Blast from the Past

Oh, no! I fired you! Just like the hair salon guy and the Chevy dealer!  You know why you can’t keep a [damn] job?  Because you can’t keep your [damn] mouth shut!  That’s why!

Blast from the Past (1999)

I visited my folks down in Texas recently. In a familiar ritual for anyone in their late 30s, I went out to the garage with my dad, who had found a couple boxes of stuff from when I was a kid. What do you want to do with this, Rusty?

Some of you will recognize the contents of this plastic tub immediately. For the benefit of those that do not recognize them, these are Becketts. For many kids in the late 1980s and early 1990s, they were the Bible. You, see they told us how much our baseball cards were worth. They told us which cards we absolutely didn’t have but needed. They told us which cards we could clip to the wheel spokes on our bikes to make them buzz when we rode.

Now, you probably know or at least vaguely remember that the baseball card (all sport-related card collectibles, really) industry rose to great heights in the late 1980s and utterly collapsed by the late 1990s. Just long enough to give us a good MacGuffin for Blast from the Past. When a market goes through a bubble and bust cycle, we can usually identify a dozen contributing causes. In this case, we don’t have to. It’s very simple: The sports card market rose and collapsed because of Beckett Baseball Card Monthly.

Prior to the early 1980s, the low-to-medium end of sports memorabilia was an extremely inefficient market. As with many collectible items, baseball cards were scarce enough that transactions did not take place that frequently. Their markets were regional, which meant that values for collectibles related to anyone other than the most famous players or Nolan Ryan (who played on the east coast, west coast and in Texas) could differ significantly in price. They were idiosyncratic. Price variations could be driven as much by one buyer’s personal preferences as what the price should have been. They were subject to massive information differences. It was not widely known by the holders of the assets that their collections had worth, much less that one card or another had a particular value.

Beckett changed all that.

In the mid-1980s, Beckett began soliciting prices of cards from dealers. These prices came from shops, shows and major traveling collectibles events. They represented available-for and transacted-at prices. This was pre-internet and pre-eBay, of course, so there was little that Beckett could do to confirm what was being reported. Sure, they had enough data to see if a contributor was systematically under- or over-reporting relative to the rest of the universe, or if there were irregularities in their reports. But in general, the belief was that there were enough reports of price that the owners trying to talk up the price and the prospective buyers trying to talk it down would cancel each other out and result in a robust representation of the true market. And as long as the market mostly consisted of true enthusiasts willing and able to participate on both sides of a transaction, this was true. OK, trueish.  

But Beckett quickly became a source of common knowledge – what everyone knew that everyone knew – about the value of baseball cards. They became the industry’s One True Missionary.

It wasn’t simply the availability of information about the value of baseball cards that facilitated the rise of the industry, however. It was the ability that dealers, manufacturers and Beckett itself now had to create information that everyone knew that everyone knew – common knowledge – about the value of newly published cards. Were there really people paying $30-40 for a 1989 Fleer Craig Biggio rookie card within days of it being uncovered in a wax pack? Or was it a representation of what dealers wanted to charge –  or at best a price at which an early transaction or two had taken place while everyone else waited for an accepted market price to emerge?

It was both.

Beckett imbued collectibles professionals with the ability to create common knowledge about prices. Once these individuals discovered this, it became clear to any who possessed any measure of savvy that their best business was no longer to be buyers or investors or traders or agents who would play both sides of transactions to take advantage of inefficiencies. The only model that truly made sense was to become nearly exclusive sellers, and to target a growing market of buyers increasingly informed by the dealer-provided data going to Beckett.

Once this began, it was only too obvious to card manufacturers what they needed to do: Give the collectibles industry trappings of scarcity and segmentation to permit them to differentiate price and create even more confidence in the common knowledge that Beckett promoted. In the end, once Beckett published that a card was worth a certain amount, transactions really did start to happen around those prices. And so manufacturers printed hundreds of millions – billions – of cards. Cards with foil surfaces. Super-premium packages on thick card stock. Variant cards with a gold-embossed logo in the corner to let you know that this was a very rare version of this card. Cards with pieces of bats or gloves or jerseys attached to the card itself. Signed cards. Billions of them. Within a moment of a series of cards being printed and sold in wax packs across the country, a surprisingly sticky price for it emerged in Beckett. Not much later, real collectors – and a lot of kids like me – paid real money at those prices. The world of abstraction became the real world in a big damn hurry.

In writing about the crash in baseball cards, many will tell you that it was collectors’ awareness of just how many cards were printed that did it. Others will say that it was a growing fatigue at all the new brands, all the new series, all the special cards. Nonsense. What really killed baseball cards was the existence of a compelling contrary source of common knowledge, which in turn killed what control selling-minded dealers and Beckett had over anchored initial valuation ranges. What really killed baseball cards was eBay – a place where collectors could see in the open how many sellers there were at these prices, and how few buyers.

