Welcome to the Sports Card Asset Allocator Newsletter
Hello everyone and welcome to the SCAA Newsletter - where you will learn how to build and manage your investments in sports cards.
Sports cards have been exploding in value recently, which has triggered increased attention on the returns investors have attained throughout the hobby. Despite that, much of the investment discussion has been centered strictly on the huge prices the cards themselves are commanding, rather than how those cards fit within one’s broader investment portfolio. The success of any investor requires more than picking the right asset to invest in. You have to be able to identify the right asset, move in and out of that position in a way that optimizes your return, and manage how each individual investment aggregates to form your broader portfolio. This newsletter will better enable you to bring all three of these concepts to your investments in sports cards.
Who I Am
I was brought to my first card show in a stroller by my parents and have been an avid card collector ever since. I have gone through numerous phases that have made my collection a wide range of cards from graded t206’s of Hall of Famers (although my personal budget means that most of those cards look like they’ve been put through a wood chipper) to 2020 Bowman Chrome autos of prospects who have yet to play in a minor league game.
Much of my collecting focus has been on baseball cards, as I have been a lifelong baseball fan and played in college (don’t get too excited, it was only D3). The basis of many examples I provide will be baseball card collecting specifically, but I will certainly be discussing other sports at length as well. Each sport has its own different investing dynamics, and I will introduce more of those complexities into our discussion over time after getting a hang of the core concepts. Many of these concepts are common across sports, but some aren’t, which we will get into later.
Professionally, I am a former financial consultant who worked with institutional investors (i.e. college endowments, high net worth individuals, etc.) to help them invest their pools of capital, with much of my time spent as a specialist on their private investment allocations (VC & PE, among other asset classes). During that time, I got my CAIA certification, which is focused on managing the risk/return characteristics of various alternative asset classes and how those investments can be incorporated into a portfolio. After getting my MBA, I moved into corporate finance, but have retained my interest in investing.
Merging my interests in collecting and investing is what led me to start this newsletter. Investing in cards is still a nascent space and I am excited to not only pass along what I have picked up from my prior experiences, but learn from your views and experiences as well.
What You Can Expect From SCAA
The focus is on investing, rather than collecting - Nostalgia and enjoyment are clearly key factors as to why cards are popular (and valuable) in the first place. I love collecting and have plenty of cards that are either worthless or are ones that I will never sell because they have sentimental value due to happy memories from my childhood, times with my dad (who I still collect with), or just because they are fun cards for me to have (like a this one, which I think is the coolest card photo of all time). The most important thing is to be intentional about why you are getting a card - is it a fun card that you will enjoy even if the price falls off a cliff or are you treating this as an investment in a similar way as you would view purchasing one share of a stock? Maybe it is a little bit of both? Personally, I need to delineate between the two beforehand in order to organize my thoughts and avoid situations where you can’t enjoy a card as much as you otherwise would due to its price movements. I will always support people collecting for fun (as long as it is done responsibly within your financial means) and this resource will still give you some good tidbits about the card industry if collecting purely for enjoyment is your goal, but in this newsletter, regardless of if I use the word “collecting” or “investing”, the focus here is on enabling financial returns (unless otherwise noted).
This is not about flipping - Flipping is basically the card equivalent of day trading - you are banking on a quick pop in value for a card based off of a big performance in an upcoming game, or something like that. If you are interested in flipping, there are some resources around the internet that can help you - unfortunately I am not one of them. In the same way that day trading requires a different skill set than managing a pension’s funds over decades, flipping is an entirely different beast than investing over a longer time horizon in sports cards. It is an extremely risky strategy that can yield quick gains if everything goes right, but can leave you holding the bag if things go wrong.
I want you to have the tools to make your own decisions - Everyone will have different financial means, willingness to accept risk, willingness to accept illiquidity, and willingness to spend time and effort on this part of your portfolio. Because of that, you are the only person who can truly decide which approach is right for you. I will focus on enabling you to better understand cards as an asset class, not give you directives about the hottest prospects to go after or the best card currently available on eBay. I will use players as examples to drive home certain concepts, but those should not be treated as recommendations to invest in that player and it is up to you to do your own research about which players/cards you like as investments in order to build a portfolio for yourself that you have conviction in. I obviously have my own opinions about players and some of that will naturally come through from time to time, but you will always be “tourist money” in whatever investment you make if you don’t do your own work to understand what you’re investing in.
Alternative Investments Primer
Alternative investments are asset classes that fall outside of the three traditional buckets of investment types: stocks, bonds, and cash. Examples of such investments are Venture Capital, Hedge Funds, and Private Equity. Although these investments are generally unavailable to many retail investors, they form the backbone of commonly-utilized investment strategies for institutional investors and high-net-worth individuals. They provide important diversification and return-driving qualities that these wealthy investors rely upon to grow their pools of capital. If they are so central to driving returns for institutional investors, then why would retail investors be unable to access them and participate in those returns as well? The biggest reason investors are unable to access these types of investments is regulation around investor accreditation.
