Friday, April 30, 2010

The Economics of Beanie Babies

I was listening to the radio this morning and the topic of discussion was the Broadway play “Enron” based, of course, on the fall of Enron the energy company. There were discussing economic boom and bust cycles referred to as “bubbles” which took my mind back to my own family boom and bust experience.

Years ago, one of my family members (“Lana”) started investing her money into beanie babies, which were shit hot at the time. She bought a magazine dedicated to Beanie Babies and used that to guide her in her investment purchases. She estimated she probably spent a couple of thousand dollars went it was all said and done.

Then, something happened…I seem to recall it being medical in nature…Lana and her boyfriend needed cash fast. They finally decided to liquidate to their Beanie Baby collection. They were shocked when their collection didn’t yield the return they were expected. After all the time, money and energy they sold all of their collection for a couple of hundred dollars.

Lana and I ended up having a conversation about it. I explained to her that the magazine she was using had a vested interest in hyping the Beanie Baby craze so that people would continue to purchase both the stuffed animals and the magazine. All the hype fed on itself, right up until the bubble burst and a lot of people like Lana are left holding a bunch of mostly worthless junk.

Whether you are talking about the stock market, the .com industry or the house-flipping crazy, I have seen many bubbles blow up and burst and I always go back to Lana’s Beanie Babies. Lana kept of a few of her favorites and she can take comfort in knowing those stuffed animals are still worth more than Enron stock.