Are Baseball Cards A Good Long Term Investment?
Some cringe at the thought of baseball cards as an ‘investment’, but it’s hard to deny the appreciation in the most cherished vintage baseball cards.
The rise in value of old sports cards has led to a new line of thinking about how collectors should think about cards as a long term investment.
Most collectors don’t entertain the ‘investment’ part of card collecting, but focus on building a collection that suits their interest, regardless of the value.
Still, I think collectors and non-collectors alike should consider vintage baseball cards as an overall part of their entire investment portfolio.
Historical investment Performance of Baseball Cards
The baseball card hobby didn’t find its footing until the early 1980’s. It was an aha moment when collectors realized that they might be able to make money from baseball cards. The ‘junk era’ clouded some of the opportunities in rare vintage cards, as the era was dominated by mass over-production. Still, wise collectors buying the cream of the crop would have make a pretty penny on their investment if held to this day.
A Honus Wagner T206 card could have been purchased for around $1500 in 1975. Today that card would conservatively be worth around $5 Million. A $1500 investment in the S&P 500 back then, with dividends reinvested would be worth around $220,000. Thus an investment in a T206 Wagner would have provided over 20x the return as the overall US stock market. Of course, it would have taken a lot of guts to invest $1500 into a baseball card back in 1975, but still, it shows the potential.
And as illustrated with the PWCC index below, given a subset of 100 of the most expensive cards in the hobby, baseball cards have provided a tremendous return since 2008. And shockingly enough, the card market didn’t really fall apart in 2008. There was a financial calamity, housing prices were in free-fall, major financial institutions were going out of business and there was near panic on the streets. Yet investors as a whole decided that their prized cards would be the last thing to sell.
The problem however in using the PWCC index is that it is utilizing some of highest graded cards on the market–a PSA 8 1952 Topps Mickey Mantle or a perfect mint PSA 10 Derek Jeter 1993 SP Card (one of which recently sold for over $100,000). For many everyday collectors,these cards are typically out of reach. This leads to collectors investing in lower graded versions that won’t likely carry the same overall returns. And usually, it’s the rarest of the rare investments that tend to hold up better in times of economic stress.
When Would We Expect Baseball Cards To Under-perform The Market
Some theorize that the recent boom in vintage baseball cards has been driven by collectors from the 1980’s returning to the hobby. These collectors, after a long hiatus, have returned to the hobby they love, with a fistful of dollars from their hard earned paycheck and stock market gains.
There might be some validity to this concern and it would be interesting to look back at the hobby 20 to 30 years from now, to see what values look like after many of the older collectors have left the hobby. But just as art collectors view their prized Warhol’s, Dali’s or Van Gogh’s, the same can be said for the Ruth’s, Mantle’s and Cobb’s of the card business.
Any future economic weakness or recessions will likely lead to additional weakness in card prices. It’s only inevitable, and likely depends on the preceding appreciation in values. Of course as we look at the overall hobby and the appreciation over the past few years, it could be said that we might be ‘due’ for some sort of correction as we speak. But as we’ve seen in past times of economic weakness, the cream of the crop (or highest graded in demand cards) tend to hold up a bit better than others.
Why Baseball Cards Should Hold Value Over Time
I have a finance and investments background, thus I always think about the investment side of collecting and the potential for appreciation whenever making a purchase. While I still also ‘collect’ based on my desire to own a particular player’s card or a specific set, the investment side of the deal is always a part of the equation when I’m making a decision.
So, does it make sense to consider a collection of sports cards along the lines of an investment in, say the S&P 500, or a multi-family income property or even precious metals or jewelry? I think it does. And here’s why: every investment is based on the simple principles of supply and demand.
A three-family house in the heart of a booming city with exploding real estate values will always have a high amount of demand. And there aren’t a lot of those properties around, so the demand will always exceed the supply, leading to elevated prices. And they aren’t making any more land, just like they aren’t making any more 1952 Topps Mantles.
|Buy land, they’re not making it anymore.|
There is only one Mona Lisa, and given the popularity of Van Gogh and the demand for his work, it’s obvious that as long as the demand for Van Gogh paintings remains at least stagnant, that painting will always be worth a ton of money. So, I look at investments in Baseball, Basketball or any other sport card in the same way: by utilizing the simple principles of supply and demand.
If there is elevated demand and limited supply, then we know that we have a very hot card or set of cards on our hand. But if we see a card or group of cards rising in value with maybe more supply than we think is valid, given the increase in the prices, it might make sense to look at something else. For example based on pure supply and demand statistics, we know FOR A FACT that an unopened box of 1988 Topps will likely see little increase in value over time.
In addition, with the advent of professional grading companies such as PSA and SGC, we now have a well defined grading and authentication system. We know (for the most part) how much a Near-Mint 1952 Topps Mickey Mantle should be worth. I think this truly helps the hobby as far as preserving overall value and fostering potential capital appreciation over time.
Key Things To Consider When Making Any Investment in Baseball Cards
Stocks are valued based on the amount of earnings they provide to investors. A stock with no growth has a lower valuation (usually based on a Price to Earnings ratio) than a stock with high growth. For example, if we know that AT&T will provide $1 in earnings per share this year, as will Netflix, would you be willing to pay more for the earnings of AT&T or Netflix? We know that Netflix will likely grow that $1 to $2 or $3 or $4 in the coming years, but I’m not sure I can say that AT&T will even grow past $1. Thus investors as you might imagine, pay a higher multiple on those earnings of Netflix, given the expectation for higher growth in earnings moving forward.
Unfortunately, baseball cards don’t spit out dividends or provide any earnings so we must as investors hope that our cards will appreciate in value. This is the one difference versus an investment in stocks or real estate, in that there is no passive income (dividends or monthly rent) coming in on a regular basis. We can’t just slap a multiple on a stream of earnings that a baseball card provide. This makes a baseball card more akin to an investment in art or precious metals (diamonds or gold) that don’t provide any regular income. Thus from my lens, i like to focus on supply and demand. We have a lot of our tools at our disposal nowadays- as both PSA and SGC provide a database of the total number of grades they’ve provided for each individual card.
There is no real way to estimate demand, but it’s not hard to think about the players who we think will remain popular with collectors over time. For the old timers, it’s Cobb, Ruth, Gehrig, Young and Wagner. Then it’s Mays, Jackie Robinson, Ted Williams, Mickey Mantle and Clemente. And that’s just baseball. It’s hard to imagine that a well-graded Michael Jordan rookie will lose value over time (note look out for fakes though).
How Baseball Cards Fit Into Your Overall Investment Portfolio
We’re not here to recommend that you shift your entire 401K into a bunch of old vintage cards, but we wouldn’t bat an eye if you thought about putting 5%-10% of your overall retirement funds into old vintage cards. Of course there are no investable index funds that buy baseball cards, so maybe instead of putting 20% of your paycheck into your 401K, you save an additional 1% and save it for a big time purchase.
Just as art and gold and silver and diamonds are considered to be a good way to diversify an overall investment portfolio, we think vintage cards can provide that similar type of diversification. Now, of course, a vintage card portfolio will probably fall in value just as a portfolio of stocks will in an economic downturn, but it provides a different means of attaining future returns.
If just getting started, I would look at some of our past articles that identify some cards we perceive to be undervalued base on the overall player demand and relative card scarcity. Here are a few good ones to get started:
Disclaimer: Note that none of the aforementioned information should be considered investment advice!