We’ve spent a lot of time talking about history and the theory of returns. This time I thought I would write something a bit different. Inspired by something I recently read, “you are – what you think about (recession, economy, stock market)”.
I always caveat what I write because the reality is that I can only look to history, theory, and logic. The article I read explains that economies have many moving parts and points out how complicated it is to forecast. Apparently, the federal reserve employs a few hundred PHDs who stare at economic data 24/7, and they have yet to get it right!
The article goes on to say that time is the currency of life, and the attention should be on how we choose to allocate this currency. My role naturally leads me to spending most of my days thinking about markets and what this may mean for the money we manage. I care very much about this and so my time is spent trying to understand what is happening.
We talk a lot about being long term investors and yet it is easy to get wrapped up in the here and now. It made me think about a hobby I have recently taken up.
Over the Summer I spent time building a Lego Land Rover Defender. I paid £100 for it. The set was released in 2019 and retired in December 2022. The table below shows the current range of values for a used set. In just a few months the set has returned between 15% and 48%.
When you investigate Lego you can see that as products retire, so the value potentially goes up.
The chart below shows the growth in Lego between 1987 and 2015.
This is a healthy return of around 11% p.a. Even looking at recent returns, it remains an attractive asset class.
The chart below shows the value of a new / sealed Lego Land Rover Defender since its retirment.
The point of all of this is perhaps to demonstrate that, whatever we invest in, it takes time to see that return come through. I use Lego as an example because the scatter chart shows that as sets are retired there is a rush to invest. Often people overpay in the short term in the hope that long term the investment will pay off.
There is an argument that investing is a form of speculation. Investors want those investments that instantly go up and there is disappointment when they go down.
Lego is a great example of how to invest (assuming you don’t want to play with it!) It is about the research, what is likely to go up in value, the price that you pay for that and then it is the long game. After that, it is about sitting back and allowing that value to grow. Of course you can speculate but as the chart shows you can easily overpay.
In summary, the article I read and mention at the start talks about the currency of life. As I have said, my job naturally means that I spend a lot of time looking at the markets and analysing our investments. I can’t predict what the future holds. Although in the short term everything appears uncertain, however hard it is we must focus on the long-term. It is fascinating to consider that Lego can be a great example of playing the long game.
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