Jump to content
  • CAGR: Compound Annual Growth Rate and LEGO


    BrickPicker.com was designed and created with the LEGO investor and collector in mind. Through the use of eBay's Terapeak data, we have given the LEGO enthusiast current prices and growth trends of various new and retired sets. We try to keep our information and data fresh and accurate and give the LEGO investors and collectors out there tools in which to make smart LEGO purchases. One such new investment tool we have included in our LEGO set data is called the CAGR: Compound Annual Growth Rate. It can be found on the top right hand corner of the Set Guide page:

    Posted Image

    The compound annual growth rate, also known as CAGR, is a formula that is applied to an investment(in our case, a LEGO set) to help determine the investment's annual smoothed* return. The final percentage that you get upon calculating the compound annual growth rate is a smoothed rate of return that shows the positive or negative growth of your investment over a specified period of time.

    The CAGR can be used by LEGO investors and collectors to understand what an investment has historically yielded on a yearly basis. Obviously, this formula can’t predict what the future yields of a particular investment(LEGO set) will be, but it can be used as a barometer to gauge the investment's future viability within the market. This number can also be used to calculate an investment's average growth rate over several years.

    The formula for calculating the compound annual growth rate of an investment uses the number of years in an investment period and the nth root of a growth rate’s total percentage. The formula is fairly straight-forward. Posted Image

    Using this formula, we can create an example of a compound annual growth rate based on an amazing fictitious LEGO set. As we research the LEGO set, we see that it has solid annual growth and is probably worth purchasing. In the year 2009 our amazing LEGO set had a beginning value of $100.00 after it was discontinued (EOL...End of Line). In 2010 the set jumped to $120.00. Then in 2011 the set ended at $150.00 and by 2012 was a hefty $250.00 for a MISB set. If we place these numbers into our formula, it will look something like this: Posted Image

    The amazing LEGO set that we purchased back in 2009 had an annual return rate of 35.72%. Not bad!

    Using the CAGR formula allows us to take an investment's measure by eliminating the volatility, or the up-and-down changes that occur during the fiscal year. Overall, this gives us a much better impression of how the investment is actually performing than if we looked at it month-by-month or even week-by-week. CAGR is especially helpful when you are making decisions on long-term investments.

    One very common use of the compound annual growth rate of investments is to compare two potential investments side-by-side. For our purposes, two or more LEGO sets can be compared to one another. This allows you to get a feel for how they are performing over a long period of time and make educated buying decisions. This formula can also be used to determine the growth of various LEGO sets within your own personal LEGO collection and help you decide which sets are keepers and which sets are heading to EBAY to be sold.

    You may ask, “Why do we need to know data like this, these are just LEGO sets, not some stocks or bonds?” Well, while it is true that the topic of interest on this site is LEGO bricks, those popular little plastic toys, it is also true that when discussing these said LEGO bricks, the terms money, worth, price, evaluation and investing are also used in correlation with LEGO sets and bricks. LEGO sets and bricks are just the medium, or commodity, we are interested in. Just like other investors use stocks, bonds, gold, oil or whatever to buy and sell for a profit, a good majority of BrickPicker members want to make money from their “toys” and are curious as to their LEGO collection's current value and future prospects.

    The CAGR is a useful tool for the LEGO investor and collector because it levels the playing field when comparing LEGO sets. It takes into consideration the investment years and time frame a set has been on the primary and secondary LEGO markets. It also accounts for compounding, which other data does not. While the CAGR number in itself is not an exact number on a yearly basis(in that it does not total up exact annual growth rates and find an average), it is a very useful guide when looking at how LEGO sets compare to one another in annual % growth(or in some cases, non-growth). Regardless of popularity, theme or set size, the CAGR formula converts some basic data(MSRP at release, current price, investment years) for LEGO sets into ONE simple number that can easily be compared to other sets, thus enabling the LEGO investor and collector to make educated LEGO purchases. I hope you find it useful...

