In nearly every post so far, I’ve been blown away by the rate of return for certain graded and ungraded basketball cards over the last two years. I am a passive long term investor, and if you had told me two years ago that more than a handful of basketball cards would appreciate by 500% or more by summer, 2020, I would have thought you were smoking the funny grass. But here we are in the heat of summer, 2020, and the hottest alternate investment around appears to be basketball cards, especially Lebron James rookie cards.
On the home page of this blog, I have a tongue in cheek quote that is completely made up, and it says: “Quality basketball cards, like your Jordans, Birds, and Lebrons, will be hotter than Tesla over the next five to ten years… and I’m long Tesla!” Yes, it’s a funny quote, but at least looking back over the past two years, it’s also true. Even with Tesla’s huge run, exploding from roughly $300 per share two years ago to roughly $1,500 per share today, it still isn’t beating a portfolio of “quality basketball cards”. I doubt anyone has given a name to these crazy pops in value yet, but lets refer to it henceforth as the Covid Card Craze.
If you’re reading this from a finance or investing perspective, you may be thinking to yourself, Ok sure, I can grab 5 small cap stocks that have exploded over the past two years and would have made incredible investments. And yes, you could. But the difference is almost no one would know the small cap stocks you’d point to, while nearly everyone on the planet knows who Michael Jordan and Lebron James are.
This will likely be my most finance-y type post, but after seeing such crazy rates of return, and having somewhat of a finance background, I had to call this out. This Covid card craze could very easily be in basketball card bubble territory (I’m almost positive basketball cards are technically in a bubble by any standard bubble definition), but even so, lets look at how a small group of “quality basketball cards” has performed over the past two years compared to some standard assets, like gold, Tesla, the Vanguard S&P 500 ETF (VOO), and lets get crazy and throw Bitcoin in the mix as well. Why not.
What I did in the table below was to only focus on the max price of all PSA 10s (PSA 9s for Bird/Magic as 10s are too scarce) graded basketball cards in the month of July, 2018 and the max price of those same cards in July, 2020, and do a simple calculation to see the 2-year growth percentage. The basketball cards I focused on are the following: Jordan’s 1986 Fleer Rookie, the Bird/Magic 1981 Topps Rookie, Lebron’s Topps Chrome rookie (#111), and Lebron’s Bowman Chrome rookie (#123). Because I used the max price, the Jordan rookie card looks like it has appreciated the least, but this is a bit misleading because someone overpaid for the PSA 10 back in 2018, and as a result you are only seeing a 171% appreciation in value over this stretch.
|Asset||% Change July ’18 – July ’20|
|Lebron Topps Chrome (#111)||1260%|
|Lebron Bowman Chrome (#123)||946%|
|S&P 500 (VOO)||15%|
A few things pop out when you look at the simple table above. One, Lebron’s rookie card over the past two years has been absolutely exploding. To think that his Topps Chrome Rookie has outpaced Tesla stock by roughly 3x is insane. So clearly Lebron rookies have been great for collectors these past two years.
Its also remarkable looking at the Bird/Magic rookie card, and how it’s up around 400%, in other words its about on par with Tesla over the past two years. The Jordan card, as I said, is skewed down because of the way I did my calculation. In all fairness, it should be in the 300%-400% range and doing roughly as well as the Bird/Magic card. The worst performer on the list above has actually been the safest asset, the VOO ETF which has only increased in value 15% from July, 2018.
So the real question is why are basketball cards “popping off”, as the kids like to say? I think it really boils down to two main reasons: scarcity and the coolness factor.
I think the clearest reason why the very high quality basketball cards listed above are outpacing nearly every other commonly traded asset is because they are scarce. Once all bitcoins have been mined, there will be a population of 21 million bitcoins. But what about all the PSA 10’s for Lebron, Jordan, and Bird/Magic? Certainly not 21 million. Maybe not even 1,000. So the simple economics of supply and demand would indicate that these extremely rare rookie cards could (and perhaps should) hold their value better and also appreciate more than a cryptocurrency like Bitcoin.
The second driver for the basketball card “bubble”, if it is a value bubble, is because a lot of these cards and players are incredibly cool and people young and old idolize them. I’m sure The Last Dance gave Jordan cards a nice little bump, and perhaps the whole basketball card industry as well.
There is also something to be said about being able to hold onto and show off a rare asset. I believe this one of the main reasons why art holds value. You can actually see it and your friends can see it, and we are all human after all. It is in our nature to want to show off. If you need anecdotal proof, just look at anyone’s social media page. Social media provides daily confirmation that we’re obsessed with ourselves.
So what else might be pushing the prices of basketball cards, especially Lebron rookies, to sky high prices? Well, on top of the two reason’s listed above, I think we are seeing the beginning of the enormous transfer of wealth that is its earliest stages. As more Gen X’ers and Millenials inherit money from their parents and grandparents, they are looking to purchase assets that not only appreciate but are also cool. Some invest, while others buy stuff. I believe there is a sizable swath of younger X’ers and older Millennials who had an especially difficult experience with the 2008 recession and were scared away from both stocks and real estate as a result. So what do they do?
Well, I think at least a few of them are card collectors. And if you always wanted something as a kid, never got to have it, then inherited a substantial sums of money, well you could put most of it into stocks and bonds, but then you could still go out and buy yourself a really nice Lebron or Jordan or Bird/Magic rookie card just for “funsies” and still feel good about yourself. That is absolutely what I would do if I inherited $1M+. I mean, who really knows, but 1,000% is 1,000% and maybe its time this side hobby be taken more seriously.