Baseball cards as an industry lasted for years beyond the point at which the sellers were in on the joke, because the manufacturers and card-sellers relied on its survival. It lasted months once the average buyer was in on the joke, because he did not rely on its survival. This is the way of most bubbles. They rise. They fall. They regress to the mean. They come back to fundamentals. However you want to describe it in your own language.

When we write about the making of markets into utilities, we are talking about something different. We are not talking about vanilla cycles of narrative-influenced bubbles and bursts. We are writing about attempts to transform financial markets into a social institution that is robust to the emergence of contrary information. Metastability. How does that happen? By making it common knowledge that all of us – not just a particular side of most transactions – have a vested interest in a particular outcome. By making it common knowledge that certain things will not be allowed to happen to imperil those interests.

Narratives can break. Narratives can change. But as investors we often take comfort in the belief that things that are stretched will always revert back to some mean. When we all need to believe something, however, that reversion may take far, far longer than our empirical models tell us.

In some cases, it may take longer than the time we have to invest.

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  1. Did you keep the Becketts?

  2. As always, you and Ben present issues facing investors, portfolio managers so well.

    It does seem that Government officials (like The FOMC) are using actual resources and sacrificing future growth to
    turn free markets into what you describe as public utilities in their misguided and hubris-filled attempts to “manage” the economy .

    And it may well mean that sharp declines in markets that we’ve seen for over a century will be “managed” out of existence.
    But I doubt it. History argues against their ability to do so even if it’s proven they want to.

    But let’s say you’re right, The Neo-Keynesians that populate the FOMC ( and economic advisors to Congress and the President)
    become determined to domesticate markets for their vision of the greater good.

    It may mean no more 50-60% cyclical declines, but it also means no upside, perhaps for decades.
    Long term valuation still rules.

  3. My pre-this-piece take was that eBay was the catalyst that exposed the, um, house-of-cards that was the baseball card market and, technically, that’s still an okay explanation, but your piece is so much more as it walks one through the inflating and deflating of a bubble in granular and nuanced detail.

    One of several takeaways that resinated with me - as I’ve seen it happen before but never fully appreciated its value as a tell - is your explanation of why the “market makers” became nothing but sellers / shills. There are some “interesting” parallels here to the retail structured-note market - both the dealers-are-really-just-sellers and the market-segmentation-to-create-“scarcity” (more variation of the basic structured note) aspects.

    Once again, I emphasize, ET is intellectually stimulating (which is all good and well), but also provides very practical tools and analysis for trading and investing (which is even better).

  4. Avatar for rguinn rguinn says:

    A few of them that I remembered really liking.

  5. Avatar for rguinn rguinn says:

    I’m not sure. It might stop there, but I’m not sure how long equities could be flat before mission creep found its way in.

  6. Avatar for rguinn rguinn says:

    Thanks, Mark. I also think that there’s a uniquely current element of ‘empowerment’ of us as individual investors that is meant to maximize our ROI for those sellers.

  7. Agree completely. All the DIY-investing / robo-platforms are lining up the Millennials as lambs to the slaughter with just that tactic. Casting an even wider net, the entire “educational” efforts at most firms (Fidelity, I’m talking about you, too) is oriented to all age groups and intend the same desired, beneficial-to-the-firm, result. It’s not much better than being “educated” by a condo time-share seminar only to, then, be presented with time-share-purchase opportunities immediately afterwards.

  8. Some education is better than none. I know it is facile to say this, but the vast majority of retail investors don’t correctly understand compound interest (see credit card balances). Yet they are expected to manage their retirement capital. Trailing 1 year money flow into combined equity ETFs & Mutual Funds matched tech bubble levels going into Q1 2018. Money flow out of MF complexes in December was over $250 billion. Advice can help to change behaviour.

  9. I agree that sincerely educating retail investors is a good thing; what I object to is education weaponized as a sales tool (and quite transparently to those of us in the industry).

    The industry does both as there are some very good tutorials, etc., available for the retail investor, but much of the material and that effort is also deployed to generated revenue / capture assets.

    In a way, the medical field has become similar in that the patient has to educate him or herself to avoid being over billed and sent for unnecessary and expensive tests. The challenge there, as in investing, is finding the right balance between self education and the intelligent selection of a qualified doctor / FA to help you. In either field, it ain’t easy.

  10. Avatar for ianfvr ianfvr says:

    Wow. A true blast from the past. I LOVED collecting baseball cards and checking Becketts. And it’s weird because I was only 9 or 10 but the proliferation of remixes on the original cards that started coming out made me disgusted and sad and I remember losing interest quickly.

    Me aculpa though; I bought stuff like 1986 Donruss Rookies sub-collection and some of the “true” rookie cards like Daryl Strawberry I think ‘83 (vs a mere standard ‘84) with full gusto so it’s not like I didn’t partake.

    Didn’t know why but strongly remember being really disappointed. Is that a heuristic, when the passion and fun and puzzle start to dissipate; it’s a bubble / it’s politicized / some politician, Baron or executive is surtaxing or needs to surtax a pool of value?

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