Can value investing principles apply to Card Collecting?

The short answer in my opinion – no.

During my undergrad I took a class in value investing. Based on the seminal teachings of Benjamin Graham and David Dodd, I learnt fundamental value principles for investing in equities. The main goal was to invest in equities with defensible and sustainable earnings power at a discount to their intrinsic value. In order to value intrinsic value, one focused on cash flow generation and assumed a no growth scenario – a perpetuity with no benefit for perceived growth.

Now this model could hypothetically be applied to other assets such as condo, where net cash flows were calculated with the assumption that rental income had no growth. If the condo was trading at an attractive free cash flow yield, an individual could purchase the condo at a ‘discount’.

Can we apply this model to Card Collecting? My view is no. Warren Buffet, an active proponent against investing in gold, once stated that gold has no ‘intrinsic value’ as it does not generate any cashflows. I think the same can be said about card collecting. In reality, you end up with 5 cents of cardboard,  a 50 cent plastic cover and no value generation.

So why would I invest in Card Collecting? The reason cards accrue value over time is their emotional value to the investor and their rarity. The rarity aspect draws parallels to Net Asset valuation techniques for equities, where one looks to put a price on the replacement value of an asset- how much would a competitor have to invest to develop an identical asset portfolio. In the Card Collecting business this would equate to acquiring the card or set in question. Now this is quite subjective, but you could quantify the replacement value by gauging recent acquisition prices across auction platforms – which is what I hope to do. You would then look to acquire cards at the lower end attempting to lock in a margin of safety.

In summary, Card collecting does not exhibit fundamental value investing principles as cards inherently do not provide sustainable and defensible earnings power. Instead I will focus on undervalued assets (margin of safety) based on replacement cost.


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