Modern Cards Are Overvalued (Value vs. Growth)

174 of my own card flips: 
Vintage won 62.7% of the time. Modern won 40.7%. 

Value Premium, What cards are most like value stocks and growth stocks, and how to tilt a portfolio.

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I tracked 174 of my own card flips over one year.$55,000 was deployed, and every transaction, every loss, every gain was accounted for. What I found was that the cards that I bought from 2014 through 2018 had a 62.7% win rate. However, the cards that I bought from 2022 through 2024 had a 40.7% win rate. It was the same effort, I put in the same research and put in the same hours hunting down the cards. This show for Slabnomics today is going to tell you why that was, and I'm going to advance some things that I am just myself starting to scratch the surface of. It's going to be an amazing show. Welcome in. That 22-point gap is not random. It's not bad luck on one side and good luck on the other. It actually has a name. In finance, it's something called value premium. And it's been documented in equity markets since 1926. It's one of the most studied phenomena in capital markets. And the confirmations I found sitting right inside my own trading data is the same as almost a hundred years ago, Eugene Fama eventually wrote down. My name is Matt. Welcome to Slabnomics. Today we're talking about how card market is like the stock market in terms of bonds and stocks. Let's open it up with something you can picture. Two collectors are at the same show, same day, same aisles, same coffee that they had in the morning to get jump started. The first collector is buying a 1968 Topps Nolan Ryan rookie in a PSA 7. He pays$5,000. Card hasn't moved much in a decade. There are a few hundred graded copies in the world. The seller is a vintage specialist who's owned the card for 12 years. Now, the second collector we can imagine is buying a 2023 Prism Victor Webanyama PSA 10. He pays$3,000. The card has tripled and halved and tripled again in the last 18 months. There are over 20,000 P10 copies in existence. The seller that he's buying from flips 200 slaps a month. Now both of these collectors believe they're investing in sports cards. But I would say that they're participating in two structurally different games. The first one we call value, and the second is called growth. Now, a little aside here, if you've read some books on the stock market, value investing and growth investments are the two ways that people generally invest. If you've ever heard of Benjamin Graham, he has a famous book that's often touted by Warren Buffett called The Intelligent Investor. And it's viewed by many as the most seminal work when it comes to value investors. On the growth side, one term that might trigger your memory is Fang stocks. In 2010 through the 2020s, the rise of Fang, Facebook, Apple, Amazon, Nvidia, and Google pretty much dominated all stock market returns for that time period. So in finance, when I say value versus growth, those words mean very specific things that have specific track records and specific failure modes. But most collectors, when we think about cards, we don't think that way. We don't think that value and growth are about whether a card is old or new, whether the player is retired or active, whether you like the look of the cardboard or not. This is the surface description. But the real one is mathematical, documented, and it explains a meaningful portion of why your card holdings might perform the way they do. This is what we're going to walk through today. And by the end of this episode, you will hear a comparison for these two things that will make crystal clear what I'm talking about when it comes to value versus growth investing and modern cards versus vintage cards. So buckle up. So first, what do value and growth actually mean? In equity markets, every stock can be sorted along one of two axes, value or growth. Value stocks trade at low multiples to their existing cash flows. What does that mean practically? It means you as an investor aren't paying for too many forward years of the income of that company. Oftentimes these value stocks might trade at four or five times what the yearly earnings are. If you've heard the term PE ratio, that's the price to earnings ratio. There's also something called price to book, which is basically what the whole company is worth. So value means you're getting a good value on the company that you're buying. A lot of times you'll see high dividend yield because these are mature businesses and they're often in unfashionable sectors. Think something like a real estate investment trust or even something crazy like in the service industry, someone who owns a bunch of morgues as a company, like Service Corporation International. The market is paying a discount because nobody really expects them to do anything new. The price is just anchored to what already exists. Now, contrast that to growth stocks. These are trading at high multiples, high PE or often no positive earnings at all. They're just plowing it back into the business like Amazon did when they first started out. They didn't turn a profit on the books for a very long time. The market pays a premium because everyone expects the company to do something new. They're normally at the forefront of radical shifts like Amazon was, creating a worldwide marketplace, or Nvidia when they basically controlled all of the mining chips for