Due to the inherent complexity and risk of many of these alternative asset classes, legislation has been put in place to protect retail investors from getting locked into investments they don’t fully understand the risks of. The main way this is accomplished is through the concept of accredited investors, which basically establishes a minimum level of wealth that one must have in order to be able to participate in many alternative investments. This proxy of equating one’s wealth and one’s capacity to understand investing concepts has been under fire though (rightfully so), especially as people have become able to do their own extensive research online regarding investment opportunities, leading the SEC to recently expand their acceptable qualifications for accreditation to include certain professional certifications within finance. For context, ~90% of US households are not accredited investors, preventing them from accessing alternative investments individually or through their 401(k) retirement plans, which are not allowed to invest in such instruments either, entirely excluding those people from many investments outside of stocks, bonds, and cash.
As investment vehicles like SPACs (which can allow companies to go public with a risk profile that more closely resembles VC than traditional public equity) and cryptocurrencies have become more popular, however, the line between investments that could require such protections from possible predatory behavior and those that do not has become increasingly blurred. Sports cards do not require accreditation (requiring over a net worth >$1 million to buy a pack at your local card store wouldn’t make a ton of sense), however, cards do possess some of the diversifying and return-driving qualities found in alternative investments, which has been a key factor in their growth as investment assets.
Key takeaway - Outdated legislation aimed at protecting retail investors has severely limited their ability to properly diversify their portfolios, as they are largely only able to make investments in stocks and bonds. Because of low interest rates, bonds have become a very unattractive asset class, which has forced people to search for places to diversify their money outside of just the stock market. That search, among other reasons, is why sports cards have garnered such attention as investments.
Different Ways To Invest In Cards
Card Picking - This is the focus of this newsletter. Because of that, I will not dive into great detail yet, as I will do so over the upcoming posts, but it most closely resembles long-term stock picking or VC/PE in the world of traditional investing. This process includes scouting a player, understanding his risk profile, factoring what outcomes are already priced into his cards, building a position in your portfolio, and exiting your investment through platforms such as eBay, StarStock, StockX, or Twitter.
Fractional Investing - A new phenomena in the industry is the introduction of fractional investing into blue-chip cards through platforms such as Rally and Collectable. These sites allow investors to buy fractions of cards and other assets that would be financially out of reach for basically every retail investor, such as rookie cards of Mickey Mantle, Mike Trout, and Tom Brady. This allows you to participate in the risk/return profile of investment-grade cards through much smaller investment amounts than it would take to actually purchase the card. I have not personally invested in anything through these platforms yet, but think they offer a great opportunity to access these types of investments. One thing I will flag here though - although those cards are well-vetted by their respective platforms, that does not mean you do not need to do your own research on the player and card you’re investing in. Regardless of the forum through which you invest, you always need to take the time to understand the risk/return profile of your investments.
Using Rally as an example, the current listing of a Lamar Jackson 1/1 rookie card is going to have wildly different return drivers than the 1955 Topps Roberto Clemente rookie card listed on the same site, given that Jackson is still early in his career and Clemente has been cemented as a legend within baseball for decades. Both could prove to be good investments, but you still need to do your own research to build your risk/return evaluations just as you would when buying a card for yourself on eBay.
If you are interested in investing in sports cards, I would highly recommend checking these platforms out if you haven’t already.
Packs/Boxes/Cases - Ripping packs/boxes/cases and participating in case breaks are exciting experiences that can give you access to premium cards for a fraction of the cost (even though not everyone participating gets involved due to price constraints). Case breaks, in particular, (described well in the MSNBC video link in the intro) have had a hugely positive impact on the hobby by providing a cheaper route to acquiring potentially top-of-the-line cards and bringing the hobby community together through broadcasts of these breaks on YouTube, Twitch, and other social media outlets. However, ripping boxes or participating in case breaks requires accepting a high amount of risk and allows for far less control of what goes into your portfolio. Although I am personally a fan of these concepts and think they are great for the hobby, they do not represent the type of investing we will be discussing here. If you are interested in learning more, please reach out and I will do my best to point you in the direction of better resources than me for case breaks, etc.
That is all I have for this week - hopefully this provided you with a good overview of what SCAA is, the goal of this newsletter, and why these concepts are important. Thank you so much for spending your time with SCAA. We will be diving into more specific topics in the coming weeks like portfolio construction strategy, what drives returns for vintage and modern cards, and Q&A’s with people across the industry. Please subscribe below and if you ever have any questions, comments, or requests for future newsletters, reach out to @SportsCardAA on Twitter.
In the meantime, tell your friends!