Bubbles, Beanies, and Bullion: A Lesson from My Youth
I’m just old enough to remember Beanie Babies, the State Quarter program, Pokemon cards, and the inflation of the dot-com bubble. All at once.
And at the time, I was just old enough to have begun learning about coin collecting, a hobby I still pursue today. As part of my education on coin collecting, I learned the basics of supply and demand, which seemed not to apply during the run-up of the Big Bubble in the late 1990s.
You can imagine my confusion when adults (including relatives) would collect Beanie Babies, breathlessly explaining, as if they were all reading from the same script, “They’re going to be worth something someday!” And it was multiple different adults, in multiple different times and places. All of them said the same thing, basically word-for-word. It was eerie.
Although I was not yet ten years old, I remember thinking something along the lines of, “But they’re everywhere...collectibility is a function of rarity. So how will these Beanie Babies ever be worth anything when they aren’t rare?”
Sure, each particular Beanie Baby design had a limited production run, but still, Beanie Babies as a class of collectibles were inescapable. If you weren’t there at the time, you can’t imagine how ubiquitous they really were! How often people were talking about them! Everybody from my elementary school classmates to my retired neighbors were saying the same thing: “They’re going to be worth something someday!”
In the last 25 years, cable TV and the World Wide Web have increasingly catered to ever-splintering groups and subgroups. In 2023, it’s not uncommon for one group of people to be extremely excited about something – a YouTuber, a podcast, a chat room or message board, a musician of a particular style or subgenre – while another group has absolutely no idea what their peers are talking about.
But in 1998, culture was much more homogeneous. Of course, there have always been small subgroups of people who share a very specific interest; nothing new about that. But back then, it was much harder to completely avoid a popular phenomenon. If something was popular, people knew about it!
Everybody knew who won the Super Bowl. Everybody knew who was competing to break Roger Maris’ longstanding home-run record. Even people who didn’t follow sports at all would hear about this stuff; it was hard to avoid! But today, it’s much easier to get lost in a niche, and remain oblivious to things that are well-known in other groups.
In the days before everybody had their noses buried in smartphones, you’d see things on TV, or hear them on the car radio, or read them in the newspaper. For instance:
The evening news reported on a toy store’s entire delivery of Beanie Babies completely selling out in minutes.
Local car dealers advertised that if you take a test drive, the dealership will give you a free Beanie Baby. Just for a test drive – they didn’t even require you to buy anything!
Other local businesses required you to buy something before they’d be willing to part with one of their stock of precious Beanie Babies. But people flocked into their shops anyway, enticed by the promise of a Beanie Baby – which will, of course, be worth something someday!
There were books, just like for other collectors’ markets, describing the manufacturing totals for various different types of Beanie Baby, and also containing information on errors and other subvariants. I suppose this isn’t terribly surprising, but still.
People scoured nascent websites like eBay for deals on Beanie Babies.
Reportedly, at the peak of the craze, 10 percent of eBay sales involved the plush toys.
But caveat emptor. Counterfeiters were active in the Beanie Baby market!
Law enforcement pursued these counterfeiting rings. Yes, governments spent energy and money to pursue counterfeiters – not of currency, but of stuffed animals!
When an eight-year-old thinks adults have lost their sense of reason over a toy, something is definitely wrong! But, hey: “They’ll be worth something someday!”
________
At around the same time, the Mint announced the State Quarters program. They would issue a different design for every state.
Hey, I’m a young coin collector at the time. Surely, I’ll go crazy over this new program, right? After all, some local stores – again, cashing in on the hype about something that had nothing to do with their core business – gave away coin maps, on which I could proudly display a new quarter for each state. And since they would be easy and cheap to collect, why wouldn’t a young coin collector be thrilled about this new program?
Knowing my interest in coins, my well-meaning relatives, including my grandmother and my father, gifted me state quarters for my collection. My dad even bought me proof sets of state quarters for my birthday every year, which actually wasn’t a bad decision, though he missed 2002.
