Opinion about current market conditions (July 2022)

[sturdyboards]

Hello Everyone,

Just a preface, this might be a lengthy post; however, I feel that is is worth the venture. Everything you are about to read is my humble opinion. I am not a financial/wealth management expert so please, make sure you do your own due diligence and analysis before making any “investment”.

This post is going to be about my current opinions around the investment scene within Pokémon TCG (both vintage & modern). I will try and keep it streamlined yet packed full of thoughts and philosophy around general investing. It’s important to note, this is not about collecting.

Overview

1. Current Economic Conditions & Collectibles (2019-2022+beyond)
2. Pre-Multiple Catalyst Bull Run (Pre-2019)
3. Understand Investment Philosophy
4. Short Term vs Long Term
5. What Are Speculative Assets
6. No one can predict the future

Current Economic Conditions & Collectibles

So, in the current economic climate (in this post we will focus on American; however, global economic issues are quite complex in this year) interest rates are rising, speculative assets are dropping in price, large amount of credit/leverage has been exhausted since the start of the pandemic due to easing by the FED. The FED drastically cut interest rates down to almost 0% and also started handing out economic stimulus to keep the economy moving because if people are not spending money due to lockdowns/job loss then the economy can’t sustain and we will enter a rapid contraction across many sectors.

This is important, because investing into a collectible is a speculative investment. The items has no IV (intrinsic value) beyond the price of the cardboard/material use to create the product. I would go to say 99% of the products value is purely EV (extrinsic value). Speculative assets are always at the mercy of current economic conditions and are alway hit first by FED behavior especially when it comes to their approach on interest.

This is not going to be a deep dive on the FED/Interest Rate; however, general consensus is that with Interest Rate increases, we normally see the results either fixed into the current stock price already or we see immediate sharp volatile reactions within markets. If the fed raises rates, well price on speculative assets start decreasing immediately however, with rate decreases, we normally see speculative assets respond in favor of the market and continue to rise.

This is why in 2019 we see such a large influx in many speculative asset classes where people were taking normally non speculative assets and turning them into HEAVY SPECULATIVE vehicles, such as Houses, Vehicles(cars/trucks), Business ventures, it was so cheap to get debt that with 0% interest rates it was a no brained to acquire debt to try and make money. However, when the FED reverts and raises rates sharply, these new speculative vehicles (vehicles in this sense is not actual cars/trucks), will be negatively impacted quickly.

So, with all of this in mind, 2019 and beyond, was an interesting time period for all market sectors not just collectibles, we seen many sectors turn into speculative vehicles and people were making money.

However, the FED is now reversing their approach and entering into a period of economic tightening so that they can fight inflation. So, all those periods of low interest rates and stimulus led into an issue where inflation could become out of control and one of the strongest way to fight it is by increasing interest rates. Now, when this happens, it will have a trickle effect across the entire market and first hit speculative assets, as we discussed earlier.

We are seeing large amount of people losing their jobs, hundred and thousands of layoffs each week ( I am seeing along on LinkedIn and my circle is small ) where the average salary for these individuals jobs are 150k-250k+ base, not including bonuses. So, these people are losing their jobs and we might think they could have possibly jumped on the bandwagon of making money with pokemon in 2019+beyond years, and well we will touch on this in the next section.

We are seeing housing market take a huge hit, automotive take a huge hit (due to insane amounts of repos being reports due to delinquency in car notes).

Once again, remember this, when you have a large population and you drop interest rates to 0% and hand out stimulus, nothing is free, inflation will come knocking on your door like a fire breathing dragon and you will have to fight it. Those years of “good” times will be remembered as years of regret by many. Many will have spent their money and not properly saved/invested and instead put all their excess income into some form of speculative asset on the hopes of making quick returns.

Everything I am talking about here you can swap out for any speculative asset and it will be the same story for the most part, some minor differences but speculative assets are speculative assets and how you treat those is the same no matter what that asset is.

