Charizard vs. The Stock Market

Being born in 1988 I was perfectly placed to be sucked into the phenomenon of Pokémon. By the time it reached the UK in 1999 I was 10 years old and completely ready to set off on my adventure just like the franchise's hero Ash Ketchum. The only difference was that I would be starting my adventure with a Charmander, and I'd know I wouldn't be able to battle a Metapod with another Metapod.


Alongside the red and blue versions of the game there was also the joy of Pokémon trading cards that you could buy from your local corner shop, with the hopes of collecting your favourite Pokémon and battling it out with your friends at school. Ahhhh, the nostalgia...


As much as I'd like to reminisce in the fond memories of fighting Pidgeys and Rattatas in the forests just outside of Pallet town, I should stay on topic with the rest of the blog and talk about finance and investing. Luckily, there is a way to do this while still keeping with the Pokémon theme and that's by talking about rare trading cards.


One of the most coveted and rarest Pokémon trading cards is the 1st Edition Charizard, especially if it is in mint condition. For a card to be officially considered mint condition it needs to be graded by a recognised body such as Professional Sports Authenticator (PSA).


A picture of a PSA 10 1st Edition Charizard shared by @Cardhops on Twitter

Recently a 1st Edition Charizard card with a grading of 10 (the highest) by PSA was purchased for the price of £173,000, which is crazy. But even more amazing is that not that long after it seems as though another 1st Edition Charizard card, also with a grading of 10, was sold for $350,100 (Around £260,000).


Considering the listing and auction was by PSA themselves I think the information here can be considered as accurate and reliable as it gets.


Pretty insane considering it's just a trading card with a picture of a fictional monster on it. At least it's shiny I guess? (That's what a non Pokémon fan might say...)


But nevertheless, that's a huge sum of money and it got me asking the following question -


What were the original chances of getting this card, and would the money have been worth it?



How many 1st Edition cards were produced?


As a starting point to answering my question I first need to figure out how many 1st Edition Pokémon cards were produced in total, and what proportion of these would have been the rare Charizard card.


According to this PSA article, "No one knows the exact number of 1st Edition cards, but it's been estimated that less [than]10,000 of each card was produced."


Ok, so it's somewhat inconvenient that there aren't any exact figures to work with since now we have to do some guesswork but it's still a rather interesting question to pursue. Here's what I did find out at least - there were 102 different cards in the 1st Edition set of cards and they can be separated out into 5 different categories in terms of rarity.


A table by PSA describing Pokemon Card rarity

Using this table and assuming that no single card has over 10,000 copies produced, we can make the following guess on how many of each card was produced:


My own guesstimate table on the volume of each Pokémon card based on rarity

Author's note: I know we said that no single card had over 10,000 copies produced but it didn't make sense in the case of Energy cards. I remember pulling loads of Water Energy cards out of each pack I bought and if everyone's experience was similar, the number of energy cards would quickly have run out. Obviously more of these energy cards would have been produced in follow up editions but the balance still seemed a bit strange. So I've simply assumed that the 10,000 upper limit applies to "monster cards" and I've given the energy cards a bit of a boost to make their proportion a bit more sensible. Again I should stress that this is all a guesstimate!


Based on my estimated volumes there would have been a total of 824,000 1st Edition cards available to collect.



What were the chances of getting a 1st Edition Charizard?


Charizard being card #4 would have fallen into the Holographic category making it among the rarest of cards. Based on that category and my own volume table I estimate there to be around 1,500 1st Edition Charizards.


I haven't plucked this number out of nowhere and have relied on the fact that PSA has received 1,071 Charizard cards for appraisal, 95 of which were given a grade 10. Obviously, it's unlikely that all 1st Edition Charizards have been sent into PSA since there would be some that are unfortunately lost or destroyed, so a nice round number to place a "marker" would be 1,500.