all of the cryptocurrencies. So that price that you see on a growth stock is built on a story about future cash flows that hasn't arrived yet. The valuation is anchored to what might happen, not what has happened. Does this sound familiar when it comes to card markets? If you're thinking about value versus growth, how might you put that together for the cards that you're interested in? Easy explanation might be baseball. If you're only going for the Bowman first, so if you're mostly a prospector, you're a growth stock kind of guy. You're trying to get that high upside that you can capture. If on the other side, all you buy is rookies from tops before 1985, you're probably more of a value guy. To the origin of the stock market idea for this. In 1992 and 93, Eugene Fama and Kenneth French published two papers that changed how academic finance thought about equity returns. They sorted U.S. stocks by book-to-market ratio going all the way back to 1926, and then they measured what happened to the cheap ones versus the expensive ones over all of those decades. Spoiler alert, the cheap ones won by 4.17% per year on average for nearly a hundred years. That number that generally speaks to the outperformance of value stocks has a name. It's called the value premium. These types of studies have been replicated across every major equity market in the world. It works in US stocks, it works in European stocks, it works in emerging markets, it's documented in commodities, real estate, and parts of the art market. Now the premium is not stable though, because if it were, it would be way too easy. It doesn't show up every year. Over the period from 2010 through 2021, you lost to growth by a brutal margin. If you remember, that was the Fang stocks. Some academics even declared the value premium was dead, and of course they were a little early. Between 2022 and 2024, value came roaring back because interest rates rose and multiples on the most expensive growth stocks compressed. A little aside on that, when rates are low, you can borrow really cheaply, so you can keep funding growth in an inexpensive way. Alright, so we have a phenomenon. There's long runs in both directions between value and growth, and we had a multi-decade tilt towards the value side. That's our lens. Let's apply it to our market. Let's think about this in the easiest way possible. If I'm going to look at value as a whole and apply it to cards, I would call that vintage. That of course means that if we're looking at those growth stocks, by and large, we're going to call that modern. The analogy is almost embarrassingly clean. For example, vintage Nolan Ryan rookie in a PSA 7. It's price on existing known commodities. The cash flow in this case, like value stocks, is collector demand and scarcity. Both are known. The print run is pretty fixed. We have a good idea of how many were printed, and the surviving population is documented. The cultural memory of Ryan is fully formed. He's been retired for 30 years. There's no what if Ryan becomes a star upside left to capture? The value's locked in. So the market pays for the proven asset. Let's contrast that to a 2023 Victor Webanyama Prism in PSA 10. That's price on what Webanyama could be. The cash flow in this case for the growth stock of Webanyama, he could be an MVP, he could be a finals champion, he could be a Hall of Fame or a cultural icon. The market is pricing in some probability weighted expectation of all those outcomes happening. None of them have happened yet. Some of them are never going to happen. The price is a story that we tell ourselves about the future. This is the same valuation logic as a value stock versus a growth stock. The vintage card is like Coca-Cola, and the rookie card is more like a pre-revenue tech IPO. In my own trades, it was vintage that returned with the 62.7% win rate. Whereas Modern actually lost me on things, delivering a 40% win rate. That's value premium showing up in cardboard. An interesting way to think about it is that the 1968 Topps Nolan Ryan rookie in a PSA 9 commands a premium of more than 2,500% over RAW, whereas a Wembinama-based PSA 9 trades within 10% of RAW, sometimes below. It's the same grade, same brand category, totally different decade, completely different return profile. And if you've been listening to Slabnomics, you know that has a little something to do with gem rate as well. Another reason for it is structural. The vintage card is value and modern card is growth, and the value premium that has applied to equities for nearly 100 years applies here too. So, if the value premium is not a constant, but a tendency, we are going to see long stretches where growth wins. And I believe we're in that right now in the card market. All the money is flowing into modern. And in these stretches, the people holding value feel like they're missing the boat. This is very similar to what happened from 2010 to 2021. The markets had a regime that was almost custom built for growth. Interest rates were near zero, earnings growth was scarce across the broad economy, capital was cheap, the few companies that could grow became enormously valuable. Five tech companies came to dominate the SP 500, and value as a factor experiences the longest drawdown in recorded history, roughly 55% peaked to trough. In 2022, the regime ended though. The Fed raised rates, inflation spiked, capital became expensive after COVID. The math on long-duration growth cash