Sunday, September 9, 2018

How to Invest in Sports Memorabilia



Sports memorabilia has been on fire with some prices for select athletes going through the roof.  Often this phenomenon is related to the health of the economy however memorabilia often outperforms the market in a recession.  Don’t be fooled though, it takes a lot of hard work and research to be successful, as investing in the right items is essential to getting the best return on your investment.

I personally own millions of dollars of sports collectables and memorabilia and have been investing consistently since the 80’s.  I have also lost a ton of money in this hobby along the way.  For example, I purchased many complete baseball card sets and unopened wax boxes in the 80’s, which are nearly worthless today. 

Looking back I should have invested all of that money in one or two single cards like a Mickey Mantle Rookie or early edition Ty Cobb or Babe Ruth.  Not only would they have made me a fortune but I would have saved a ton of space in my house.  

Like so many entrepreneurs I don’t like to dwell on the past but rather learn from my mistakes.  As I look back I realized that everything I purchased was on instinct.  No rhyme or reason for the purchases, rather an assumption that more is better and that everything  would always go up in value.

With the advent of authentication and grading, statistical analysis has become a valuable tool in analyzing investment opportunities.  Today, I never make a purchase without applying analytics and establishing a current and potential future value. 

PSA/DNA is a professional authentication and grading service primarily used for sports memorabilia.  They are the industry standard and probably cover 98% of my collection.  In this day and age of fraud and forgery, the need for authentication is essential and most items of any significant value will not sell without it.   For more detail go the website at  www.psacard.com



Additionally, grading is essential to applying any type of analytics as it is impossible to determine value or potential value if the condition of the memorabilia or card is subjective.

The biggest challenge is not running the analytics but capturing historical data.  Ebay only provides a couple months of sales so collecting sales over multiple years can be challenging.  I use a few popular auction sites that provide this type of data.     

Although we use a variety of statistical tools that can be rather complex in nature, today I want to give you a basic example of ones that can easily be applied with a little effort. 

We will be analyzing the 1986 Fleer Michael Jordan Rookie Card.  I will be applying a simple method called Regression Analysis which is widely used for prediction and forecasting.  In the following examples is shows the simple relationship of value over time for four different grades. 

I ran the analysis on Microsoft Excel which is likely the most common spread sheet amongst the masses.  Here is a basic youtube how to video.  https://m.youtube.com/watch?v=Cltt47Ah3Q4

 

The first analysis is for the Grade 7.  Here you can see the trend line is heading up nicely.  The R2 tells us how close the trend line relates to the data.  A score of 1.00 is perfect so the higher the better.  In this case .76 is pretty good so we can believe that the trend line reasonably fits the current data and will be a reasonable prediction of the value going forward.  

 

 



So this indicates that I would expect to pay an average of $1,372 for one of these cards in September 2018 and that the card has gone up in value over 340% over the last 11 years.  Not a bad investment. 


Now lets look at grades 8-10. 



Grade 8 has almost an identical return on investment to Grade 7 with almost an identical trend line fit.   Expected average value in September 2018 is $1,921. 




The Jordan Grade 9 Rookie is an entirely different story.  Although the trend line correlation is not as strong as the Grade 7 and 8, it is still good.  However, the Grade 9 has been a much better investment over the past 11 years with over a 460% return on investment.  This far exceeds the Grade 7 and 8.




The Grade 10 analysis has many concerns.  First of all there is not a lot of data to do a good analysis of this grade.  Second, the R2 value is much lower than the others indicating a lot of variability in sales price and therefore a poor predictor of current and future values.  Second, if you look at the history it shows a lower return on investment of just over 180% over 11 years. 

In summary, running a brief analysis of these potential investments has revealed a lot.  First, three out of the four have returned excellent and consistent profits over the last decade and predict further solid returns going forward.  Second, the Grade 10 is very high priced, highly variable in price, and has a lower return on investment on a percentage basis.  I would stay away from it.  Lastly, the diamond in the lot is the Grade 9 as it has returned significantly better profits than all the others.

I will be buying Fleer Jordan Grade 9 Rookies only….

 


 

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