There's also no evidence or suggestion to say that the Charizard card is in fact rarer than any of the other 1st Edition holographic cards such as Blastoise or Venusaur, both of which would also only have 1,500 copies based on my table and are valuable in their own right.


So I have discarded my initial notion of making the volume of Charizard cards less than the others and will simply attribute its higher price down to pure popularity.


On the note of popularity, Charizard has somewhat held a special spot among Pokémon fans since the release of the game in the UK. So it's probably reasonable to think that most people who were fortunate to own a 1st Edition Charizard would've looked after their copy - even if it was impossible for them to know how it would rise in value over the years (or at least, how much it would rise).


1,071 out of 1,500 means that around 70% of all 1st Edition Charizards would be "accounted for" - which in all honesty might actually be a reasonable number. Think about it, when you hear some news that a card that you might have owned 15 or 20 years ago is now worth thousands, you're going to go and check your attic.


Assuming all of those estimates and volumes are reasonable, there would have roughly been a 0.182% chance in you getting a 1st Edition Charizard. Here's the math for clarity:


Number of 1st Edition Pokémon Cards: 824,000

Number of 1st Edition Charizards: 1,500


Chance of getting 1st Edition Charizard: 0.182%

(1,500 ÷ 824,000) x 100



How many packs, and how much statistically?


Now that we know the chance of getting a 1st Edition Charizard overall, we can calculate how many packs of Pokémon cards we would have needed to buy to statistically get one, and what that would have cost back in the day.


There were 11 cards to a pack (In later editions of the cards there would only be 10 per pack) meaning there was a 2.002% chance per pack to get a Charizard. You can easily do this math by multiplying 0.182% by 11.


2.002% means you would need to buy 50 packs of cards to "statistically guarantee" yourself a Charizard.


Author's thought: With my luck I'd probably need 150 packs...


It's difficult to find any official source of a price for a pack of Pokémon cards back in 1999 but there seems to be numerous independent reports recalling that the price was between £2.50 to £3.50 depending on where you were. To be honest my original guess was something like £4.99, but that might be because I remember my mum always scolding me whenever I asked her to buy me a pack... "So expensive! No!"


She never did understand that the cost of becoming a Pokémon Master would be worth it... let's just use £3.50.


50 packs of Pokémon cards at £3.50 each pack would have come to £175.


So, if you have a time machine to go back to 1999 and you're planning to invest into 1st Edition Charizards, it should only cost you £175 statistically speaking.





Was it a good investment?


Well, turning £175 into £260,000 ($350,100) in the space of 20 years is definitely a good investment, no question about it. But the real question is if Charizard has consistently outperformed the market over the many years since its release.


The above price tag which was also mentioned towards the start of the article comes from the list of auctions managed by PSA, and can be found here.


The interesting thing about this list is that you can see a history of grade 10 1st Edition Charizard card auctions from 2016. If we use this data we can plot a chart for the price growth of this card in history to see if it has always been a great performer, or if it this is just some recent phenomenon and some rich person decided to overbid since they clearly have nothing better to do with their money.


From the auction list we have the following values (All $ converted to £ using the exchange rate of the auction date):


The value growth of a 1st Edition Charizard card over the years

* In the first section of this article there is a mention that it was a struggle to sell the grade 10 1st Edition Charizard card for $600 to $700 back in 2008. It wasn't an auction but I've included it into the price table as it gives a nice "historic figure" to get an understanding on how things have changed since then. In addition to this, the card that was sold for $350k was apparently bought back in 2009 for $700. I've used the USDGBP exchange rate from 1st Dec 2008.


Next, let's compare this to how £175 would have performed if it was invested into the S&P 500 index in 1999. We can even take it one step further by comparing it to some of the best performing companies in the past 20 years based on this article.


Since the S&P 500 is denominated in the US Dollar we're going to need to convert things back into USD for the following calculations, based on the exchange rate around the 9th January 1999 (The day that Pokémon cards were released outside of Japan). At a rate of 1.65 USD for 1 GBP we would have around $288.75 for our £175.


