Wednesday, September 29, 2021

Retro Collectibles are Outperforming Your Stocks. Here are 5 Insights Why.

Author: Brady Haugh

Pokemon cards. Nintendo games. Football and Baseball cards. Magic the Gathering sets. You may have heard friends bemoan how they wish they had held onto a holographic Charizard Pokemon card a decade ago, as they’d surely retire from selling it today.

These once scoffed-at retro collectibles are experiencing a financial heyday that are rewarding their owners with upside that has meaningfully outperformed most financial markets in the past few years. COVID has forced us to find new hobbies to keep us occupied during isolation, and in the process has ushered in a tidal wave of new cash-infused collectors into the retro collectible markets, spiking prices for collectible items of all shapes and sizes.

So, if you haven’t been paying attention, here’s your chance to catch up, perhaps just in time to hop on the bandwagon…

Before we get to the insights… a quick background on collecting.

So what exactly are retro collectibles? The answer to that is… just about anything that evokes a sense of nostalgia. That being said, there are a few major categories in the retro collectibles market including sports cards, video games, comic books, and vintage branded memorabilia from companies such as Disney. These categories are some of the most popular, and each boasts a swarm of hundreds of thousands (if not millions) of passionate collectors across the globe actively buying, selling, discussing, and evaluating each day.

Most collectors started off small, perhaps nostalgic for a Nintendo game played as a kid, or through a group of friends that all collected and traded the same Pokemon cards. Collectors often quickly evolve into a multitude of unique collecting pursuits. Some will aim to complete a full set - perhaps to collect every game ever made for the Super Nintendo. Others will aim to collect just the “grails” - the rarest and most valuable collectibles - like an original Honus Wagner baseball card which sold for nearly $7M. Most collectors construe their own collecting passion project and hunt their items down online or in-person at local or national swap meets. Often it takes years to finish a “set.”

Insight #1 - The demand for collectibles has skyrocketed during COVID.

The isolating nature of the COVID-19 pandemic has forced many individuals to re-evaluate their daily pursuits, or perhaps just encouraged them just to clean out their home, and in the process a swarm of new collectors have emerged. PriceCharting, a site used to view price trends for all types of collectibles, has witnessed an explosion of growth: a 250% increase in monthly active users compared to February of 2020, the month before the pandemic truly began.

Many of the new collectors are simply picking back up collections that they’ve started in the past, equipped with the newfound time and cash to pursue them further. Moreso, the pandemic has witnessed the rise of many new content creators who have driven viral spikes in the many unique collectible markets (have you heard about the $300K Pokemon card?), and their shocking headlines have captured the attention of curious onlookers who have since entered the hobby themselves.

Insight #2 - While common collectibles have earned solid price growth, top-end collectibles have gone to the moon.

As this new wave of collectors has entered the markets, they’ve brought with them a new treasure trove of capital. Retro collectibles by definition have a fixed supply; they’re not making any more 1992 original copies of Little Samson (one of the more expensive Nintendo games with a $5,000 price tag). Yet there are perhaps hundreds of thousands of new collectors hoping to one day add it to their collection to help complete their full set. This phenomenon has put pricing pressure on nearly every single collectible item, from common items up through the grails.

According to PriceCharting’s historical price indices, average collectible video game prices have grown by 56% when compared to the month pre-pandemic. Average trading card prices have followed a similar growth in value during the same period. Part of this effect comes from a generation of collectors that have grown up and now boast a bit of disposable income to spend on the more expensive pieces of their collections. On top of the generational component, COVID has added an additional positive pricing pressure entirely.

This index includes the average price of all retro video games, across all systems

If we isolate the pricing effect just to the top end games we see an even more dramatic trend, where price growth for top-end NES games in 18 months averaged 59% from Feb 2019 - Aug 2021, and price growth for top-end SNES games averaged a whopping 119% increase:

This index includes the avg. price for the basket of top-10 most expensive standard release games from NES and SNES consoles:

Console Game Feb 2020 Aug 2021 % Change
(18 mos)
NES Bonk's Adventure $424 $741 75%
NES Little Samson $1,107 $1,761 59%
NES Flintstones $752 $1,370 82%
NES Zombie Nation $286 $574 101%
NES Kid Klown $275 $570 107%
NES Panic Restaraunt $537 $881 64%
NES Power Blade 2 $416 $889 114%
NES Dragon Fighter $292 $571 96%
NES Bubble Bobble $285 $474 66%
NES Cowboy Kid $247 $398 61%
SNES Hagane $385 $1,010 162%
SNES Aero Fighters $524 $887 69%
SNES Pocky & Rocky 2 $289 $582 101%
SNES Final Fight Guy $185 $473 156%
SNES Harvest Moon $151 $376 149%
SNES Earthbound $164 $329 101%
SNES Castlevania Dracula X $180 $323 80%
SNES Mega Man X3 $150 $287 91%
SNES EVO $131 $340 160%
SNES Mega Man 7 $124 $286 131%

While one might think that this intense pricing pressure might die down once the world opens back up and collectors return to normal hobbies, it’s likely that won’t be the case, as a new generation of collectors has emerged, and they have new tools to better integrate their hobby into their daily lives.