(Recently, I bought a Mint proof set for 2002 to complete the collection. But in 2022, I paid less for my proof set than my dad would have paid the U.S. Mint back in 2002. Serious collectors know stuff!)
Anyway, I remember telling my parents, in the midst of the hype, that it didn’t make sense. Basic supply and demand was no mystery, even to someone who hadn’t yet seen his tenth birthday.
I only had to refer to a coin book to see that, in 1996, the Philadelphia Mint made over 925 million quarters. The Denver Mint made an additional 906 million quarters.
So, combining the outputs of those two mints, almost 2 billion quarters were minted in the year 1996 alone! For a population of roughly 270 million people at the time, there were enough fresh new quarters in the year 1996 that everyone could have had 6.78 brand-new, mint-condition quarters. And we know coins don’t wear out that fast; supply seemed more than adequate!
With those kinds of numbers, did the Mint ease off in 1997? Yes, a little bit – they only made 595 million in Philadelphia and another 599 million in Denver. And in 1998, production jumped back up to over 800 million quarters at each Mint. (I’m not even counting the proofs made at the San Francisco Mint, which adds up to another one or two million coins per year – proof coins don’t actually get circulated to banks and stuff; they get sealed in plastic holders and sold to collectors).
Jeez, how many quarters do Americans actually need?…
And, of course, once the State Quarters program began in 1999, annual production went up (though, of course, the figures were lower for each particular state). In honor of Delaware, the first state, each of the main mints produced approximately 400 million coins. Pennsylvania, New Jersey, Georgia, and Connecticut were also honored with designs in 1999, for a grand total of over 4.4 billion quarters minted and sent into circulation in 1999 alone. The total mintage of State Quarters in 2000 exceeded 6 billion!
I still remember that people were eager to collect those quarters, especially when they first came out. And, whenever a new design was issued, they were eager to save one for me. Hey, I was never one to refuse gifts of money! But, at least in my experience, adults didn’t read from the script that “they’ll be worth something someday!”
I still don’t know whether they refrained from using that line because of my pre-existing interest in coins, or because Ty – the manufacturer of Beanie Babies – had hypnotized people en masse to say “They’ll be worth something someday!” every time somebody said “Beanie Baby.” I was seriously starting to wonder…
Most people seemed to lack the stamina to collect quarters for the entire 10-year issue from 1999 through 2008, however. By 2001, enthusiasm for collecting quarters seemed to have largely waned (except for my relatives, who continued to kindly think of me whenever they saw a new design).
________
Similarly, Pokemon cards were really hot when I was in 4th and 5th grade. This was around the same time, late 1990s, and certain rare cards – like the holographic Charizard – was selling for $100 or more, if you could even find one. Imagine: kids paying $100! For a piece of cardboard!
Apparently, they go for even more these days. I see highly-graded, encased examples going for thousands of dollars. Sheesh!
Just like with the other manias, businesses were quick to use giveaways of Pokemon cards to drum up business. Maybe it’s just because I was a kid and I paid attention, but it seemed like Pokemon was everywhere, just as much as Beanie Babies had been.
________
While I was too young and inexperienced to draw firm conclusions about what motivated such mass delirium, I’ve thought about it often since then. So I will issue some tentative suppositions and a warning.
My understanding of economics and of the human mind are definitely better today, but I still don’t truly understand what makes entire populations lose their minds. [And if I did, I’d go start a company that makes some sort of ‘collectibles’ and convince the entire developed world to go nuts and give me loads of money!]
Supposition 1. I think the twin booms in stocks and housing played with people’s minds, making them feel wealthier than they really were.
I believe this is probably the biggest factor. The big financial booms convinced people that the future would be nothing but bright, with ever-increasing values on basically every type of investment.
The stock market had done well for most of the 1980s and 1990s, and in 1995, things really took off. At around the same time, The World Wide Web – which did end up changing our lives in some ways, though probably not as much as enthusiasts believed – was starting to catch the popular imagination.