    * The term "smoothed" in finance and accounting circles means to remove “peaks and valleys” from data and results

    We would like to give a special thank you to one of our users TheBrickMeister (aka Brad) for enlightening us to this type of calculation. It's very valuable information that will go a long way to making the site better and more information for all of our users.

    • Like 3


    User Feedback

    Recommended Comments



    A good CAGR is something we will be releasing shortly. We are coming up with a median average for all the LEGO set's CAGRs that we have data on. Some older sets do not have MSRPs and those sets we cannot use this feature. From the data Jeff and I have seen so far, you'd be surprised what sets have the highest CAGR...and it's not the 10179 Millennium Falcon! LOL More data and charts to come shortly... ;)

    Share this comment


    Link to comment
    Share on other sites
    Really like the idea of incorporating such investment formula's as CAGR into the Brickpicker site. A useful tool. However, a word of caution to many people out there who just might be basing their collection on all the recommendations and/or best CAGR percentages. Whilst CAGR is a smoothed percentage (looking at the growth rate over a set period) and therefore tends to indicate the true value of a Lego set for the longer-term investment purpose, it is important that we are given the 'term' (investmant lenght in months/years) that the CAGR was calculated over. Is the CAGR percentage calculated from the sets release date? As Ed Mack rightly points out, the volatility of the shorter-term market conditions is effectively removed from the equation. But volitility must be considered by the investor - particularly by the investor who has decided to turn over stock quickly and doesn't wish to keep numerous sets in storage for long periods of time. Buying in a short-term volatile market and attempting to make decent returns can be treacherous. Investment risk, or the volatility of an investment can be viewed by taking the CAGR formula further and multiplying it by the standard deviation less one. If the standard deviation is low, given the same period of time as the CAGR calculation, then the risk is low. This would indicate the most solid Lego theme or sets to invest in. If on the other hand the standard deviation is high, then the investor must be prepared to study the prevailing market conditions in depth before heading to ebay or similar. A few dollars 'lost' regularly can all add up over time to a large amount - money that could have gone towards other sets! The investor should be aware of what they truly are investing in, and if that means being aware of the fundamentals of the market and economics, and some homework is required, then so be it. The unwise investor will always pay the price, and those who can appreciate the underlying principles will benefit. I like that Brickpicker will give us the median average values - a further valuable tool for us to use. Please keep up the good work Brickpicker! Will Brickpicker go the whole way and consider adding standard deviation values? Perhaps even releasing rolling-average graphs of the CAGR's and standard deviations. I may even be tempted to write an article on the above, I'm sure it would be weclome. In the meantime, happy investing in this volatile world!

    Share this comment


    Link to comment
    Share on other sites
    @ BuildIT... I love working on this site and working with LEGO fans such as yourself. I realize more and more every day how many smart people are out there(a Hell of a lot smarter than me) with great ideas. This whole Brickpicker idea and site is a work in progress. My brother Jeff and I love the input form members like you and Buckshot333 and others who have experience in finances and statistics. Unfortunately, I was a Biochemistry major in college, and a poor one at that. If I knew then, what I know now, a statistics class would have been in order. The cool thing about this data we get from EBAY is that there are so many things you can do with it if you know what you are looking for. Jeff an I are just starting to dig deeper into this data and appreciate input from members who are experienced in this sort of field. We are trying to give LEGO fans multiple methods of examining a LEGO set's value, both statistically and intrinsically. There are many types of LEGO investors and collectors and they have different needs and intellects and we want to make them all happy. I don't see why we couldn't add a Standard Deviation statistic. Let us know exactly what you are looking for and what the equation would be(and the various inputs relating to the equation) Also, a simple explanation of why it is important to a Brickpicker member. Most members, like myself, are not familiar with statistics and their uses. Smart LEGO purchases can be based on many factors and stats like CAGR and Standard Deviation can be very useful if properly understood. We might be able to add a high or low risk icon to various sets. We will come up with a median value for the CAGR shortly. Will also come up Top 50/100 of the highest CAGR set values. Another interesting chart would be one that rates the overall main LEGO themes in the CAGR category. Maybe some kind of Bell Curve would work for that. Thanks for the fantastic response and let us know about what exactly you would like to add to our data. Jeff and I are always looking for fresh ideas and ways to improve the site.

