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May 26, 2024
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Alternative Investments

Why alternative investments can be volatile options

Stocks, bonds, real estate and other mainstream investments get a lot of attention in financial media. But there’s also an entire world of niche investments people park their money in — think collectibles, wine, art and other alternatives to the mainstream options.

Marketplace interviewed a few of these investors back in 2019. Today, many of those same investors say the pandemic has caused them to re-think whether those investments are worth it. 

About 13 years ago, Nate Tobik was helping his parents move out of their old house. He and his wife were about to have their first kid, so he pulled some of his old Lego sets out of the attic. Over the next few years, Tobik and his family started putting those sets together.

“[We] started to look up missing pieces on eBay, and realized these things were going for a lot of money,” Tobik said.

Some of them were going for hundreds of dollars. Tobik said he saw a Lego train set with a crane on it that was going for over $1,000. He started buying up cheap Lego sets from local garage sales and thrift stores, and he’d sell them online — typically for double what he paid, at minimum.

But then, the pandemic happened, and a lot of people started selling their old Legos.

“I think it was people who were sitting around at home, started to look at what they had in the attic, and they said, ‘Wow, maybe I can do this, too,’” Tobik said.

People also realized how valuable their Legos were, and as they saw prices go up, they started selling their Legos for more, too. Suddenly, Tobik’s buy-low and sell-high investment strategy no longer worked.

“We couldn’t find anything at a deep enough discount to where we could sell it again, and lock in a profit,” Tobik said.

The same thing happened with the fantasy card game Magic: The Gathering, which has a strong secondary market for individual cards. 

Seth Robertson has been playing the game for years, and he’d often buy up one or two extra boxes of cards hoping they’d appreciate in value. When the pandemic hit, card values skyrocketed.

“I remember seeing cards worth dollars going up to tens of dollars,” Robertson said. “It’s like the penny stocks of the collectible world.”

Robertson said that was great for anyone like him, who already owned lots of cards. But it wasn’t great for anyone who wanted to build up a deck to actually play the game.

“You don’t want every card you need for a 60-card deck costing tens of dollars, because people don’t have $500 to $1,000 to throw at a deck,” Robertson said. “That’s kind of crazy.”

Then, last year, Hasbro, the company that makes Magic cards, released more cards than usual. Later that year, a report from Bank of America accused Hasbro of overproducing cards, and diluting their value on the secondary market.

Robertson said he noticed.

“The cards that I bought mid to late pandemic have all come down in value,” Robertson said.

Hasbro didn’t comment for this story, but the company has denied over-printing cards. Hasbro has said it simply prints enough to meet demand.

Robertson said he’s no longer buying those extra boxes of cards as an investment.

“I’ve started to question that purchase because I know that that box is most likely not going to appreciate in value, and if anything, just decline the second I buy it,” Robertson said.

The pandemic also created some opportunities for people to pile in to other types of investments.

“If you’re interested in artwork, it’s the time to buy right now,” said Mike Kraus, an artist in Rochester, New York who’s been investing in art for around 25 years.

Kraus said galleries and art fairs basically shut down when the pandemic started, and many have struggled ever since. That’s meant that a lot of art just isn’t selling.

“There’s a glut of artwork to be had,” Kraus said. “I’ve been able to buy some pieces at very reasonable rates.”

Kraus said he typically spends between $100 to $500 on a piece of art. He said he’s bought anywhere between one and two hundred pieces over the last couple years, including drawings, paintings, jewelry and clothing.

Kraus said some of them will probably appreciate in value. But not all of them.

“If you group them up, build up a collection, it’s almost more like a mutual fund in that way,” Kraus said. “You spread the risk over all the pieces.”

But unlike a mutual fund, this is art we’re talking about. Kraus has to find a place to store it. But he said that’s a feature, not a bug.

“That’s the best part about it,” Kraus said. “I’m not looking at a ticker number. It’s on my wall. I get to see it, other people get to enjoy it.”

Kraus said he plans on holding on to most of his art for at least 10 years. If he doesn’t sell it, it’ll be a nice nest egg to pass on.

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