Lego Investing Budget
Welcome back to the Lego investing series on The Brick Dynasty Blog. So far we have covered retirement dates and general Lego terminology. Today we will talk about budgets.
This is not financial advice, I can only tell you how I approach Lego investing. I can not tell you how much to spend and what to spend it on, but I can share my strategy and offer examples of my approach. Please understand there is always risk when buying assets with the intention to profit from those assets at a later time. Lastly, always DO YOU OWN RESEARCH.
Budget - thinking long term
Defining your Lego investing budget is very important, especially early on as we need to plan our cash flow for, at a minimum, two years at a time. Here is the strategy/thought process I used when first starting: I had established my budget then planned to spend half of it in year one and ear-marked the other half for year two. I did this because the major buying season (mid September to December) starts before the major selling season for retired sets during Q4 (Black Friday to Christmas). If I spent my entire budget the first buying season there would be nothing left for the second buying season.
Establishing an overall budget is just the first step for Lego investing. The next step is to figure out how you want to allocate those funds across the sets on your buy list. After I have done my set analysis, I rank the sets on my buy list and allocate different percentages of my budget to my highest ranking sets or themes.
Budgeting example: My budget is $1000 and my buy list has 4 sets on it. If my set analysis shows set 1 has huge demand and upside compared to sets 2, 3, and 4, I could allocate 40% ($400) of my budget to set 1 and 20% ($200 each) towards sets 2, 3, and 4.
Stick to the budget: When a great sale pops up early in Q4, it is easy to convince yourself the other sets will not go on sale. Stick to your budget and be patient, the other sets will see a sale at some point.
Another aspect of setting your budget is pre-determining what an acceptable buy price is for each set. Most sets eventually get a 20% discount off MSRP during its lifecycle, essentially making it the new standard price, not MSRP. Getting a set at 30% or more off MSRP is typically a great time to buy a set. There may be better sales in the future but that is something we don’t know at the time. A good strategy could be to not spend all your allocated budget on the first sale so you have capital left over if a better sale presents itself at a later time.
In the moment, we never know if this sale is the best we will see or if another sale is in the future. Having a pre-determined target buy price allows us to make educated decisions about buying.
Budget Allocation - Deep vs Wide
Every financial advisor everywhere gives the same basic advice, don't put all your eggs into one basket. If you only invest in a few sets each year you put yourself at greater risk of not maximizing your profit for several reasons:
Zombie Stock: If a set gets a large reprint close to retirement it will take longer to turn a profit while tying up that portion of your capital for longer. The set may still be a good investment, it will just take longer to materialize.
Bad Analysis: If you bought large quantities of one set that did not perform as expected, it will take you longer to sell through those poor investments to recoup your money.
Bad Luck: Similar to bad analysis but an event out of our control happens causing demand to shrink. (Example: a movie delay or the movie/TV show was not received well on a set tied to a specific IP)
Please understand there will always be sets that do not perform as expected, usually for reasons that are out of our control. By diversifying our buys, we can lessen the sting of those poor performers.
This is the framework I follow for budgeting purposes for Lego investing. I have many Lego investing friends that operate their budget differently than mine. Investors that sell their sets quickly for a lower return on investment may not need to allocate as much money for the second year as they may be able to sell through before the following Q4. An investor looking for a much larger ROI may need to allocate their budget over 3 years or longer as their hold time would be longer as well.
Use this as a guide when setting your investing strategy and make adjustments to fit your model. There is no right or wrong way as long as there is some structure to your spending.
If your budget strategy is different from mine, I would love to hear about it. Drop a comment below.
Until next time AFOL’s….