    Share this comment


    Link to comment
    Share on other sites
    @ Ed and Jeff...you guys started this site. You both recognised the need for a dedicated 'Brickpicker" forum and have dived right in. Well done! I appreciate highly your comments and for your outlook as to how such a site can develop and grow in the future - for ALL our benefit. That is most welcome. It truly is. I love the relaxed approach, allowing members to comment and express themselves. My reply wasn't designed to expose limits to the present Brickpicker community, and I would love to contribute further, as you leave the door open for me (and others) to. As for statistics, I am involved in the geology and mining industry. We take data populations and try to make some sense of it. A whole new world of 'geostatistics' was spawned in the 60's and seriously pushed (enhanced) in the 70's and 80's. Ultimately, we applied the accepted statistical approaches and adapted them to our particular field. Given that statisitcs is a mathematical approach to any population (i.e. LEGO sets), in my field we try to place a value on what lies in the ground - what does the investor have given the present economic conditions? And perhaps more importantly, what could they possibly realise. I'm not a 'fundy' by any means on investments or the stock market. But I do have the ability to judge my investments and to understand the various figures - and what they mean. I'd really like to wrap up a piece I'm writing now regarding standard deviations and such similar mathematical approaches to investing. I write it particularly with refernce to the 'layman' and how it applies to the LEGO investor. Your article Ed made me realise that I can offer something to our investing community - and I'm a geologist! I will not deal with it all, but I hope it does at the end of the day help us all to make that better investment decision. And if another member of the Brickpicker community is able to add and ehance to my (your/our) contribution, then I'd read it with relish. You say you studied in biochemistry - is there not some chemical compound or similar that was used in the colouring or manufacturing process of LEGO? There you go Ed, you have some homework!

    Share this comment


    Link to comment
    Share on other sites
    @ BuildIT... I look forward to reading the article. My brother just pointed out to me how wonderful it was for people across the planet, from all walks of life and incomes, to connect and become friends over these little plastic bricks. Pretty cool. As for some data, we came up some figures for you: Out of the thousands of sets in our database that we calculated a CAGR for, here is what we came up with: MEAN CAGR: 12.18% MEDIAN CAGR: 9.14% RANGE: -57.33% to 258.83% We removed various LEGO sets that had no MSRP(old set or inaccurate) and various sets that had less than 30 sales(very rare and inaccurate). Also, due to the complexity of the new Collectible Minifigures EBAY listings and the tendency for EBAY sellers to skew the listings, we left them out until we get better data on those sets. Too many lots and multiples throw off the numbers. I hope this helps. Let me know if it looks correct. Thanks again.

    Share this comment


    Link to comment
    Share on other sites
    At Ed Mack...if you took a decent dataset or population and calculated a mean CAGR of 12.18%, then LEGO as a whole is returning above some traditional stock markets and unit trusts! However, let's not rush and invest all we have in LEGO. But if people really want to do that, please take note of my small brickfolio and invest in these particular sets! Thanks. The vast range you display is clear indication of how fickle the LEGO investing world is. It is a frightening gap that you quote, and in order to get these some people somewhere have gained considerably, and others have lost considerably. Typical market forces, peaks and troughs. You are very correct that these little plastic pieces connect us all. Build IT, admire it, dismantle it, build something else. YEAH!