Pre Multiple Catalyst/Bull Run

Now, that we have covered some information about current economic issues, lets take a quick look at what happened specifically with Pokémon.

1. We had a large influx of influencers/YouTubers/TikTok/instagram/whatnot/eBay/ Gurus who were making insane money and flaunting it with the public.
2. We just entered into the pandemic and the FED kicked off a period of low interest rates + stimulus.
3. Businesses and specifically IT (I use IT because I work in IT) took advantage of the low interest rates to secure long term loans and use that money to expand rapidly to increase their stock prices (if publicly traded).
4. Through lower rates and increased budgets for businesses, total comp packages for employees started to drastically rise, roles that paid 100k in 2018 (base salary) are now paying 220k base. Thats over a 2x rise in a few years.
5. Many people were negatively impacted and seen hard times; however, many people also seem moments of larger amounts of excess income thus able to Invest it into speculative assets (in my opinion horrible but can’t save everyone).

Here are just a few catalysts that I have personally seen/experienced, in the years following 2018, where Pokémon prices started to sharply rise fairly fast. This is important because, with all speculative assets, when you have moments of large:

1. Amounts of volatility
2. New interesting/volume entering the market (new collectors/investors)
3. Scarce Product (people scalping everything driving up prices - vintage being no longer printed yet somehow it keeps hitting sales places lol)
4. Exposure of a market niche to millions who didn’t even realize it was a investment

You can run into some serious issues and understanding how to analyze those catalyst will allow you the ability to try and gauge the future movement. The questions you have to ask your self are:

1. What are all the current major catalysts
2. How does each of these catalyst impact the overall niche
3. Will the catalyst be enough to maintain momentum once it is over
4. Who is buying/selling
5. Who is speculating and who is collecting
6. What is the view point on the majority that is buying/selling

Now these are not every single question; however, some of the more important ones that I feel you need to answer before entering into any investment.

Another interesting area you need to look at is previous market momentum / behavior prior to a volatile period and you also have to ask your self are you in the short term or long term, period (we touch on this more later).

You can use eBay listing and auction sites as an example to gather price points and I am sure websites exist that already track all of this data for free

So, you can go look for your self and see as an example I will use Team Rocket legendaries (birds/dogs).

Back in 2018 PSA 9-10 Entei Ex Team Rocket was around 70-110 USD. During the 2019+beyond it reached 600-800, that’s almost a 6x07x return on investment. Now, I don’t know where else you can see these type of insane returns; however, this ties into what we normally see where we have a speculative asset, encounter some of the questions I asked earlier. If we didn’t have any of those conditions we will most likely not have hit any of these insane 7x returns and I am sure other areas seen much larger ROI.

However, back on topic, you have to ask your self:

1. Why is the price rising so fast
2. Is this sustainable
3. Is the growth healthy or emotionally volatile
4. Who is exposed (meaning who is buying the most and if things go south/north who will be impacted the most)

These questions are extremely important because, if you feel that a asset jumping 7x in a few years is sustainable and healthy, well… it’s not. This is insane and this will cause lots of people to enter the market who honestly are not here to Collect they are here to invest and I use this word lightly.

They see everyone making money, they have excess money, so they try to and make a few bucks on a speculative asset without actually understanding anything.

A lot of this comes into philosophy and we will touch on this in later sections; however, it’s important that we understand unhealthy growth vs healthy growth and what you experienced the last few years is unhealthy which is unsustainable rate of growth. This does not mean long term prices wont rise; it just means that the rate of which growth occurred and how the market rises across the board in prices, will likely not be realized again unless similar situations present them selves once again.

Understand Investment Philosophy

So, I know many people on this forum and in the discord are hardcore and are more savvy then the average person. However, we must realize that we are out numbered greatly by the average person. So, when we make decisions we can draw on our expertise; however, we must think how the average person will react. The reason for this is because they are the majority, they control the volume (unless some shadow cabal exists that controls the gates on all sealed/graded high end products and in that case I would never want to be in this market for either collecting or investment lol) and they control market moves. If they get scared they will impact the market much more than us, if they are bullish they can drive the market higher much faster than us.

