'Investing' in LEGO Sets Returns 11% Per Year, Outperforming the S&P500

'Investing' in LEGO Sets Returns 11% Per Year, Outperforming the S&P500
Stuart Ramson/AP Images for LEGO Systems
'Investing' in LEGO Sets Returns 11% Per Year, Outperforming the S&P500
Stuart Ramson/AP Images for LEGO Systems
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An analysis by two Russian economists has found that "investing" in new, unopened LEGO sets yielded an average annual return of 11% between 1987 and 2015, outperforming the Standard and Poor's 500 Stock Market Index over that time. Moreover, prices of old LEGO sets tended to increase steadily year over year, experiencing less volatility than the stock market.

Researchers Victoria Dobrynskaya and Julia Kishilova, both based at the National Research University Higher School of Economics in Moscow, derived their results from data aggregated by LEGO investing resource Brick Picker. Brick Picker has tracked tens of thousands of completed LEGO auctions on eBay. As thousands of LEGO sets are traded each and every day, the data set was quite robust.

Diving into the numbers, Dobrynskaya and Kishilova discovered that certain LEGO set characteristics resulted in higher or lower returns. Small sets with an average of 113 pieces and huge sets with over 3,000 pieces earned more than medium-sized sets. Some themes also increased in value more than others.

"LEGO Ideas and Seasonal sets yield the highest returns on the secondary market," the researchers wrote. "Sets which follow popular movies are also attractive. The least attractive themes seem to be the ones which stopped being released before 2010. Perhaps, the company stopped producing them because of low popularity on the primary market."

The highest single annual return for any LEGO set was 613%. The Star Wars mini-figure Darth Revan sold at retail for around $5 and jumped in value to over $35 in 2015. It sells for between $35 and $40 today.

The most profitable set over the study period was "Café Corner," which returned an impressive 2,230% over eight years. It sold for $139.99 on its release in 2007 and was valued at over $3,000 in 2015.

It was rare to find a LEGO set that lost value over the study period. Of the 2301 sets studied, slightly less than a tenth were monetary losers.

The researchers noted that eBay transacation fees could cut into collectors' profits, shaving gains by as much as 20%. Even with these costs included, LEGOs would have still outperformed the S&P 500 during the study period.

LEGO sets were vastly superior to other collectibles like artwork, antiques, jewelry, fine wines, and rare automobiles, Dobrynskaya and Kishilova noted. These assets return around 4% a year. LEGOs also easily outperformed gold and government bonds, but did not top the U.S. total stock market index.

The figure plots the LEGO chain and hedonic indices as well as indices of stocks and government bonds in the USA.

Thinking about filling your garage with LEGO sets? Before you cash out your 401K and move the money into brick-based children's toys, heed a few words of caution from the researchers.

"The LEGO market, similarly to markets for other alternative investments, is not as liquid as the stock market and requires relatively high transaction and storage costs. Moreover, LEGO investments require specific knowledge and interest in this product which not all investors possess."

Source: Dobrynskaya, Victoria and Kishilova, Julia, LEGO - The Toy of Smart Investors (April 2018). Available at SSRN: https://ssrn.com/abstract=3291456 or http://dx.doi.org/10.2139/ssrn.3291456

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