flows changed overnight. And it's key to understand that when these things happen, when inflation changes, when the Fed raises rates, the math changes on what the environment is going to be favorable for. When the Fed starts raising rates, those expensive growth stocks start going into free fall. Value stocks get their time in the sun. Things like energy, financials, industrials, or raw materials. The boring stuff does well. The growth stuff starts falling. The card market mirrors this as well. The 2020 through 2022 Modern Card Explosion was a zero-rate growth bubble. It was frictionless capital, and there's so many new people coming in. We also had everybody getting checks from stimulus liquidity. We had narrative-driven valuations, and just people had nothing else to do. Rookies were priced like pre-revenue startups on the hope of future Hall of Fame induction. But then the regime changed. The Fed raised rates, as it were. Discretional capital pulls back, and the hobby in this time experiences its own kind of economic contraction. We saw a lot of modern rookies drop from 2022 into 2024. But if you are watching vintage, sure it fell a little bit at first, but it recovered fastest and it kept growing in value little by little. Now we're in the value mean reversion phase. 2024 through 2026, vintage has been starting to kick up a lot. And it's the same thing that happened in equity markets one floor up. Now, if you understand this regime story, you understand why the vintage outperformance is more durable than the typical hobby observer thinks. Rates are still not too elevated, but capital is kind of expensive. We've had a lot of inflations, and the conditions that crushed long-duration growth assets in 2022 have not fully reversed until they do the value tilt is the right tilt long term. Now, I know I teased you guys and told you that I was going to give you something that blows your mind when looking at value versus growth, and it's this. I already mentioned the two cards I'm going to compare for you guys 1968 Topps Mets rookies, aka the Nolan Ryan rookie, and the market for Victor Web and Yama's 2023 Prism. Now, I'm sure you know that modern card market, especially in basketball, has a boatload of parallels. Well, in 2023 Prism, there are 63 different parallels. So what I did, which is a little bit crazy, but I did it for you guys, is I went through and I took the value for all of the cards for PSA, BGS, and SGC for all the grades of the Nolan Ryan rookie. And I did the same thing for all the Web and Yama parallels just for that Prism set. All 63 parallels, everything from SGC, BGS, and PSA. And I took the value of all of those and basically found a number that would tell you if someone wanted to buy the entire market of that set, what that would look like. Now, what do you think? We have on one hand Nolan Ryan, who is one of the greatest pitchers to ever live in the oldest market for baseball, which has a very strong vintage presence. On the other hand, you have just one set of Victor Rebanyama's rookie year. There are many other sets that came out, some even more high-end than Prism. But the crazy thing is, Nolan Ryan's entire market, if someone cornered the entire thing, is only about$4 million more than Webanyama's just for that Prism 63 parallels. That blew my actual mind, guys. The market is saying that if you took all the sets for Webanyama, he is much more valuable than Nolan Ryan. Because I don't have the math, I don't want to put a number on that, but think just this one Prism set was almost worth as much as Nolan Ryan's entire rookie card market. He only has one with the tops. So what does that tell us? We are not in an era where things are really making sense in the card markets because this would not make any sense. There is no way that a perfectly rational market is going to value Victor Webanyama's maybe one quarter of his market as being just as much as Nolan Ryan's rookie market. It just doesn't make any sense to me. I think you would be confused as well, dear listener. And this is the reason that I keep harping on that many of these parallels that we're seeing, 63 parallels in 2023, and there's more now in the 80s, are not going to retain their value long term because it's impossible that they will. And as these expectations are dashed for these players, the money is going to more and more go into the players that are safe and the players that are known in terms of their value. And those markets for vintage are going to continue getting more and more people come to them. More and more people are going to start seeing the modern card market as kind of like when we had the Great Recession with the housing market. Everybody was getting loans. Strippers had three houses, and it didn't really make sense. And at some point, it just broke because it had to. And I feel the same way for modern cards. Now, I'm also looking at all the different parallels to see which ones have actually grown well, which ones retain their value historically. More on that is coming for my Slabnomics investor tier, which you can find on Slabnomics.com. But at this point, we do know for sure that it is incredibly overweight in terms of where the valuations are for the modern card market. I would love to be able to put a number on that for you guys to take all of the vintage markets for, say, baseball, and then somehow be able to show you what the modern market valuations are in one big number for