This important because many people when they start their investment journey always think how THEY would approach. However, this is not accurate. You need to understand the view points of the majority, the ones who control the volume.

1. Why is this important and how does it tie into Pokémon specifically?

We need to first understand all the previous section in this post so far and we will understand that the majority are not educated investors. They will be the average person, who is hearing from influencers that they can take $10,000 and possibly turn it into $50,000 in a few years because the short term rate of growth due to the multiple unhealthy catalysts that the Pokémon niche experienced. These average people will most likely not perform proper market analysis and will try to take advantage of using credit/debt to acquire their base pokemon portfolio, with the intents on holding for a few years then selling.

Some on the other hard will be business minded, take out loans taking advantage of the low interest rates being offered to businesses, to take advantage of the short term gains.

However, we need to realize that both of these types of investors are bad. They can destroy a market if left uncheck and honestly I don’t think anyone can stock them at this point. If they get spooked and they need to liquidate they will. This is called a Shake-out event. You will have people jump in trying to ride the wave on short term, they will over expose them selves (using credit/leverage and money they dont have or cant’ afford to lose) trying to gamble on a speculative asset to make quick bucks.

So, when hard times come, such as discussed earlier in this post, tied into the fact we know they are only here for short term gains and are most likely over exposed to their pokemon niche by sinking large amount of their excess cash or leveraged debt, when back times come, they will be forced to liquidate or they will HODL as the price drops rapidly and then it becomes a race to see who will be left holding the bag.

This is not specific to pokemon, this happens every day, month, year on all speculative assets.

Once again, please remember we are talking about the majority, and us in this form/discord are NOT the majority.

Short Term vs Long Term

Now, this section is a bit difficult to fully gauge because everyone want to talk about investment in regards to length of term for vestment and when they can realize their profits or losses.

Pokémon is, lets keep it simple, 30 years old. The last few years seen unprecedented growth that has not been realized in the entire history of this speculative asset. Now, would it make sense to say the last few years growth is reflective of the overall 30 years rate of growth? Probably not, however, everyone’s view on length of vestment is different.

Some investors may see 30 years are short, some might see that as long. Some might see 5 months as a long time and other might see it as short. It’s all about a personal question of the time it takes for you to expect to see some form of positive or negative returns.

In my personal opinion, I would not consider the past few years reflective of the overall growth rate and instead, look at the steady growth overall of the 30 years if I am getting in to hold long term.

On the flip side, I definitely took advantage of the rapid growth to make some flips, I am not ashamed, I seen opportunists and I took them. This is the only where I had 100% profit return from each purchase regarding a TCG. I was extremely excited haha, my DBZ purchases were horrible and I lost quite a bit but once again, no one can accurately predict the future.

My opinion on the short term is this:

Within the new few months - 1 year, we will realize a sharp decline due to shake outs and economic conditionings worsening. All the people who entered the market making poor investment choices will be forced to liquidate thus causing a sharp decline, it will be a short steady decline at first as the larger long term investors start liquidating their positions because they know, the short term growth is not sustainable and they would rather liquidate nd reduce their expose to a negative market dip. I am not saying the entire market will collapse; however, I have a strong opinion that we will see prices eventually touch back to 2018 highs. When, I can’t say, but this is my opinion that in the future we will see those again. Unless markets go insane new rounds of catalyst kick off and drive the market higher, which at the moment seem unlikely as we must fight inflation.

Long term:

We will see continued growth as long as the Pokémon IP continues to grow and maintain relevance among both young and old generations.

What Are Speculative Assets

So, this entire time you have been reading this post and if you are curious about speculative assets you can find many resources online that explain what they are so I am not going to deep dive it; however for sake of this post.

When you look an asset it has IV and EV. Implicit value and Extrinsic Value.

IV could be the cost of materials used and EV is the value on top of that cost of material/labor/whatever else it took to create the asset.

