Trading Cards as an Investment
Should you treat your childhood trading cards as an investment asset? Here’s what investors need to know.
Remember when you were a kid collecting rare baseball cards? Or rare Pokémon cards? What if we said it’s time to start thinking of those trading cards as an investment?
In fact, a whole alternative asset trading platform specializing in physical sports trading cards launched in March of this year with $31 million in funding, and Wall Street is pouring money into the trading card industry as prices soar. It makes sense, considering that in the first quarter of 2019, cards jumped an additional 15% on top of historic highs, with growth maintained into 2021.
What’s all the fuss about trading cards, and should you get involved? Here’s what investors need to know.
What are Alternative Investments?
First, it’s important to know that trading cards are considered a type of alternative investment, which is simply an investment that doesn’t fall into one of the three conventional categories:
Trading cards specifically are a type of tangible alternative asset, meaning an asset with physical form that holds value due to its intrinsic physical qualities. To be more specific, trading cards are considered collectible assets. A collectible is any item that’s worth more than it originally sold for due to its rarity, popularity, or both.
What is a Collectible?
While every sports card is technically a collectible item, not all sports cards are considered collectible assets. In order to be a collectible asset with economic value to qualify as an investment asset, it has to be rare, coveted, and in good condition.
For example, if you own one of countless mass-produced baseball cards that can be acquired anywhere on eBay, it’s not going to be worth much beyond sentimental value.
On the other hand, if you own one of ten such cards in the world and thousands of people want it, that’s another story. And if your card is also in excellent condition, you’ve got something with value. Even more so if it’s signed by the baseball star in question (and can be authenticated).
The trick with collectibles is time. If the product is still in production, there’s no reason for someone to buy it from you when they can buy it from the producer unless there’s something unique about your card, like a celebrity signature. If the product is no longer in production, the number of that product in existence dwindles over time, which makes some items become more valuable due to scarcity.
Why are Trading Cards So Popular?
Scarcity and popularity of a few trading cards is one thing. But the sudden popularity of trading cards as an investment class is something else entirely.
Like many things in our lives as of late, the pandemic is to blame for the trading card renaissance. It’s a simple two-step cause and effect.
One: the pandemic pressed pause on live sports. Without access to live games, fans resorted to nostalgia instead, raiding their attics and basements for long-neglected cards.
Two: the pandemic trapped everyone at home to rely on streaming services for entertainment. It was convenient timing for nostalgic sports fans, who had The Last Dance (a documentary about Michael Jordan) queued up on ESPN while starving for live sports.
The next thing you know, sports fans launched a wildfire business, complete with celebrity endorsements and Wall Street money.
Why Use Trading Cards as an Investment?
Investing in trading cards is a bit of a tricky business, insofar as time lends value and you won’t know in advance what cards might become valuable in decades to come. For many investors in the middle ground, who have valuable collections rather than six-figure individual cards, the value comes from the whole collection, not an individual card.
Trading cards have one critical advantage on other asset classes: there’s a limited supply and high demand. This makes it a seller’s market, and if you have one of the limited supply of coveted cards, you’ll have a lot of interested buyers.
Getting Started with Trading Cards as an Investment
The key to using trading cards as an investment asset is education.
First, educate yourself on your budget. You should know exactly what you can afford to spend and how much you can reasonably spend on any individual card.
Second, educate yourself on the right buying behavior. Many investors treat trading cards like gambling, proliferating a longtime misunderstanding conflating investment with gambling. It’s not gambling at all, and you shouldn’t try to gamble with trading cards either. Instead, take the time to figure out what sports to invest in, what players are worth buying, the supply of the card you’re buying, and the demand for it.
Invest in Your Passion, Insulate Your Portfolio
Trading cards as an investment asset are a fun form of passion investing and a way for many small-time investors to access alternative investments.
Here at Masterworks, we help investors like you get started in another valuable alternative investment: blue-chip art, one of the most successful forms of passion investing. We take out all the guesswork, collaborating on research with Citi Bank, Bank of America, and others to identify artist markets with the best risk-adjusted returns and then leveraging insider art knowledge to handle the auction process.
That way, all you have to do is buy shares in art you love. Ready to turn your love of art into financial well-being? Fill out your membership application today.