Saturday, July 4, 2015

Dolls As An Investment


Many of us collectors spend more money on our than we would care to admit. For the advanced collector, however, collecting isn’t just about which new doll you can afford. It’s about smart investing. That’s right, investing. People invest in all sorts of things: houses, stocks, bonds, mutual funds, art, property, and so on. When you’re buying a new doll, you’re making an investment, whether you realize it or not. Some people may buy a doll with no intention of ever re-selling it, but for every doll purchase I make, I consider it an investment. I think it’s very important for collectors to understand how some doll purchases may affect your financial future. In the next week, I want to explore several topics specifically related to dolls and finance. Today, we are going to examine a very basic approach to investing in dolls.
How to spend this dough?

To understand investing as it relates to dolls, it’s important to understand investing in general. When someone makes an investment, the intention is to grow their wealth by earning interest on the money they have invested. The riskier an investment is, the higher the potential for significant gains or losses. There is what is known as a risk free rate, which is set by the government (through something called T-bills). This rate is typically around 3%. This means if you invest $100 for a year at the risk free rate, you would earn $3 (this is why people often go for riskier investments, in the hopes of earning returns higher than 8%). This leads us into something called the time value of money principle. Basically, this principle says that $100 today is worth more in the future because it can be invested and earn interest. A very simple example of the time value money principle is this: if you have a $100 bill that you keep in a shoebox for a year, you have actually lost $3. You have lost $3, because if you had invested that $100 at the risk free rate, you would have earned $3, therefore creating the loss. Now all of this is fairly boring, and I know you came here to read about dolls. So let’s talk dolls.

Before you purchase a doll, you should carefully consider several things from a financial perspective. In order to fully illustrate this concept, I’m going to use a personal example from a recent purchase. About a month or so ago, I purchased this Little Darling doll painted by Joyce Mathews:

I paid $850 for the doll. Gasp, yes. That is a lot of money, and I know it. I don’t just willy nilly throw away money like that, so I took into consideration the five points below:

  1. Always research the current selling value of the doll you are about to purchase. Is the doll worth more on the secondary market? Does the doll retain at least 80-90% of its value on the secondary market?
  2. If you had a financial emergency, could you liquidate the doll right away for a fair price?
  3. If you invested your money at the risk free rate, what would it be worth in a year?
  4. If the value of the doll were to drop dramatically, would you be okay with knowing you spent more money on the doll than it is worth?
  5. How many of the dolls are available? Is the market flooded with these dolls, or is it a limited edition (and by the way, 1000 is not what I really consider limited. I think 100 or less is a good number).

So I really answered all of these questions before purchasing the doll for this example. Here were my answers:

  1. The average selling price of the last 4 Little Darlings sold by Joyce Mathews is $1622.47. Yes, it is that high.
  2. If I had a financial emergency I feel certain I could liquidate the doll immediately for over $1,000. All of the dolls mention above were on auction for 1 week, and each sold for an astounding price.
  3. My $850 would be worth $875.50 in one year.
  4. This one is the hard one. I feel like as of the moment I bought the doll, she was worth about $1500. Will Little Darlings decrease in value over the next 10 years? It is very possible. Will I keep her for that long? I think so . I feel like she is a “forever” doll here. This can often be the hardest question to answer for me, as my taste changes from year to year, and I become interested in other things.
  5. I do not know exactly how many of these dolls are out there, but they are not readily available, and I feel sure there are less than 1000 of them. This gave me additional confidence when buying the doll, because there is a sort of exclusivity to having one of her dolls, particularly because it is notoriously difficult to get on her order list.

Now let’s look at an example of a bad investment. One of mine is the Barbie and Ken Star Trek 30th Anniversary gift set. This is not technically my own investment, as my mom bought it for me back in 1996, when I was a high school freshman. I used to collect Barbie pretty much exclusively, so I have quite a few of the collectible Barbies. Unfortunately, the Barbie craze was all the rage, so there are LOADS of them out there. I couldn’t remember the original cost, after all, my mom bought it for me, so I consulted my handy Barbie Bazaar from March/April 1996 and found this advertisement:

So they originally sold for $69, let’s say $70 to make it easier to do this math. Now, the average sold price on eBay for the last couple of months is $12....yes, $12. You can hardly buy a new play Barbie from Walmart for that price. Let’s now calculate the loss on this investment. It’s easy to want to say well, $70 - $12 = $58, so the loss incurred is $58. Well, that’s too easy. We have to consider the time value of money. If I had invested that $70 back in 1996 at the risk free rate of 3%, the value today would be $122.75. This makes the real loss $122.75 - $12 = $110.75. Ouch. This can be very painful, especially as the price of dolls continues to go up. Dolls are also like any other investment: it’s very hard to predict the future, and who knows what the market will demand? Barbies may have a sudden resurgence due to some societal factors, and those collectible Barbies from the 90’s may become a gold mine for those who have a storage building full of them (fingers crossed!).
Waiting for their day to shine...

The point of this entry is to educate my fellow collectors, and enable you to make thoughtful financial decisions when it comes to your doll purchases. Stay tuned throughout this week as I will do a few case studies in good and bad investments, and I’ll choose some of my personal picks that I think are smart purchase choices.

*Disclaimer: I am not an investment expert. I do work in the financial industry and have an understanding of how money works. Do not use this is a permission slip to cash out your 401k and buy a bunch of dolls. That’s actually the worst thing you can do.*

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