The Absurdity of Reductionism

e.g., I can't stand intolerance

As humans we are prone to making bad reductive arguments to explain complex events. We all do it. Which is itself reductive…ironic, but true.

I want to make money in cards, and that means I have to try and divine where things will be in the future. What areas will expand? What is undervalued? Is it undervalued, or is it really just too obscure for anyone to care? How do I invest? What areas do I avoid? I gotta look into my crystal ball and figure this out. So does everyone else, which brings me to my analysis.

This is not baseline ‘defensive’ investing. Defense is easy. Take securities as an example. The defensive strategy is to buy a low-cost index fund, dollar cost average into it, forget about it until you are about ten years from retirement, and hire a professional when it makes sense to have it strategically managed on the slope to retirement. That strategy has the appeal of a long, slow, steady return that has beaten inflation for many generations and is likely to do so again. According to officialdata.org:

“If you invested $100 in the S&P 500 at the beginning of 1989 [and if] you used dollar-cost averaging (monthly) instead of a lump-sum investment, you'd have $3,681.83 [in November 2024].”

You and I will not do better picking stocks. 75% of all funds do not beat the indices in any given year, and those losers are pros trying to make picks. If they can’t pick stocks and beat the indices, you and I are screwed; we have better odds of playing Pick-Up Stix with our butt-cheeks. Therefore, my main retirement investments are invested primarily in low cost index funds, and managed/risk balanced and weighted by a professional manager as I get old(er). That is the 95% of my liquid assets no-brainer investment for me. The only way that strategy goes to shit is if the world goes to shit with it, and systemic risk is not worth worrying about at the individual level.

But that is not what we are after here. We are trying to suss out the best way to strategically make money while having fun with that 5% of your net worth you allocate to cards. That’s where I am at in terms of my activities.

In a previous column I hated on the rookie card market. Let me expand on that loathing. In a nutshell, rookies are a longshot investment because so few of them turn out to be Hall of Fame material (1.5% of all players), let alone generational talents who also have the appeal to elevate their cards to iconic status (Magic, Michael, Jordan, Gretzky, LeBron, Jeter, Ohtani; guys you know with one name, like Cher). But low odds isn’t all that makes them a bad bet. As Scott Galloway (an NYU professor and investor) says, if he makes 12 bets a year and one of them is a massive hit, it pays for the rest and leaves a nice profit. Low odds are not irrational, they are calculated risks. Rookie cards suck right now because of three factors that magnify the risk to what I think is the level of pure gambling.

There are so many card issues today that picking the right card of the right guy is very difficult. In 1989, we had three manufacturers (Donruss, Fleer, Upper Deck) printing Ken Griffey Jr. cards in their regular issue sets (Topps made an update). If you bought a minty fresh 1989 UD Griffey for a buck or two in 1989, you can get $75 raw today, no problem, and a lot more if it grades out a 9 or 10. If you spent the same buck or two on a 1989 Fleer or Donruss, you get under $5 for a raw one today. Ugh.

At least you had a 33% chance at getting it right in 1989, and the choice was actually much easier because Upper Deck was the hottest thing in cards at the time, so odds are you were going for UD regardless. Today, unfortunately, there are dozens of regular issues every year throughout the year, so picking the right rookie is that much harder. The advent of insert and variation cards has made it exponentially harder within each set to get the best rookie card(s). The big hits are always numbered /1 or maybe /25 at most, there is a rainbow of color and theme variations, and as a result the number of factors make it harder than choosing a winning number in roulette.

Above and beyond the large basketful of issues, the prices of hot rookies go up so fast today that the risk premium is too steep to make them a good bet unless you happen to get in there at the start. Simply put, if you do not get in on the entire rookie crop at the start of the season, you have likely missed the boat as to any specific rookie who heats up, at least in terms of runaway returns.

That is too many layers of risk and uncertainty for me to bet on and my track record is appalling when I do. Now, I just say no.

Another strategy is to buy unopened. I like this one better, but not to break. Unless you find unopened old cards in the wild, you are left with buying new material. If you bust packs, it means you are hunting inserts, and that is a shitty bet, which is why there are breaks in the first place. I once bought a case of Topps Heritage on the gamble of getting some hot inserts. I didn’t, just thousands of worthless base cards and the requisite number of parallels and inserts that did not cover my case cost. Shohei Ohtani insert, nice. Anthony Rizzo, not. Unopened has been plagued by a number of scandals quite apart from the old-school tampering we all know and love (resealed packs and boxes; google “Logan Paul box break fraud” to see someone lose $3 million on resealed Pokemon). Some people broke the code on Panini boxes and figured out which ones had the hot inserts. Some people figured out that there were minute weight differences between packs and boxes with certain inserts. Most troubling, there are now services that will use a CT scanner to look inside boxes for the big hits. This allows resellers to keep the best boxes and sell off the duds to an unsuspecting public as unopened stock purportedly with the same odds of a big hit. With some boxes selling for thousands, there is a financial incentive to cheat consumers out of the big hits, so I think it is prudent to assume cheating on all material where the economics work unless you are buying manufacturer direct.

