I should have bought more Lego!
As the last few weeks have demonstrated, investment markets can be unpredictable. The recent fall in the Chinese stock market (down about 40% at its worst) came as little surprise to many analysts. The Shanghai Index had experienced unsustainable growth driven by excited but uneducated investors. Slowing Chinese growth, falling natural resource prices and possible interest rate rises contributed to the necessary correction. The media reported sorry stories of those who had lost their life savings, although omitted to mention that they had pretty much put all their eggs in one basket!
Whether you should stay invested always requires a bit of crystal ball gazing but there are widely held views that the fall was an over-reaction driven by significant profit taking by a relatively small number of investors. China’s growth is slowing but still respectable. Falling natural resource prices may be bad for those that produce them but is great news for those that use them. The hike in interest rates in America seems to be unlikely now.
Looking beyond the apocalyptic headlines is always worthwhile. I’ve mentioned in articles before that timing when to get out of and back in to investment markets is a lottery at best. The MSCI All-Country World index grew by 96% over the last 10 years (similar to a diversified managed fund) but if you had been disinvested on the 10 days that the markets rose the most you would have missed out on over 70% of this growth.
It is however times like this when stories emerge of things you should have invested in instead. These rather frustrating editorials of hindsight make interesting reading but rarely give the full picture.
Take Lego for instance. The Telegraph recently did an article on investing in Lego. Not Lego shares as it’s a private company, but actual Lego sets. Sets that have been kept in pristine condition are reported to have increased by an average of 12% each year since 2000. For example, the 2,056 piece Lego model of hotel ‘Café Corner’ originally sold for £89.99 but the price has risen to £2,096 since it went out of production. An impressive return of 2,230% in about 5 years!
This makes entertaining reading but it should be remembered that the returns are driven by nothing more than an individual’s demand for a product, which can be fickle and subject to fads. It also requires the identification of which of the thousands of Lego sets in production are going to be the ones that will be worth a lot more in the future. A fun hobby maybe but not one that your financial future should rely on!