Anatomy of a Bubble: The Beanie Baby Mania

Remember Beanie Babies?

You may laugh about them now but not even ten years ago they were considered a great “investment.” They ranked right up there with stocks. People believed they could send their kids to college with profits from the toys.

What were we thinking?

1996-1999 was when the Beanie Baby mania seemed to peak (at the same time as the Nasdaq). Thousands of people were collecting them. This article, published in 1997, captures the mania. FromMississippi State University:

Produced by Ty Inc., Beanie Babies are a line of small, colorful, loosely stuffed animals. Priced about $5 so kids can buy them, the toys have become a hot commodity in adult circles where some Beanie Babies now sport price tags in the thousands along with their heart-shaped hang tag and poem.

Helen Thomas of Starkville helps her husband Jack collect Beanie Babies as a hobby. He got started when a sister-in-law and neighbor began to talk to him about how much fun it was collecting and asked him to look for certain ones they wanted. Now he collects for his two granddaughters.

Why did we think these little stuffed animals would hold their value? Where did the sense that these were an “investment” come from?

Even by 1998, some collectibles experts were sounding the warning that the end was near:

“A general feeling has developed that prices have reached the ridiculous level. Many Beanie Babies advertised in the hundreds of dollars are going unsold . . . The market is flooded with Beanie Baby price guides . . . A few years from now, their only value will be the ability to look nostalgically back on the craze and think `If only I had sold then.’ ”

Rinker is president of Rinker Enterprises, an information service for dealers and collectors. He’s written several books about collectibles including dinnerware, tableware and silverware.

“I’m not so much a collector as an accumulator,” he said, “but I do have a sense of what’s happening with collectibles. And I can assure you that, within a year, there will be weeping and gnashing of teeth among the Beanie Baby collectors.”

The Beanie Obsession

People used to wait in line for hours at the local Hallmark for the new shipments to come in.

We all would like to think we would never do such a thing. But Beanies became a huge obsession and hence, a big business (and not just for Ty, the company that made them.) Collectors started their own side businesses to provide information about the mania. From the LA Times:

In February 1997, Peggy Gallagher self-published “The Beanie Baby Phenomenon,” a 52-page paperback priced at $24. It sold 77,000 copies.

“I made over $200,000 in a few short months,” said Gallagher.

A Chicago publisher approached her in 1997, and suddenly Sobolewski was editor-in-chief of Mary Beth’s Beanie World magazine (later renamed Mary Beth’s Bean Bag World after some legal prodding from Ty).

At its 1998 peak, the magazine was thicker than Glamour or Fortune and was selling 650,000 copies a month at a newsstand price of $5.99. It contained ads from dealers and articles about collectors, but the heart of the magazine was the price survey.

Sobolewski’s survey filled the same need for Beanie Babies as “pink sheet” price listings do for obscure over-the-counter stocks: It helped keep the market orderly by giving buyers and sellers at least a reference point for negotiations.

But like all good things, as soon as Ty announced in late 1999 that they would cease production of ALL beanies, everyone began to sell and the market dropped out. Even though Ty eventually began producing again, the mania was over.

What is the market for them now?

If you own beanie babies today, you probably know that there isn’t much of a market for them. Like any collectible, the items that were rare or scarce, have held their value the best. Everything else is basically worthless. On Craigslist, you can find pretty desperate owners who say things like, “please take them off my hands” or “just trying to clear out kids room.”

In another listing, a seller with about 50 original beanies from the early years is selling them for $100 or “best offer.” There is a group of sad little pictures of them in the ad.

If you go on ebay it’s even more depressing. There are over 12,000 listings for beanie babies. If you add on the words “rare” or “limited edition” you get fewer- but even the “rare” aren’t worth much. A quick scroll through the listings doesn’t show any of them going for more than $15.

Yes, $15.

Yet at one time, some of them were going for thousands of dollars.

The Lessons from the Beanie Baby Bubble

1. Following the herd doesn’t always work. Thousands of regular Americans became, literally, obsessed with Beanie Babies. It was a warning sign to get out.

2. If it seems too good to be true, it is. Why would anyone think a stuffed animal should sell for $1000? But then, there are baseball cards, which are simply cardboard, selling for far more than that. With collectibles, you have to be smart and know the market. The more of the product that is made, obviously, the less your item will be worth.

Conclusion: Someone is always holding the bad end of the stick in a bubble. Those without a chair when the music stops get burned. These are “investors” who were late to the game or couldn’t get out in time when the game ended. We are, unfortunately, seeing this all too clearly again with the housing bubble.

Don’t follow the herd!

And buy an investment that actually makes you money. Buy stocks that pay dividends. As a shareholder, you are an owner of a business that (hopefully) is productive and makes money. As an owner, you reap the benefits of the business.