Insight #3 - Social media has created new, sustainable communities within the collectibles realm.

Did you know that you can now watch YouTube videos of guys that livestream their experience hunting down collectibles at garage sales (see American Arbitrage)? Did you know that there are eBay “resellers” that create YouTube videos about how they buy and then “flip” collectibles for big profits (see Phoenix Resale)? These social influencers have created devout sub-communities within the collecting sphere, and they’ve earned a full time living and then some doing it.

Collectors are eager to see these behind-the-scenes views into life as a full time hobbyist, eager to share in the thrill of the hunt for rare items, and they additionally gain insights that they bring to their own pursuits.

It’s not just YouTube that collectors are leveraging, however. Instagram has become a hotbed for collecting activities. Many collectors use Instagram as their primary platform for sharing new acquisitions, discussing rarities, congratulating other collectors on finds, and leveraging the platform even for buying and selling. Popular retro gaming account @supersparkster recently hosted a “claim sale” - where the seller posts a photo of a collectible and its price, and the first to comment “claim” wins the right to purchase it - and users “claimed” each $200+ item literal moments after each post went live.

Insight #4 - Authentication services have enabled investors to enter the arena.

One of the primary tipping points of growth within coin collecting occurred when private companies emerged to authenticate and grade collectible coins. These grading services would encapsulate the coins in a nearly unbreakable plastic “slab” which would include a numerical grade of the coin’s quality. Nearly overnight collectors gained a new trust in online dealing, and began to purchase more expensive slabbed coins remotely, without needing to see the coin in-hand. These grading services trimmed out the risk of purchasing a counterfeit, and the relatively objective grading standards enabled collectors to quickly compare one coin to another with just a single number. Once a hobby dominated by in-person transactions, coin collectors could suddenly “hunt” for their missing coins with confidence online.

These same grading services have emerged in nearly all other collectible spheres. For retro video games you have WATA and VGA. In sports cards you have PSA and Beckett. Comics have CGC. Other players existg or are quickly emerging in other collectible domains. These services have enabled online transactions to flourish, particularly in the top end of the collectible markets, and it enabled larger institutional money to enter the arena with heightened confidence.

A factory-sealed Super Mario video game for the original Nintendo system recently sold for nearly $2 million. This magnitude of sale could have never occurred without authentication and grading services. Even premier auction houses have begun to partner with grading services, most notably Heritage Auctions partnering with WATA to authenticate and grade all of their retro video game items up for auction.

Insight #5 - There are easy ways to enter the collectibles market, but it’s critical to leverage free tools to avoid making costly mistakes.

There are two unique forces in the retro collectible world: the incumbent collectors and the more nascent investors. To an extent collectors are naturally engaging in investment, and to an extent investors are themselves curating a collection. As the collectibles industry continues to mature and grow, new tools have emerged to help conflate the two spheres: collectors now have tools like PriceCharting to help understand the value of their collection including its individual pieces, and investors now have many online services like VinoVest (for wine) or Rally Rd (for buying shares of collectible grails) available to help them acquire unique collectibles at higher investment-grade price points.

An old coin collecting adage applies very cleanly to the newcomers in the collectibles market: “always buy the book before you buy the coin.” It’s critical to learn the nuances of the hobby before throwing my money at it. These days online collector tools are now readily available, and it would be a critical mistake not to consult them when evaluating a transaction. Make sure to at least understand an item's trading volume, pricing swings, even historical trending before you lay down your hard-earned cash.

So hey, go buy yourself something rare and interesting. Once you get hooked, it’s far more fun than traditional investing. And with the right research, it might even pay out more too. To start, go see what your old games or sports cards are worth - you might be sitting on a gold mine!


telepathy said...

You should be aware of what WATA is doing considering they're creating an artificial ceiling with in buying and dodgy practices

Dave W said...

The guy who wrote this needs to be ejected from game collecting. "Insight". This kind of mentality is poison for the hobby and it's also incredibly stupid. Please, put your money into an inflated market that's on the down swing (check this very site for proof), where fakes are rampant and Wata has been exposed for manipulation. This is like saying "You'll make tons of money buying crypto!" today. JJ, why did you post this guy's fluff?

Brady H said...

Article author here -

@telepathy - I agree with you that there have been quite a few stories of shady practices surfacing at WATA. I don't intend to endorse a specific company, I simply hope to draw the parallel between other collectible markets, wherein authentication services have brought quite a bit of new money into the markets.

@Dave W - scathing! :) My intention with this article was to have a bit of fun illustrating some fairly evident trends in the collectible markets from the past couple of years. The bulk of the article is simply a data-driven observation of five specific trends that I'm not certain you could disagree with. Perhaps you're simply reacting to the bandwagon sentence? To conclude I actually advise not to invest without understanding the data:

"These days online collector tools are now readily available, and it would be a critical mistake not to consult them when evaluating a transaction. Make sure to at least understand an item's trading volume, pricing swings, even historical trending before you lay down your hard-earned cash"

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