Investors understand the value of stocks and bonds. But Lego bricks?
Those ubiquitous interlocking bricks, usually seen stuffed in closets, tucked under toy boxes and scattered across playrooms, aren't what most people typically think of as an investment. But to some, like David Schooley, Lego bricks are serious money, and buying them and selling them, just as some investors trade stocks, is turning into a way to turn a profit, brick by brick.
Schooley, a 49-year-old information technology professional in Memphis and father of six, is one of a small but growing niche of people who buy and hold Lego bricks, not as toys, but investments that will appreciate when sold later.
Just as stock investors have portfolios of all different sorts of stocks, Lego investors hold massive collections of Lego sets. Schooley, for instance, has more than 3,000 Lego sets piled high in a climate-controlled storage facility. Most of the sets he bought years ago, with the plan of selling them a year from now for a profit. Doing this again and again generates Schooley a tidy 10% to 15% annual profit, he says. That tops even the 10% long-term average return of stocks.
"You start to realize these are worth a lot of money," he says. "It's more of an investment."
Investing in Lego bricks may sound ludicrous to those who see them just as kids' toys. But savvy investors can get a big score if they know how to buy the toys from stores, hold them and then sell them online later.
It's not just a theory. Let's say two investors had $10,000 to invest at the end of 2011. One investor bought 174 shares of the Vanguard S&P 500 index exchange traded fund for $57.45 apiece, while the other bought 100 boxes of the Emerald Night Lego train set for $99.99 apiece. The Emerald Night is a 1,085-piece Lego set that, when built, looks like a classic steam engine with a tender and a passenger car.
Fast forward to today. The stock investors would have done pretty well, with a 15% gain, including dividends paid. But the Lego investor would be able to sell the Lego Emerald Night trains for $203 each, for a total 103% profit. In other words, the Lego train would have outperformed the stock market by 587%.
And that's not an anomaly. Lego bricks have become lucrative investments due to a confluence of bullish factors. Driving the market is the strong underlying demand for Lego bricks and sets. The toys are craved by older buyers, who have their own money to spend on the sets rather than waiting for a birthday gift.
Building-set toys are also a fast-growing corner of the toy business for young kids. Americans spent $1.6 billion on building-set toys last year, up 23% from 2010, the latest data available from industry tracker NPD Group. Building-set toys account for nearly 10% of all toys sold. And while Lego does have some competition in the business, the rivals are bit players and come nowhere near Lego's dominance.
Lego Possibilities Galore
Meanwhile, there's a new cadre of Lego consumers growing up. The Lego universe is reinforced not just by the hundreds of building sets on the shelves at major retailers, but by a multimedia push. There are several lines of Lego sets that are tied to popular movies and TV shows, including Star Wars, Harry Potter, Lord of the Rings, and soon, even the Teenage Mutant Ninja Turtles. There are sets that look like haunted houses and ninja battlegrounds; there's even a line designed for girls with pastel-colored bricks and female figurines.
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