Times are changing fast and in 2021 we are basically changing directions at the speed of light when it comes to interests/hobbies and investments. Literally since the start of Covid of just about 1 year and change ago, we literally went from Jordan Bulls memorabilia skyrocketing (thanks to the Last Dance documentary) to Pokemon trading card hype to Basketball card explosion/breaks to online gambling in meme stocks in GME/AMC to Crypto currencies and now we are sitting at NFTs. As we all know trends and hype comes and goes eventually, but throughout my life time this is probably the fastest I’ve ever seen turnover when it comes to trends. The underlying of what we use to fuel these trends/hype doesn’t change…and if you’re guessing what that is…yeah…you got it! it’s MONEY!
Sure, you have a lot of “enthusiasts” in each respective field that don’t care about the money because they really love the product so much that it is their passion to do what they love. Ie. Before the basketball trading card hype up this year, there were plenty of enthusiasts that collected cards as a hobby and passion and they don’t care if certain cards exploded in value because they love what they do so much that money wasn’t a factor. The same goes with sneakers. HOWEVER, here’s the problem. When you tell someone you bought a Luka rookie card 3 months ago for $100 and it is now worth $500, in which you 4x your money in 3 months…what do you think this is going to attract? You are absolutely correct! You’re going to attract a lot of people that are thinking money signs $$$ instead Luka rookie card. These guys don’t care about the rookie card… for god sakes the card doesn’t even have to have Luka on it…it could even be a card with a penis on it with a 10 GEM rating in a plastic slab. Who cares what it is! All they care about is making that $400 in 3 months. Precisely so…this has been happening in the sneaker market for the past decade. People re-sell sneakers because they know if they buy a Jordan 1 today for $200 – they can make 0.5-1x their money in a few weeks/months.
So back to my topic for today…why is sneaker investing much harder in 2021? This circles back to what fuels a certain industry and we all know that is capital/cash. Knowing where capital is flowing is important because cash is in theory finite in this world (unless you’re Powell and want to go BRRRRR with the money machine in 2020 and 2021). Sneaker re-selling has been super lucrative over the past 10 years because it has attracted a lot of capital from people all over the world. As I mentioned before…these people see money signs and NOT the quality of the sneaker and what type of leather they used on the Jordan 1s. They don’t care…they just want to make some money with their money. Sneaker reselling typically would yield you about 30% margins year over year if played right. 30% is a very good return relative to the stock market and serves as a good business for those with money. BUT if better opportunities come up, these same people will jump ship in a heart beat and jump on the next bandwagon hoping to capitalize. Back to my Luka rookie card example… If it takes me 3 months to 4x my money and it takes 1 year to earn only 0.3x on sneakers…SHIT! I’ll be selling ALL the sneakers I have and buying all the Luka cards I can get and this is what causes prices to keep on rising in the short term because of the new influx of capital. I did say short term because if these people see better opportunities again, they will jump ship again…where are they now? NFTs that are yielding them 10-50x. With people dumping shoes and buying cards, this drives down prices of sneakers and results in a market where there are less buyers/investors (demand) more supply which ultimately results in lower market prices.
So if you’re trying to ask me why my Jordan 1’s aren’t doubling in price in 1-2 years like they used to…well I just basically explained it to you in a few paragraphs. I mean I may not have drawn the complete picture for you, but for the most part I know it’s pretty accurate as I wouldn’t be able to explain everything as there are so many moving parts in the world that can’t possibly be explained. Sometimes it’s impossible to anticipate these changes in the market, but as a business it’s good to be diverse in your operating model that allows for changes in the market place. For example, as i mentioned before over the past 1-2 years our focus has shifted quite a bit to brick flipping because the hype market has slowed down quite a bit. So instead of doing more higher margin holds, we used the capital to do quick flips with lower margins and hoping higher volume will put us where we need to be. Brick flips may not sound or look sexy and certainly won’t get the most like or comment engagement on IG and that’s exactly why you never see us posting much about it. BUT one thing it does do is it gives us a stable business/cash flow to keep the business going even though our holds may not have worked as well as planned. Everyone needs sneakers to wear…everyone needs a clean pair of $100 White on White AF1s. Not everyone needs a $1,000 off white. I’ve been in the business and market long enough that I know trends will come and go and come back again…and in sneakers it almost always comes back! So until then…buy low, hold and maybe sell high in the future.