Mint Condition - May 2, 2022
How tomorrow's economy could impact the hobby and how you can prepare
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Leading Off
Overall, the hobby has been buzzing and although we have indeed seen a pullback in prices since the peaks of Spring 2021, I would guess most people would classify the state of today’s market as “somewhat healthy” or “healthy.” However, the hobby does not operate in a bubble and the issues impacting the economy as a whole can ultimately trickle down into sports collectibles.
I want to discuss what topics I find most salient in today’s economy, how they can impact the hobby over the next 6 - 12 months, and how, from my perspective, both collectors and investors can position themselves to either protect themselves from or take advantage of changing market conditions.
In my opinion, the top 2 issues hitting the economy that can also affect the hobby are:
1) Higher interest rates = less spending money
Discretionary income is considered to be spending money that individuals can use on vacations, gifts, collectibles, and the like (these are called “non-essential items,” but everyone in the hobby knows cards are essential!). When the COVID-19 pandemic hit in early 2020 and the economy saw millions lose jobs, the government began to issue stimulus checks to help those in need get through the economic downturn. The government issued a total of three stimulus checks and passed incremental spending bills, adding billions of dollars into the economy. In the chart below, you can see how the money supply in the U.S. has reached historic highs of $20+ trillion as compared to pre-pandemic highs of $4 trillion (Source: FRED).
Adding more supply into the system has contributed to rampant inflation and you probably find yourself paying substantially more at the grocery store, restaurants, and gas station. The Federal Reserve is trying to reduce this inflation by increasing interest rates. Rising interest rates discourage spending as, for example, taking out loans / mortgages become more expensive. Said another way, the Fed is trying to reduce individuals’ disposal and discretionary income in hopes of calming down inflation and getting prices for goods and services down to more reasonable levels.
2) General fear and possibility of recession
There isn’t one reason driving increased fears of a recession this year or in 2023, but a combination of factors is scaring a lot of people: rising interest rates (as discussed above), supply chain issues hitting nearly every company, geopolitical crises abroad, and COVID remaining on people’s minds. Per a recent CNBC poll, 81% of Americans think a recession will hit in 2022. There are counterpoints to say the U.S. won’t enter a recession, including that the labor market today is very positive for workers, though the other issues plaguing the economy shouldn’t be dismissed. A recession has the potential to create a prolonged decline in U.S. economic performance and could see millions losing their jobs, wages decreasing, and individuals shying away from spending on non-essential items due to either not having enough income or preferring to save their money.
Mint Condition’s Take:
I know the above isn’t what we all want to hear, though it is important to take stock given the health of the hobby has the potential to be affected by levels of discretionary income and more generally overall economic conditions.
Below is how I am thinking my current investments / collection and my buying / selling strategy over the next 6 — 12 months.
1) Take a longer-term view to your collection and investments
Should prices be impacted and people see their cards take a substantial value hit, it could be a reactionary move to sell cards off immediately to cut back as much as possible on losses. I would only suggest doing this if people truly needed the money for more essential items. If one has the ability to hold cards as prices decline, that would be most prudent. A shift in mentality is important — the innovation over the last few years in the hobby has made buying and selling a more short-term, stock market-like activity. I know tons of players in the market who buy today and aim to sell within a week. In a declining economy, the winners will be the ones who don’t sell at low points and don’t have the same mentality of flipping to make a quick buck, but rather take a longer-term approach. Trust that sports collectibles are a more legitimate asset class than ever before, there is substantial smart, institutional money supporting the market, and prices will ultimately bounce back — perhaps not in 1 week but in 6 months or 12 months. Longer-term views are tougher to develop and maintain, but the ones who can shift their buying and selling strategy to a more patient one will ultimately reap rewards.
2) If you have ample discretionary income, price declines could be an attractive buying opportunity
“One man’s loss is another man’s gain.” If prices experience prolonged declines, for people who have sufficient spending money even in a tough economy and for those who have conviction that certain card prices are just way undervalued, the buying opportunity can be real.
One related example: Mike Trout was out for most of the 2021 season and his prices started to drop. His 2011 Bowman Chrome Draft rookies had historically sold for upwards of $300 and were trending in the $200 range. I had conviction that values would bounce back in 2022, as I felt that prices dipped since he wasn’t on the field for almost an entire season and he started to slightly slip people’s minds. I bought up some rookies in the $200 range last winter and prices have since climbed back into the upper-$200s.
Although the above example is not exactly related to how the economy will impact prices, it serves to illustrate that similar buying opportunities will be out there if one has the conviction that prices will bounce back. Buying in a downturn is tough on the psyche: what if prices continue to decline? What if prices never bounce back? My suggestion would be to look at buying opportunities of vintage or star modern players. Cards of these players will be more likely to return to previous values than, say, prospects. Buying the dip on risky prospects is only adding further unknown to your collection. Stick to known, established players, find the right cards at depressed prices, and apply the longer-term view that prices will bounce back if you can weather today’s storm.
3) Consider diversifying now
Let’s be clear here: It is not a sign of weakness to sell part of your collection / investments in order to either hold that value in cash or invest it in “safer” assets (like treasury bonds). Especially if you are overweight in sports collectibles, as in 15+% of your net worth is tied up in cards (15% is my gut feel of what overweight looks like), then it is actually prudent to consider taking profits where you can today and paring back your exposure. If you have the strongest belief that collectibles will actually outperform any other asset you would otherwise put your money in during an economic downturn (either by prices not declining as much as other assets or a bounce back happening faster), then sit tight and hold. However, the battle-tested, sound financial advice would say diversify today to avoid catastrophic losses tomorrow that you might be unable to rebound from. I believe that applying longstanding financial market strategies is reasonable here, as the collectibles market looks and acts more like the stock market with every passing day.
As always, I would love to hear your thoughts. You can reach me at jbmintcondition@gmail.com or on Twitter @jbmintcondition
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