One Academic thinks Legos Have Become the New Alternative Asset Class

We have been exploring alternative asset class returns against the market over the last few months. Not only have we looked at items like art and EV batteries, but we’ve also looked at alternative assets like vintage automobiles and rare whiskey.

Today, the word "alternative" in "alternative asset" carries with it a little bit more meaning, as Bloomberg is reporting that one academic thinks Legos may actually be the "hot new asset class".

According to the article, some Lego collections returned more than large stocks, bonds and gold over the course of the three decades ending in 2015. The article cited a study by Victoria Dobrynskaya, assistant professor at Russia’s Higher School of Economics. She is a 37-year-old academic, of course, who has a London School of Economics PhD. She wrote primarily about carry trades and momentum investing for a living, prior to authoring this paper.

Dobrynskaya on the left

She found that older Lego sets are often re-sold online at multiples of their original price. One extreme example is a set for a Star Wars Darth Revan that retailed for $3.99 in 2014 and sold for $28.46 on eBay one year later, a 613% increase.

Dobrynskaya's take on the alternative asset class was simple. She told Bloomberg: “My son likes playing with Lego and I have a lot of it at home. At one point I thought: maybe I have a ready-made investment portfolio? I know that Lego has nothing to do with multifactor models I spend my time focusing on. It doesn’t mean the performance of Lego sets has absolutely nothing to do with factor investing. You’ll be surprised to know that it does.”

Her paper was titled “Lego -- The Toy of Smart Investors” and she analyzed 2300 sets of Legos that were sold between the years 1987 and 2015. She found that collections of Legos used for Hogwarts Castles and Jedi Fighters beat out large-cap stocks and bonds, yielding 11% annually. Smaller Lego kits rose in price more than ones of larger size, she also found. This was found to (grain of salt asidecorrelate with the Fama-French model, which holds that smaller companies will outperform larger ones during sustained rallies.

Star Wars Darth Revan Lego kit

But not everyone is convinced. Roberto Croce, Managing Director, senior portfolio manager at BNY Mellon, dryly (and likely accurately) stated: “If you think about all the academics in the world, there are a lot of them, and all of them are looking for something interesting to say and it’s always going to be related to the Fama-French factor. Someone is going to find something that is correlated. Purely by randomness that’s going to happen. I’d take it with a grain of salt.”

Dobrynskaya found that sets with under 113 pieces returned 22% per year, which was 16 percentage points more than sets with about 860 pieces. However, when expanding to much larger sets – like those with 2000 pieces – they perform better than medium sized ones.

“Smaller Lego sets could be more rare than larger sets produced en masse, though it’s hard to know for sure,” she told Bloomberg.

Of all the sets she looked at, names like Batman and Indiana Jones have performed well over time. The Simpsons is the only set that has lost value over time, down by 3.5%, on average - yet another sign it's time to stop making new episodes.