When you have a asset where the EV is multiple folds higher then you start running into the risk of people jumping into a market to gamble on a speculative asset. One of the most popular speculative asset markets is the Housing market. We all know the base cost to build a house; however, many people would speculate on future market conditions/house prices, buy up a bunch of houses, fix them up, then sell for a profit beyond what they invested.

They were speculating that the price of the market would continue to rise higher than the cost of manufacturing and through small investment/improvements they would be able to ask even more for the house. This is speculative investing. It’s not bad, but if you over expose your self, it could destroy you really quick since they are normally the most volatile. Other markets that are heavily regulated such as Agriculture is less speculative but agriculture futures market is a speculative market haha.

Anything can be speculative it’s just a manner of how much speculation is going on xD

No one can predict the future

If you read all this please remember, no one can predict the future, don’t believe anything I said in this post, do you own analysis and research. Learn the market, make your own educated guesses.

[wisewailmer]

Dang that is a long post

[sherotcg]

I’m not reading all of that
But im either happy for you, or sad that happened

[stagecoach]

@sturdyboards

Through lower rates and increased budgets for businesses, total comp packages for employees started to drastically rise, roles that paid 100k in 2018 (base salary) are now paying 220k base. Thats over a 2x rise in a few years.

Even if you hadn’t mentioned that you work in IT, I would have known right away from this that you work in IT.

[cardstockpile]

A summary (OP’s opinions) for all the TLDR folks:

• Economic conditions are currently bad

• Prices have gone up too high too fast

• Pokemon will continue to go down

• OP worries about people/businesses who took on excessive debt and leverage further reducing prices

[zubat]

I want to read it, but to get the full experience I’m gonna read the Hobbit first.

[mrbubbles]

Thanks for the informative post. It was a good read.

Cheers!

[stagecoach]

Folks are harping on the length of the post (it isn’t even that long for what it is), but I think the real challenge here is that this has to be the dullest and least passionate way to participate in a hobby that I can possibly imagine. The influences and factors outlined above have almost zero impact on me as a collector.

Don’t get me wrong, I like when my stuff is worth more money. I view my collection as an asset. But all of that is tertiary. It is the lowest priority. Discussing cards like they’re stocks is a way of evaluating the hobby I find extremely unfulfilling and alien. It’s like discussing your house pets in terms of how many cuts of meat you’d get bringing them to the butcher. Maybe Fido makes good steaks but that’s not why I let him sleep in my bed.

(No hate to you personally, OP. I can appreciate the time you took to type this up. It’s just not meaningful to me at all, and probably not most collectors - maybe only so far as the possibility of cards getting cheaper, which means being able to afford more cards!)

[pfm]

People have been waiting for this collapse since 2020 and I don’t think it’s that simple.

First off, i think the generation of people who collect cards are a lot more financially resilient than past generations. For instance, a much higher proportion of young people today don’t have a mortgage and don’t have kids. Not to mention the fact that the type of people that can afford expensive cards are more likely to weather a recession better. Of course as things get harder, a portion of people will be forced to sell their collection but a sudden mass exodus would suprise me.

The second thing I would point out is that the Pokemon card “market” is exceptionally diverse. The dynamics of graded wotc vs japanese promos vs English modern vs ex era vs trophy cards etc are very different. Sure they are generally correlated but the fundamentals are very different. For any worried about the incoming collapse of the pokemon card market, I would just look to the types of products with the most amount of speculation and supply and primarily avoid those items.

[sturdyboards]

Alrighty, so appreciate the feedback

This entire post was not directed toward collectors, it was meant to focus on the market/investment side of the equation, which honestly, investor interest in a asset that you collect should be of your interest because, it directly relates to what you will pay for an asset.

I take not hate nor did I view you as “hating” on the post haha. You are giving your honest feedback and that is appreciated. I am simply in this post sharing my humble opinion. If these do not impact you or your decisions then I am happy for you As you are truly just buying because you appreciate the product and don’t view it as a money making opportunity.