    Share this comment


    Link to comment
    Share on other sites
    @ BuildIT...One of my first articles for the site: http://www.brickpicker.com/index.php/blog/view/making_money_from_legos In the article, I basically compared the 30 largest LEGO sets from 10 years ago and compared it to the DOW Industrial Average(30 companies) over the same time frame. The LEGO sets beat the DOW stocks 5 to 1(123% growth to 23%growth). As with any investment, pick the right stocks, commodities or LEGO sets and it looks easy. Pick the wrong ones and you are looking for a second job. My biggest issue with LEGO investing is storage. I'm running out of room. LOL

    Share this comment


    Link to comment
    Share on other sites
    I did read this article (very good and informative) when I first came across Brickpicker a short while ago. What I particulary like is that the growth of LEGO is not necessarily confined to a particular theme. As for storage, I have found that bedroom cupboards no longer really suffice. So rather than get all items shipped to me directly, I have strategically roped in family in Canada, the US and the UK. When I buy now on ebay or similar, I ship to one of their addresses. It also gives me the option to ship far quicker and cheaper on any future sales....I just hope they are truly prepared for the vast quantities that may land on their doorstep!

    Share this comment


    Link to comment
    Share on other sites
    @JesusLovesLegos.....a good CAGR would be a % that is AT LEAST the rate of inflation. In other words, something that maintains its value. If you come to sell, then given the market trends, you'd expect to at least receive the price you actually paid PLUS the inflation gains. If the item was returning well above inflation over the period you held it, then that would be considered a good CAGR or even a very good CAGR. And given some of these sets, probably an excellent CAGR. Given that many investors have to store the product, advertise the product, and ship the product (and so incurr costs that also increase as per inflation), then a suitable investment must attract a return of inflation AS A MINIMUM. To score the decent money, then one must look at percentage returns ABOVE inflation. Then, and only then, are you looking at something that offers true growth.

    Share this comment


    Link to comment
    Share on other sites
    Great article. I just happened up on it. I look forward to the reports of all historical performances of sets. Thanks for this!

    Share this comment


    Link to comment
    Share on other sites
    The Lego Set CAGR has been revised with the latest update to be 10.81%. These themes have been removed from the equation, due to their highly volatile and inaccurate nature: Collectible Minifigures Gear Minifigures Miscellaneous Product Collection Only the sets in the main themes will be used to calculate this number.

    Share this comment


    Link to comment
    Share on other sites
    This is awesome! Its really a great tool to utilize. This will effectively help anyone see how well they can keep their investments in Lego alive. Its amazing, easy to understand, easy to use!

    Share this comment


    Link to comment
    Share on other sites
    I've been waiting for a site like this for over a year. I'm a new member and I can't get enough. This is such a benefit when it comes to investing in LEGOs. Thanks for doing what you do!

    Share this comment


    Link to comment
    Share on other sites
    If someone were to invest in Legos they would want to have some diversity within their Lego investments. This would remove much of the risk inherent with picking the wrong investments (wrong Lego sets). While an investor can minimize risks by being informed it is impossible to minimize all risks as there are future unknown risks. One that comes to mind is when Lego decides to start shipping a discontinued set as they have in the past. Of course an investor would be wise to also diversify outside of the Lego world.

    Share this comment


    Link to comment
    Share on other sites
    I have a CAGR question. I am not familiar with the data set you are using from eBay, so I am wondering how the Lego set price is determined in relation to shipping? Many sets are sold with free shipping so I am wondering how that is taken into account in your calculations or in the data you receive?

    Share this comment


    Link to comment
    Share on other sites



    Join the conversation

    You can post now and register later. If you have an account, sign in now to post with your account.
    Note: Your post will require moderator approval before it will be visible.

    Guest
    Add a comment...

    ×   Pasted as rich text.   Paste as plain text instead

      Only 75 emoji are allowed.

    ×   Your link has been automatically embedded.   Display as a link instead

    ×   Your previous content has been restored.   Clear editor

    ×   You cannot paste images directly. Upload or insert images from URL.

    Loading...

×
×
  • Create New...