Since Corporate America had largely moved to defined-contribution 401(k)s instead of defined-benefit pension plans, a lot of ordinary people were involved in the stock market. Which means a lot of ordinary people were paying attention to the stock market. Including blue-collar people who, twenty years earlier, wouldn’t have given a hoot about how stocks were doing.
I think these circumstances were a big contributing factor to the boom in collectibles.
People felt rich. People felt like they couldn’t lose. Everything was going up! Might as well get in while you can, before prices go up even further!!!
That heady feeling, in combination with social proof [hey, everybody else is doing it! They can’t all be wrong! And I don’t want to miss out!] likely prompted people to cast reason aside and join the crowd in a speculative mania.
But speculation is inherently unsustainable. There are only so many fools in the world. Eventually, people will no longer remain willing to pay ever-higher prices for something that only sits around and collects dust.
Supposition 2. The duration of America’s strong economic performance was a factor as well.
So the price of housing had been going up pretty steadily for 15 years, and the stock market had been going up pretty steadily for 15 years, and the Internet was going to come along and change everything.
See where I’m going here? What do you think these facts did to the psychology of the ordinary American?…
If it had been just a five-year run-up, people would have remembered leaner times. But after 15-20 years of a mostly strong and growing economy, people were forgetful. They convinced themselves that a new paradigm was in place: one of continual prosperity.
But, of course, there is no such thing. Prosperity may last a while – decades, even – but human psychology, along with a whole lot of history, indicates that eventually, someone will overdo it. People will get, in the popular expression, ‘fat and lazy.’ Eventually, the productivity growth will slow down, or even stop. And then, it’s only a matter of time until things come crashing down.
But if you’ve been doing well for the past 18 years, you eventually start to think the good times will last forever. And, of course, that thought will immediately precede some bad times. As Proverbs 16:18 says “Pride goes before destruction, a haughty spirit before a fall.”
Supposition 3. Access to information compounded the folly. The Web gave people access to more information, without the wisdom to properly assess their findings.
You could look up price trends in Beanie Babies over the past 6 months or 1 year, and you could find chat groups where people were extolling the virtues of collecting Beanie Babies.
You could even find examples of people spending hundreds, or thousands, of dollars on specimens they expected to appreciate in value! For instance, the Princess Diana Beanie Baby, issued after her death in 1997, which isn’t actually rare.
But you wouldn’t find more general information on supply-and-demand, or the workings of collectibles markets, unless you looked for it.
And, as we know around here, it’s easy to look at a year or two of data and extrapolate that into the future. “Hey, the Dow has gone up at least 15% every year, for the past 3 years straight! If you carry that rate for the next 30 years, compounded annually, that will turn a $1000 investment today into $66,000!”
But, of course, the long-range annual return for stocks is just under 10% with dividends reinvested. Not 15%.
To continue the above example, this difference, compounded over 30 years, comes to $17,400 (at 10% per year) vs $66,200 (at 15% per year) – a difference of nearly $50,000!
Avoid the trap of assuming an overly optimistic rate of return.
________
Those early experiences with Beanie Babies, Pokemon cards, tamagotchi pets (remember those?), and special-issue state quarters really gave the young Froogal Stoodent a front-row seat to popular delusions and the madness of crowds (to borrow the title of a classic 19th-century book on investing bubbles).
In fact, to this day, I temper my excitement about opportunities by remembering the look in the eyes of those adults.
What sticks with me the most is the sparkle in their eyes. It’s really hard to describe, but their faces took on this quasi-religious look, and their tone of voice was earnest, as they told me “They’re going to be worth something someday!”
At the time, I didn’t realize the explanation for that look. I didn’t really realize what had overtaken their faces and set their eyes alight.
