Why do some “collectables” (stamps, coins, etc.) drastically rise in value while other drop in value? What should you look for, devoted reader, if you are wanting to invest in collectables to make some additional income over the long run?
I do not have a “hot horse” for this topic; just some observations that I have made surrounding the basic economic concepts of supply and demand to help you determine if you should invest in something.
What happens if you have High Demand/Low Supply? In general, if you have an item that is in high demand, but has a low supply, the price will go up. Think of this like an auction, where someone has to increase their bid to win the item. High demand/low supply increases price.
But what if you have the inverse? Low Demand/High Supply? That leads to clearance sales and price drops, as whomever is holding the item is looking to get out of holding that item with as much money as they can get.
To illustrate this, I want to use Pokémon Cards as the example collectable here…because I am a nerd and I follow these things. What’s funny is it is eerily similar to the U.S. Economy at times…
You want something that is in low supply. That is rare, if you are collecting. TYPICALLY low supply will help prices rise, if the demand is there.
On recent sets, the Pokémon Company has started doing “reprints”. So, if a set is really popular (like Hidden Fates) where it sells out in stores, the Pokémon Company prints more to increase the supply. This “injection” of more supply usually means lower prices.
However, for the original 1999 base set of Pokémon cards, and subsequent sets up until 2017, the card sets are out of print. This means that the supply on older sets is fixed; there will not be any more. In addition, every Pokémon YouTuber opens these old packs in an effort to bring viewers to their channel. This decreases the fixed supply even further, which in theory should raise the price, right? We have one more component to look at.
This is a fascinating topic, because several intangible factors converge here. When it comes to predicting high demand, you want as many intangible factors as you can get. A big one with is nostalgia; that is a main driver for the 1999 Base Set because people remember opening them as a kid. I remember my dad buying some for $1 at the dollar store. Those same packs would be worth around $100 (at least) unopened now because so many people have those same memories, and want to relieve those times by opening the packs.
Another factor is popularity. You want items that other people are going to want. For Pokémon cards, that means knowing which Pokémon are popular (like Charizard…) and watching those sets.
High Prices are another factor. As crazy as it is, high prices can be like “blood in the water” to some collectors because they want to “ride the momentum” by buying something at a high price and selling it at a higher price. Right now that appears to be going on in the Pokémon card market (in my humble opinion)…over the next several years I would expect the prices to drop again while staying above record lows, and then rising again (to or above) the record highs we are now seeing.
This is not an official economic term, but I have dubbed it the “Charlie Bucket Effect” from Charlie and the Chocolate Factory. People want to experience the thrill of pulling the “Golden Ticket”, and several collectable genres have a way to have their patrons chase a “Golden Ticket.”
Whenever you are collecting anything, time and patience can be your best friends. Those phantom forces can increase prices by giving people more time (and money) to come to the table, causing prices to rise. On the flip side, they can also let people come to their senses and walk away from the table, causing prices to fall. The challenge here is that very few things in life are certain, and we can all make bad investment decisions…
All that to say, if you want to collect anything, following the basic principles of supply and demand are a great starting point…with a nice helping of time and patience.