[zork]

I think for TrUe CoLlEcToRs (tongue embedded into cheek here), this info is at least valuable to ruminate on because it’s, in theory, a good way to anticipate impending steals and deals.

But I have to agree with a lot of the sentiment that the kinds of “deals” that would result from a market pullback are limited to the most immediately available cards, and those aren’t the cards I’m personally interested in collecting at the moment anyway.

[joetehman]

I am so heavily invested, if Battle styles drops another $1, I will lose my house.

Investors should know and understand the market they are investing in. If they thought the ROI and boom of the 20/21 was something sustainable and product wasn’t going to be hoarded and mass printed, they didn’t understand the market. If they bought PSA 8 quality WOTC base set holos thinking the amount of them was slim, again they didn’t understand the market. The best investors of a specific hobby are almost always the long time collectors who understand the market and which items are actually worthwhile. We might see 18 prices again for some times, in fact we probably have.

Liquidation is something I don’t think we will see for most older cards. Shops and bedroom sellers possibly attempting to sell their modern sets for sub $80 and specialty GX Boxes is something that will happen, but I don’t expect to see anything pre SWSH that is considered decent, going on clearance and being liquidated anytime soon. As far as singles go, same type of thing, but there is more demand imo for them, only so low they will go.

[TorterraSimp]

I appreciate the time and effort put into this market analysis. Personally, Im still going to be tucking in my Torterras at night, regardless of the market conditions. I might even tuck them in more when things get rough, I want them to know they are safe.

[sturdyboards]

Nice! We can continue what we started last night, once again apologies for having to leave so soon, I figured it would be easier to share via Forum than try to catch each other on time during the call.

Collecting cards as a hobby should be viewed different and instead as a generic asset class. Speculative assets. We have seen a large increase over the past few years, especially at the same time pokemon speculative investing took off (2019+). Ignoring the rest of the sector of collectibles, does not seem like a good approach.

Regarding the type of “collector/investor” being more well off/wealthy, due to buying expensive cards, being better prepared to weather a recession is half true. The reality is that this is actually the opposite, otherwise we would not have these large bubbles/pull backs through out market history. Look back into 1929 with the great economic collapse, situation, people discovered a new way to use money they don’t actually own to speculate on future prices driving up a market into large all time highs, extremely fast, then just as quick, the price across all sectors/markets collapsed. One of the largest issues during this time was the discovery and power of using leverage.

Lots of wealthy individuals used leverage to further amplifying their positions/speculative investments; however, even their wealth they lost. I wouldn’t not consider someone’s wealth and ability to purchase an asset, justifiable that they will weather any storm ahead. I would say they will still be impact and to what extent depends on their level of exposure into that specific market/sector.

Regarding Mass Exodus:

Believe me, I understand, it is hard to want to see that as being a possibility, because many people bought into a unhealthy market and well, they will lose money. But once again, as I mentioned to stagecoach this ins’t about collecting. This is about investing into a speculative asset that has seen unhealthy short term growth.

We must also remember the psychological aspect, I think many are viewing things from how they or what their positions are looking like or maybe who they intereact with. If you interact with mainly higher end long term collectors who are well experienced in the industry, then you will have little exposure into seeing how much volatility is actually in the market.

Go to whatnot right now and I promise you over half/maybe even 75% of streamers are new to pokemon. They have all kinds of product from modern sealed to vintage stuff worth thousands of dollars per slab. You can’t tell me you think these are educated investors who know what they are doing. They most likely bought into the market on the rise, and over exposed them selves to a speculative asset class.

I don’t blame them, heck I did the same with DBZ, so I am no different but, lessons learned, I love DBZ so I kept my cards even though price dropped because to me it’s a collection/love versus a investment so my philosophy is different.

Regarding Market Diversity:

That only applies to hardcore collectors/investors. The average person buying into the market to make a quick buck will not care about the diversity factor. Market diversity only applies on the long term because in short term market sectors performance are leading indicators on the dailies/weekly - diversity within that sector could be a long term play and by this I mean. If you were in Automotive and you bought heavy into Ferrari, long term you will probably be fine; however, short term you will also be impacted by your sectors performance. This is the same across all asset classes/market/sectors.