But it was the same expression that some of my fellow kids had whenever they talked about selling their Pokemon card collections for thousands of dollars someday, or getting sign-up bonuses when they started their future careers, or getting free stuff and flipping it quickly for a few dollars of pure profit.
But today, I do realize what that expression was.
It was greed.
________
For what it’s worth, those adults weren’t completely wrong. Beanie Babies are worth something today. After all, 99 cents isn’t nothing! 😂
I didn’t make that up. A quick search of “Beanie Babies” on eBay yielded a couple examples at $0.99, though one was being offered for $900,000 “or best offer.” That’s one of those Princess Diana Beanie Babies that really aren’t rare, according to the Today article linked earlier. I didn’t feel like looking past the first page.
Here’s an archived list of some of the most valuable Beanie Babies, updated March of 2023: http://web.archive.org/web/20230402173955/https://www.workandmoney.com/s/most-valuable-beanie-babies-e902756fef944af3
The list starts with Flutter with Yellow Wing, at a going price of $198, and goes up to a few thousand for most of the entries – not bad, but probably not the values those erstwhile ‘collectors’ had in mind 25 years ago.
This list of the top 125 doesn’t cross the $10,000 mark until #12, Iggy the Iguana. In fact, the number 3 most-valuable Beanie Baby, Bubbles the fish, sold for less than $22,000! So people pinning their retirement hopes on Beanie Babies were probably disappointed, unless they managed to get #2, a large 15-inch Peace-themed bear that sold for $159,000, or #1, a large 15-inch Wallace the bear (with four normal-sized friends that were encased in what appears to be plastic), a lot that sold for $300,000.
And while we’re at it, the $4.95 price tag on a 1990s Beanie Baby, if invested in the S&P 500 in March of 1997, would be worth just over $30 today – enough to buy anywhere from 3 to 5 new Beanie Babies today.
For most of those Beanie Baby ‘collectors,’ the S&P 500 fund would have been a more productive use of capital 😂
A famous story about Joseph Kennedy, father of the famous political clan, goes that he decided to exit the stock market in 1929 when the young boy who was shining hisshoes gave him stock tips.
While some people think that story is not quite accurate (or at least oversimplified), it actually does a good job of communicating the social/behavioral aspects of a bubble. From my own experience with the late-90s bubble, I’m actually inclined to believe it.
When you’re in the late stages of a financial bubble, people emerge from the unlikeliest of places to offer their ‘expertise.’ Not unlike the recent crypto crashes, actually – from its peak in November 2021 to its most recent trough in December 2022, Bitcoin plunged from over $65,000 to under $17,000. During the run-up to that 2021 peak, though, all sorts of self-appointed experts came out of the woodwork to preach the world-changing power of Internet money.
Such behavior seems to be characteristic of bubbles, and this knowledge can help protect you from getting caught up in the hype. Notably, I did not participate in the crypto hype – I have never bought, mined, or otherwise acquired a stake in any cryptocurrency.
I actually did consider buying some Bitcoin in November and December of 2022, when the price had dropped down to under $17,000 and the FTX disaster was a top headline. But I didn’t, largely because I recognize how little I actually know (and also because I’m naturally quite risk-averse, and the lack of regulation in that space scares me. For example, the Terra/Luna fiasco is something that I don’t understand and definitely wouldn’t have been able to predict).
But I can certainly consider the following before I get involved in anything:
When you get hot stock tips from a shoeshine boy, you know the bubble will soon burst.
When you get tips on collectibles from aunts, neighbors, and elementary-aged schoolchildren, you know the bubble will soon burst.
When people’s eyes light up with the odd shine of greed when discussing an ‘opportunity’ of any sort, run.
And that’s how you identify bubble psychology.
Heed the lessons of the past. If you don’t, I don’t want to hear a word of complaint about how you got suckered…
__________
Want to learn more? Check out my book reviews, including Ray Dalio's Changing World Order: https://froogalstoodent.blogspot.com/2022/04/the-changing-world-order-froogal.html
No comments:
Post a Comment