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Comics Rule!

From the March/April 2007 Issue

Old comic books have been among the best-performing collectibles, whipping coins, antiques, and violins. Analyzing prospects for supply and demand, Kevin Hassett asks whether the future for superheroes will be as fantastic as the past.

In November 1961, scientist and space pioneer Reed Richards launched himself into orbit around Earth in an experimental rocket. Richards was accompanied by his fiancĂ©e, Susan Storm, her brother Johnny, and Reed’s best friend, the test pilot Ben Grimm.

Comic BookDespite his best calculations, Reed underestimated the strength of cosmic rays outside Earth’s protective atmosphere, and his rocket lacked enough shielding. As a result, the four travelers were bathed in such intense rays that each was transformed, acquiring superhuman powers. The group, which collectively became known as the Fantastic Four, used those powers to overcome scores of villains, saving humankind on many occasions. New research indicates that the Fantastic Four have benefited from another extraordinary force: the power of compounding.

A savvy collector who purchased a first edition of a Fantastic Four comic book for 10 cents and kept it in pristine condition over the past 45 years could sell it today for $36,000. That comes to a compounded average annual return of 32 percent.

The Fantastic Four are not unique. Consider Justice League of America and The Avengers, two flagship superhero-group comics published, respectively, by DC Comics and Marvel Comics. According to data I gathered from The Overstreet Comic Book Price Guide, these comics—kept in mint condition—produced annual returns of 21 percent since their inception. Issues of The Amazing Spider-Man comics generated an average rate of return of 26 percent a year. An original 1939 edition of Superman #1 is currently valued at $335,000. In all, a random sample of comic books I constructed for this article returned a whopping 23 percent.

These data raise an important question: Why don’t sophisticated money managers and operating companies invest in comic books? It’s not unusual for pension funds and other institutional investors to buy fine art and other more conventional collectibles. The British Rail Pension Fund, for example, invested nearly $100 million, or 2.5 percent of its assets, in 2,400 works of art in the 1970s.

The surprise is that portfolios of collectibles, including art, don’t fare well. A review of studies on the performance of collectibles, published in the prestigious Journal of Economic Perspectives, reported that, after inflation, average annual returns on investments in furniture, coins, art, stamps, and books were all in the low single digits, with some categories even posting negative returns. All of these categories trailed the performance of the stock market. The only collectible with returns that rival those of comic books has been wine.

Collectibles

Why have comic returns been so striking? Financial economics teaches us that today’s prices incorporate reasonable expectations about the future. Outsized returns are achieved when unexpected things happen. For comic books, there were two key developments.

First, as the U.S. has grown wealthier, an increasing number of people who fondly remember the comic books of their youth have acquired enough money to invest in collectibles with special meaning to them. The surprise is that comics, once derided as time-wasters for children, have become an object of intense nostalgia.

Second, comic books traditionally have been purchased by young boys, who tend to be pretty rough on their possessions. Thus, very few comic books survived encounters with their original owners in good enough shape to appeal to collectors. The ones that did now command an enormous premium.

What about the future? Judging from the prospects on the demand and supply sides, I doubt that the increases in comic prices will continue. The first Superman comic came out in 1939, and the most popular Marvel comics appeared in the early 1960s. Assuming these comics were mostly consumed by 10-year-old boys, nostalgic collectors are getting up there in age.

What about supply? At best, it will probably maintain its current levels. Issues that sell for tens of thousands of dollars will be closely guarded, and the stratospheric prices received for old comic books will induce today’s kids (or their parents) to be more careful with their own purchases. Collecting may be intellectually and aesthetically engaging—and fun—but collectibles, alas, are unlikely to perform as well as the investments you purchase through your financial adviser.

Comic book photo by Eddie Berman; Chart by Peter Hoey


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