that the economy is on the precipice, you should have some time to get out of your overly optimistic positions in cards you invested in, and to take some profits now on your highly appreciated cards.

But should you? I have no fuckin’ idea, and I am not alone in my lack of clairvoyance. As I’ve mentioned before, 75% of professional fund managers cannot beat the indexes. If the guys who invest for a living can’t even get it right, why should we think we can? So, what to do with your cards now, again, I have no fuckin’ idea. I can tell you what I am doing.

I recently liquidated a major card investment (1952 Topps Mantle), mostly because of idiosyncratic factors but also because I expect economic turmoil over the next few years. I did not like the medium-term prospects for the investment, and I took the chance to get a decent chunk of my eggs out of that basket when it was presented. If I read the tea leaves correctly, I expect the card to stagnate or lose money while my proceeds sit in a high yield savings account or are redeployed into another investment. Or I could be totally out to lunch and never see the Mantle again at the level where I sold it, I dunno. What I do know is that I bought in at what turned out to be the COVID high, the Mantle tanked shortly after I first purchased it, I was unable to flip it and was at a substantial theoretical loss on the card as I held it in my inventory. I got lucky that there was a confluence of events that enabled me to exit now with a modest profit, so I did. My ROI on the card lagged inflation and was way behind even what a high yield savings account would have returned over the same period. I don’t like that.

That’s my decision-making, not my advice to anyone else. I feel better with that chunk of cash in hand than with the card in hand. I am keeping my highly appreciated rare cards for two reasons. First, I don’t need more taxable income right now. Second, I’ve had many of them for decades and I still enjoy owning them. I may grow to regret not dumping it all. We’ll see. But at least I will have Babe, Lou, Jackie, Cy, Christy, Pele, Wilt, Rocky, Muhammad and the rest of the boys to keep me company.

Now, let’s talk tariffs. Make no mistake about it, a tariff is a consumption tax, and we just got hit with a big regressive tax hike; if you think that ‘foreigners’ will pay it, you need to stop reading now, stick your head in the toilet, and flush until the dumbass swirls down the drain. Now, some folks may be thinking that I have Trump Derangement Syndrome or will come up with some other nonsensical explanation for my negative analysis of his policy, but they are wrong. My politics do not affect my analysis in the slightest because I never let ideology infect my investment thinking. If I am wrong, I will be the first to say so; if I am right, I will make a lot of money. Off of people who let extrinsic considerations color their investment decisions.

I think the threat of tariffs is already having a chilling effect on some parts of the vintage card market. As a buyer, I often source obscure issues from sellers in other countries. I bought a rare Pele card last year from Argentina. Had there been a substantial tariff in place, I might not have done the deal. There would have been no deals on several cards I purchased last year out of Montreal and Toronto. Hell, I planned to head to Toronto for the big fall card show, but that’s a no-go if I end up having to pay a massive tax on what I buy. Now as I write this, some of the tariffs have been postponed for ninety days, but who knows WTF will happen tomorrow, so to be safe, I am looking at the prices on eBay for imported cards and adding the tariff because by the time they get here a tariff may be in place, and that tax will wreck my profit margin. That means some deals are not getting done. I’ve also heard from buyers in other countries that they are no longer participating in American auctions or sales because the tariffs that their countries have imposed in retaliation make their participation too costly. That has a real, immediate depressing effect on the American card market. Lower auction results from fewer bidders may result in a perception of a weak market, and that tends to feed on itself, especially when the cards being sold are commodity-type cards (commonly found and readily replaced) rather than rare collectibles.

So, assuming I am right that this has touched off a trade war and perhaps even triggered a coming recession, what is the right defensive move? Again, I have no fuckin’ idea what the future holds and I am not offering investment advice, but I will explain what I am doing. There is a (maybe apocryphal) story from the 1920s that when Joe Kennedy heard his shoeshine boy talking about stocks, he sold off his holdings and went to cash because he knew the end of the bull run was near. The theory is that the unwashed masses are the last in on any investment; when the plumber is talking like a fund manager, it is time to get out of stocks. I think the same holds true with cards. I look at who is into a particular segment of the market and ask what will happen to those folks in a downturn. Cards are a wonderfully egalitarian investment-business because there is an entry point for everyone to get in and make money, but if living costs go up or a recession starts, the market segments driven by the people who will get hit the hardest as a result will lose a huge chunk of their investor base and liquidity and will drop the fastest and farthest. The market segments driven by people who are wealthy enough to weather a downturn with little or no change in lifestyles will simply slow down and stop trading: those cards will vanish from the market and remain in well-heeled collections until things get better. The plutocratic-millionaire-professional-managerial classes with substantial assets and high incomes also won’t be deterred from buying cards that they want just because there are new taxes, inflation or a recession. They never are. For those folks, a downturn is a possibility, not a tragedy.

So, as I gird my loins for the mess I see coming, my main rule is that I won’t touch postwar mainstream and modern cards with a ten-foot pole unless I get them for pennies on the dollar or can flip them readily. They are so interchangeable, plentiful and pricey that I see them as a bad risk in a downturn because of who is into these cards. Ultramodern is the worst risk because the drivers of ultramodern are flippers, lower middle class and working-class people, and kids-teens-students, all of them essentially breaking modern packs and trying to profit on the hits. Most of those people buy on a credit card and sell to make rent, and they are the most vulnerable to inflation or recession, or the horror of the 1970s, stagflation. If their costs of living jump due to tariffs (as nearly every economist thinks will be the case since tariffs are inflationary by nature), if we have a recession, they won’t have the cash flow to keep pumping that market and those who sell into it will be selling from need rather than from desire. That is a formula for falling prices on cards. Since 1980, the United States has experienced six recessions: 1980-1982, 1990-1991, 2001, and 2008-2009. I watched card prices fall in the commodity-type market segments in the wake of each of those events. There is no reason to think that it won’t happen again if we have an inflationary shock that sticks and it triggers a slowdown.

What I am buying to hold are rare cards, rarely signed cards (which I mentioned before), production art, properly priced photos, etc., of the biggest names. I am not worried about those items because they are collected by the wealthier segments of the collector base, and are low pop, high demand. That is where I want to concentrate my fire: have the cards those guys want. As for the rest, I plan to do what always have: feed on the carcasses of the desperate people dumping inventory into a falling market. I spent a good amount in the early teens buying PSA graded HOFers for as little as $2 a card from sellers dumping inventory and liquidated them at huge multiples during the COVID market. I’ve still got stacks of empty slab boxes sitting around my office. Maybe I get to use them again real soon?

Another thing I am not doing now is going all-in and setting price records on items unless they are just killer and fit my core PC perfectly. I got shut out of everything I was after in two auctions over the last week and got only one item the week before, and I threw in hundreds of bids and chased dozens of items into overtime.

Beyond that, I have no advice to offer, sage or otherwise, in these troubling times, except what I was told before a karate tournament: keep your chin down, your hands up, and your ass off the canvas, and you’ll be fine.