[Que enspastic]

Hear me out.


It's July 2007. You have $10k to invest and happen upon two investment strategies.


The first is to invest in funds that track the performance of stock markets around the world.


The second is invest in Lego, specifically the Ultimate Collector's Millennium Falcon.





The first strategy will see your money grow with the increased prosperity of global markets and the companies that drive innovation and bank profits.


The second strategy will secure for you the largest Lego set ever produced, containing more than 5000 pieces and a 311-page instruction manual.


It also comes with Luke Skywalker, Han Solo, Obi-Wan Kenobi, Chewbacca, and Princess Leia - and the first copies of the set sold receive a special first edition certificate of authenticity.


Following the first play you could put $5000 in the NASDAQ 100 Equal Weighted Index (NDXE) at 1300 and another $5000 in the FTSE 250 (MCX) at 11900. This will give you exposure to some of the US and UK's premier IT, finance, retail and industrial stocks. Pursuing the second option means you get 20 boxes of The Millennium Falcon Lego set and 20c in change. These don't come cheap at $499.99 each.




Which strategy would you decide upon back in 2007?


Or even right now, what would you think wisest in 2015?




Let's see the results :


Yes, there was a Global Financial Crisis in 2008 but global markets are much stronger now than before the crash.


Provided you didn't panic when there was blood in the water, your investment in the NASDAQ fund has appreciated from 1300 to 2590. You punched through the 2nd worst financial disaster in modern history to close with a near 100% return on investment. Average annual returns of 9.05% compounding look decent compared to flat interest rates in the bank today.


$5000 is now $10k.





Your investment in the FTSE 250 has also turned good. Buy into the fund at 11900, sunk to 5500 at the depths of despair but now 16890. Not as good as the NASDAQ fund but still a 42% return. That averages out to a 4.4% return every year for 8 years compounding. Better than keeping your money in the bank.


The second $5000 is now worth $7100.





Strategy #1 finishes with $17,100




The second strategy is a less nerve-racking experience but still requires a strong degree of watchfulness. The Lego sets have to be kept bubble wrapped and hidden safely out of sight for 8 years. They can never be opened, the colour hasn't faded on the boxes, they are pristine.


Time to offload them on Amazon UK. There are just two people selling. One has 4 reviews already and down to his last item in stock. The other is ballsy, who knows if he will sell his :





The immense scarcity of these sets means that even a used set commands nearly £4000, a very good condition set is nearly £5000, and premium "never-touched" potentially takes close to £7000.


Assuming past sales of £5000 will hold for your 20 boxes, which you can slowly drip feed onto the market, you have £100k of assets. It's a 1420% return over 8 years, or 59% p.a. compounding between 2007 and 2015. Let's translate that back into USD.


Strategy #2 is now (potentially) worth $152,000


What does this mean then? I think that in all probability a judicious investment in the right type of Lego set can be relied upon to outperform the stock market in the medium to long term. It also shows that the stock market rewards "time in the market", not "timing of the market."


Anyone keen to try this one out?

[SunW]

What you're showing is exactly what a market is - a place where buyers and sellers meet. That's fundamentally what the stock market is - people are buying and selling shares of public companies and those shares represent ownership of the companies. If investors are active in decisions, they can be rewarded with good decisions by management and sell higher valued shares later, or receive dividends. But there's nothing "special" about the stock market; it is a market like Walmart is a market.

You show a great example with Legos of a public market where knowing about a product can generate very strong returns after a few years. You still have to manage it by making sure it's stored safely and determining when a good time to sell (and if that value is better than a value you could get later). I know kids who make thousands of dollars from trading comic books because they know that market and they're good at it.

[Que enspastic]

Do you think this is an easily repeatable strategy ?

[SunW]

(11-14-2015 01:56 PM)Que enspastic Wrote:  

Do you think this is an easily repeatable strategy ?

Definitely, if you know the market. The question is what will buyers later purchase at a much higher cost with Legos, once they are no longer available? I purchased a memorable Lego that I had as a kids at 17x the original cost, but it was worth it for me to buy.

[The Beast1]

The problem that you failed to account for is whether you're able to actually find an investor willing to pay that much for an unopened box of legos.

Sure you can invest in lego collectibles, but when the time comes to actually sell how many people are going to pony up that much? How many buyers out there are looking to purchase a limited edition lego box set?

The same can be said for rare art pieces, however there is a much larger market for art than there are for legos.

Consequently, you can easily buy and sell stocks with the click of a button.

So while you get a price premium on the legos, I'd bet more money that the frustration of offloading your "investment" for as much as you can get for it would be infinitely harder than snagging profits from the stock market.

TL;DR stocks are easier to sell than legos.

[WestIndianArchie]

If you need to sell before the investment reaches maximum yield, it's a very easy decision.
The falcons don't give you that flexibility.

Plus if you wait and dribble out the collection, you have to dribble it out. You could sell off your stock in one move on seconds.

Harder decision is whether to park money in real estate and get cash flow or put that money in the market. The management of a property might off set the cash flow..maybe.

WIA