The following table shows how many units $288.75 would have been able to buy in terms of the S&P 500 index and the three "best performing stocks" in the past 20 years: Apple, Netflix and Monster (yes, the drink).


For £175 in 1999 you could have bought the above Stocks or the S&P 500, instead of 1 Charizard

And here's how the value of those investments grew over time, using the same dates as the auction sales previously mentioned:


I've only just noticed that the chart gave Charizard the orange line!

These are the chart figures for reference

To quickly explain how the chart figures are calculated, back in 1999 with $288.75 you would have been able to buy 0.23 units of the S&P500 (Actually it's 0.22846 but I've rounded it to keep things tidy). On the 13th December 2020 the value of the S&P 500 was $3,647.49 (Based on .INX). Multiply that value by the units you own and you get $833.32.


I don't know about you but I find this chart to be really interesting - first, I couldn't find the line for the S&P 500 until I realised it's practically hugging the X-axis. And second is that Charizard was trailing in second to last place until 2020, where the most recent purchases have rocketed it up into first place. Anybody think there'll be warnings of a "Charizard bubble" any time soon?


Best. Bubble. Ever.


And also, who'd have thought spending a few hundred dollars on an energy drink could result in profits of a few hundred thousand?!


Anyways, let's get back to the question: Was it a good investment?


Well, considering it consistently outperformed the S&P 500 in every year where I have data you might expect me to call it an "easy yes" - but there's quite a few other things to consider here.


The first is the difficulty in getting your hands on one of these cards in the first place - there are only 95 PSA grade 10 1st Edition Charizards known to exist and unlike stocks & shares, you would need to buy the card in its entirety. Back in the day when prices were still "just" a few thousand it might have been more feasible, assuming you could find a seller, but now it would be considerably more difficult to pull off.


Even if you showed up with a suitcase filled with cash you might be met with some hesitation... Which brings me to the next thing: how would you receive the card?


With stocks & shares you simply purchase them via a broker (back in 1999) or easily online these days. Risk of receipt would be minimal and the transaction could probably be managed and completed from wherever you were in the world. The same can't really be said about a Pokémon card - surely you wouldn't trust it to be posted over mail to your home address?


Maybe there's little to no choice besides mailing and there'd be a period of apprehension until the card arrived. For sure you would feel nervous about the goods being damaged in transit.


The alternative is obviously to personally go to where the card is and pick it up in person - which probably involves travelling quite far and would have its own costs associated with it (which could have been invested).


We also shouldn't ignore the fact that the 1st Edition Charizard card only very recently got boosted in value. Had this question been asked back in 2019 I think the answer would have been a very swift "no".


Yes, it beats the index but if you're going to make an investment with hopes of outperformance you might as well have tried to pick a stock and simply gone with a revolutionary technology company like Apple or Netflix, or if you caught on to the popularity of energy drinks, with the Monster company instead.


At the very least you might assume there'd be some dividend to receive by investing into a company. I know, NFLX and MNST doesn't pay dividends but there would've been no way of knowing this would remain the case for 20 years, and it doesn't seem like the company's cash hasn't been put to good use. With a Pokémon card you know for sure there isn't going to be any regular payments into your bank account.


All it's going to do is sit there in your house, or in your safe box, or wherever you store it until the time comes to sell. And in all of that time your card will be under some sort of risk such as being damaged, or stolen, or lost. Is it even possible to insure a Pokémon card?


Probably - but that's yet another cost that you could've simply invested and who knows how much the insurance company would value your card at.


And finally, for your investment to be worth it in financial terms you do need to eventually sell it on to the next person in order to realise any profits. This in itself will probably have plenty of obstacles such as doing the work to put your card up for sale, making sure that people can verify that the card is authentic, finding a buyer that is trustworthy, negotiating how the transaction should be completed, possibly finding a trusted body such as PSA to mediate the entire process and so forth.