Internal diversity is nice within your own collection/portfolios; however, once again you cannot approach this with the mindset of what WE and our educated investor/collection circle because WE are the MINORITY.

You will never able to raise or decline the market the same way that the mass introduction of new investor interest did in 2019. I promise that, we need to respect the markets and respect the fact that when we are the minority we are at the mercy of what the less educated will do.

If you are over exposed and the majority get spooked in a shake-out event then you will see rapid decline and flood of market of all product ranging from each of the ones you mentioned.

Trust me, I don’t want to see a decline either; however, I am fully convinced, short term we will see retest of 2018 highs before possibly moving forward in a much healthier incline in price/market growth.

Re Collapse:

I am not talking about a collapse, I believe that the market will survive and continue healthy growth as long as the IP maintained positive relations with new and older generations.

Short term we will see continued decline, though, due to the fact that the average person buying/selling is not educated and they are not fully hardcore into the TCG, hobby, collection or anything. They entered because they seen a ample time.

Look at all the scalpers, they bought up everything, then had to sell for 50%/75% off what they paid MSRP just to liquidate because they over exposed them selves. They didn’t just do this with sealed MSRP product, people have been over exposing them selves constantly buying up large volumes of product.

This will happen with vintage/modern/ nothing is immune to the market, what you and me both want, doesn’t matter, the market favors the majority not the minority. If the majority want to sell and liquidate, then prices will decline, if the majority want to keep buying then price will increase; however, if the majority over exposed them selves to a asset class that is extremely speculative during times of extremely unhealthy growth, I promise, in my humble opinion, short term, we will see decline rapidly (not a collapse) retest of 2018 highs.

Then long term once again, we will be fine as long as the IP maintains positive relations.

The biggest thing here is that, I want to be wrong but looking at the data and looking at what happened in the past, this is different, this is not 2008 where as you mentioned last night the hobby was much smaller.

The hobby entered into a moment of hyper unhealthy growth that is not sustainable, heck we could even see price drop below 2018 prices; however, I would rather not go down a huge what if track, I think it’s fair to say we retest 2018 highs before the period of unhealthy growth occurred.

The biggest thing here to remember is that if you are the minority then what you want to happen doesn’t matter. It’s what the majority want, and if the majority over exposed them selves well… we will have a interesting time ahead.

[Pbali]

It seems unlikely for cards to see a 75-90% drop from here to take us to 2018 prices. The biggest people in the hobby could literally buyout the entire population of key cards if that were to happen.

[sturdyboards]

Why does it seem unrealistic though?

Sure, let them buy up the entire market if the price drops to that low, but who will you sell to once over 80% of the volume leaves (all the new investors). You will just once again be selling primarily to other collectors/long term investors.

Product availability doesn’t matter if demand isn’t present. You could buy up all shiba inu coin, for example, it would still be worth less if no one wants to buy it.

I don’t understand the logic behind prices not be able to drop that low because big people in the hobby would buyout the entire population of key cards. Sure, let them, but they would then be holding for long term (many many years most likely) and see small gains Year over Year instead of 7-10x returns in only a year.

[sturdyboards]

Once of the biggest issues with all investments is the liquidation process. If you have no volume/no real interest then buying up entire available stock is only for attempts to try and slow poke gains over long period of times by attempted controls at strategically introductions new unopened/sealed key product/cards over x period of time.

This is why unhealthy growth is bad.

[pfm]

@sturdyboards

Sure, let them, but they would then be holding for long term (many many years most likely) and see small gains Year over Year instead of 7-10x returns in only a year.

That’s the reality that most people that were here before 2020 already understand

[sturdyboards]

Hahah I feel the same way about DBZ my friend

[thsigma]

has anyone gone and forecasted a “what if” scenario where covid didnt happen and prices just continued in whatever trends they were before 2020. would help with visualizing the change other than just “everything went up”