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.