In all likelihood, if the Charizard market continues to go strong then I'm certain it wouldn't be that hard to find a buyer once you can prove your card is legitimate - but compare all of the above to simply clicking a few buttons online in your chosen investment platform to sell a stock; it's obvious which one is much, much easier.


With all of that being said, my opinion is that the 1st Edition Charizard card was a good investment back in the day, even back in 2008 where the prices were reportedly a few hundred dollars. The popularity of the card certainly isn't a recent thing and I do remember playing with my friends on the schoolyard and we were all talking about how we wished we had a Charizard card.


With such a long history of its popularity it's hard to argue that myself, or many people out there, didn't have the opportunity to try and invest. And just because I personally didn't get on board and missed out on the rise, that doesn't mean the investment itself was "bad".



To Conclude - Should you invest in one now?


So back then, if you were smart enough to take the dive then I'd say that it was a very good move. Best case scenario is that the value of the card rises (as it has), and worst case scenario is that you have a 1st Edition Charizard card, hopefully in mint condition, in your own collection - for just a few hundred dollars that you could easily make back over time.


However, in today's climate it feels like it's probably best to stick with more "normal" investments such as the S&P 500 index or a globally diversified index fund. Sure, the Charizard vs. The Stock Market chart doesn't show it in a very good light but if you take a closer look at the numbers you'll realise that making $833.32 from $288.75 equates to a 188% return over 20 years, which would be roughly 5.44% growth each year:


Principal: $288.75

Average yearly return: 5.44%

Time period: 20 years


Value at end: $832.97 (Close enough to $833.32)

$288.75 x (1.0544^20)


Slightly lower than the long term average of around 7% each year but considering the time period includes the dot-com bubble, the housing bubble and the Covid-19 crash, I'd say that's a very strong result.


At the end of the day it's very easy to pick out the winners after they've won and you have the benefit of hindsight. We fool ourselves by saying it was "obvious" that Apple would revolutionise the smartphone market, or that Netflix would conquer streaming, or that Monster would beat the likes of Coca Cola and Pepsi in the energy drinks market, but what about the upcoming 20 years?


Will these three companies continue to perform - or are you going to say that companies like Tesla, Amazon and Dominos Pizza are going to surge upwards and deliver immense results?


Will the PSA grade 10 1st Edition Charizard card sell for $1 million in the next decade?


The truth is, there's no way you or I could know, because it's even possible that the top performing company in the next 20 years may not even exist yet. And in the face of such uncertainty there's only really one option remaining - the index.


Given the choice and knowing that despite three major market crashes the returns were still around 5.44% annually, plus the fact that it's so easy for me to simply set and forget, I know that that is where I'd be putting my money. We all obviously want huge returns when it comes to our investments but the following saying will always hold true for the vast majority - There are no shortcuts to wealth.



My own collection might be worthless to others, but it's priceless to me!

Hey - just one final word before wrapping up - Being someone born into an immigrant family from Hong Kong I was definitely raised with a slightly different set of values compared to my British friends. In time, these would mature and I'd find my own balance - but I read a nice snippet by Yumi Money Gang that nicely describes how we looked at money.




K.


My mission is to help people understand their money by making financial scenarios or concepts easy to understand.


If you found this post helpful, please share it with someone that you want to help.


Subscribe on the home page to stay updated for new posts.

0 comments

Copyright © 2020 - 2021 Financial Independence Scribbles. All rights reserved.

Disclaimer: All content, posts and images on Financial Independence Scribbles are for informational and thought provoking purposes only and should not be used as professional investing or financial advice. I make no representations to the accuracy, potential outcomes or suitability of any information and will not be held liable for any damages or any errors as a result of its display or use. Read our full disclosures.

sovereign-quest-medium-transparent.png
pfb3.png
campfire-featured-transparent-300x177.pn