Breaks are the worst sort of foolishness. I look at it this way. If I had an asset worth X and I could break it up into smaller bits /X, what would I price each /X at? Answer is /X + y to account for my trouble and profit. In other words, if a pack, box or case has $200 of cards in it, I am not going to sell tickets to the break for total of $200, I am going to break it myself and sell the hits instead unless I can get at least $250 for it. If you are buying into a break, you are already at a losing position to start. For fun, sure, buy a spot in a break, play red at roulette, bet on the come line in craps. Gamble as you like, but don’t tell me you are investing.

If I wanted to invest in rookies or unopened, I would buy the market instead of buying a single stock, so to speak, by getting a factory set of the key issue every year (assuming sets are made and I can figure out which issue to buy) or a box or case of unopened of that key issue. When it comes to selling, your buyers will take the risks of what may be inside the sealed box. Be the guy selling the miners their tools (Levi Strauss) not the miners picking at the dirt. You sit on it and then sell the hot items when the great talent emerges from those years. Anyone with a box of 1993 SP sitting around that he bought in 1993 is loving life; that box is worth about $17,000. That pays for a lot of other marginal boxes with room to spare. Let others bust them open and search for the keys to slab. Their dreams of PSA 10s fuel your profit as a seller of unopened. In other words, as far as unopened cards go, it is a decent strategy if you have the space to store all that stuff and the self-control to not open it yourself. I can’t even keep from eating fries, so that is not me.

Now, as for figuring out where and how to invest in vintage cards, there is no formula. Sorry, that’s just the truth. I have no reductive advice to give, nor should anyone with any integrity. I know there are a lot of talking heads in the hobby advancing reasons for market moves or floating investment advice and theories, but they are all, ultimately, reductive, and to the extent that they are right, it is luck more than anything else. I know what I think and what I do, and it has worked out well for me so far on the whole, but I make bad bets every year, so I cannot opine on “The Truth” nor can I counsel others to follow my advice on specific investments. In fact, I spend most of the last two months of 2024 selling off the poor choices I made during the year in order to free up my capital. On the whole, if I am doing 20% or more pretax profit with my purchases for resale from the year, I am very pleased with the outcome of the year’s efforts. 20% or more each year is a nice profit margin on a business that I enjoy at a fundamental level anyway.

Now, I don't disagree with the gut-level appeal of reductive 'Econ 101' arguments but we need a doctoral-level economics class because freshman theory doesn't hack it. Take inflation. Please. The freshman says that American consumer demand drove it. Wrong. This is a global economy and fuck-ups halfway around the world affect us. Nor does it just affect us. The other developed countries are wrestling with inflation too. You cannot lock down the biggest factory in the world (China) for months, bump the price of crude, disrupt the world's wheat supply by taking one of the biggest producers out (Ukraine), block the Suez Canal accidentally, etc., and avoid price shocks. There is a drought in Panama that is reducing the use of the canal and is predicted to raise the cost of energy in Asia due to American exports having to go round South America instead. Energy cost increases in Asia will translate to rising costs here, eventually, when Asian goods come over here. Vacations and Taylor Swift ticket prices have nothing to do with the price of eggs (which are back down to pre-surge prices); lack of workers, lack of transport and higher energy prices do. We are long past the days when we can look at the US in isolation and label the American consumer as the force driving inflation. They have a role in the whole but on the whole they are not the whole (alliteration; nice).

The same logic is true of vintage cards: a multiplicity of factors affects each market segment and you cannot say “yes, this drove it.” The pandemic certainly brought some bored former collectors back into the hobby. If your choices are sitting at home with the wife or digging out your old card collection and spending time playing with it, the choice is easy after about oh, say, three days; you can only drink and screw and talk so much. The cash payments from the government during the pandemic and the fall-off in most other leisure spending also played roles, for sure. I got $1,400 in my pocket together with my vacation savings I didn’t spend and a universe of shiny toys online, something is gonna happen. The Michael Jordan documentary ignited a surge in vintage basketball card interest and prices, no question. But why any specific issue or set or player went up, stayed up, or fell, that we cannot possibly isolate and accurately explain. The people pontificating in the hobby press as to the whys and wherefores of gyrations in the card market are talking out of their butts, no use in pretending otherwise.

My ultimate advice is that when it comes to cards, avoid reductive advice.