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  • 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:

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    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.

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    Just worked with Jeff yesterday, can't wait to see the mean, median and mode features added. Hopefully we can work a range in too. I need to check out and run some numbers on CAGR.

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    Does it means that CAGR tells us only the past performance but not so much about future? We need to be aware right cause we can't always buy the set high CAGR since it can be in the mature stage and won't grow that much in the future.

     

    Am I right about this?

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    I'm sorry, but wouldn't it also be interesting to pull data from BrickLink? 

    It looks like a nice source of info? 

     

    You have all price flow per set over the last 6M rolling.... 

    Buy & sell between professionals & afols...

     

    txs for the feedback in advance, J

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