both. I don't know if I can do that, but maybe someday. So I believe we're in this situation currently in the modern market that valuations are frothy. And when valuations are frothy in the stock market, who knows how long it's actually going to last? All the pundits will come on talking about the stock market. Oh, this is too expensive and it's going to go down, or this is cheap. It has to go up. And they might be right, but timing is a really big factor here. Timing is really at the behest of the market fundamentals. Because at some point, it all will break down and it'll break down very, very quickly. I believe that the next bubble is not going to be what it was before, which was just all of these base cards going bananas because everyone was coming in during COVID. I think it's going to be all these modern parallels where things you can't even name, like the yellow spotted banana parallel, start being sold for$2,000. That's where we are right now. It doesn't make any sense. It's ridiculous. So that's when we turn back into value. And all that money of the people that love cards, it's not just going to go away. Some of it will, but a lot of it will cycle into things that look cheap because people all at once will kind of shake their heads and be like, man, that was crazy that we were putting money into those kind of parallels. Why is that more expensive than Nolan Ryan's rookie in a PSA 8? So the more education we get, the more I believe we'll break this current dichotomy we have between vintage and modern and force it to go the other way. And guys, just like stocks, the collector behaviors that we have are obvious. We have recency bias, anchoring to a card's all-time high comp and refusing to sell it a loss because of what was paid, chasing the player who just had a breakout playoff run instead of staying away, avoiding vintage because it feels boring. When future on court performance disappoints, that's when you're going to see modern rookie card prices crash. When the unfashionable vintage card sits in a slab for 10 years and the player's Hall of Fame status is affirmed by yet another ceremony, the prices just ratchet higher. So that's a little bit of an explanation of why we are where we are in the card markets. And I want to throw another explanation at you guys, one that's more risk-based in its lens. One of the reasons why growth stocks always get more premium valuations is that they have more risk. There's something important that a lot of times I don't think we think about risk-adjusted reward. Sure, growth stocks or modern cards are going to have really high rates of reward, but they have more risk. When those guys disappoint, their value goes into the absolute tank. Even if they're good players, if they get off the trajectory the market's already pricing in, they'll go down. So that premium is really the rational compensation for taking on that risk. Now, does vintage have any risk? One thing I've been thinking about a lot is if the prior generations of card lovers start aging out, we have a slow burn demographic risk. Maybe that's something where we might see demand shift a little bit, and maybe that's something that's already happening. Maybe that's why modern has been blowing up a little bit more. It could be that collectors who care about Mickey Mantle are aging out and they just don't want to pay for him anymore. But I just really don't know if that's true. Because names, words, achievements, these all get baked into legend. And we know who they are. We know who Mickey Mantle is, we know who Babe Ruth is, we know what he looks like. There's movies made about them. I don't think Ricky Henderson's stolen base record will ever get broken. I don't think any player in basketball will ever go to six finals and win all six. Legends will live on, and I think people will always want their cards. Now, if your takeaway from this podcast is that Value is cheap, cheap is good, and that's the only thing you should do. I want to be honest with you about something. Not all value is good value. In the stock world, some cheap stocks are cheap because they're permanently impaired. Maybe a retailer that's being eaten alive by Amazon, or a bank with a hidden balance sheet problem, an energy company sitting on stranded assets. The market prices these companies cheaply for a reason. Buying them because they screen as cheap on a price to book basis or a low price to earning ratio is a strategy that can lose money. And in finance, this is called the value trap. The card market has value traps, plenty of them. And in fact, I would say 90% of cards in the value range are value traps. A 1989 Don Russ, Don Mattingly is cheap, and it'll probably stay cheap. The era was overprinted, the player was a great player, but the cultural memory gets thin, and there's no scarcity premium and no narrative premium. Buying it because it's cheaper than a Wembanyama prism is the wrong logic. The Wembanyama is overpriced as a growth bet, but the Mattingly is fairly priced as a permanently impaired asset. Both are bad trades for different reasons. A vintage card from a sport without a sustained collector base is cheap and will stay cheap. I think a lot about hockey in this realm, and I'm sorry if you're a hockey guy, but I just don't see how the market is going to get substantially bigger than it is now. So there's a small collector base, sure, but the institutional demand isn't coming. There has to be a catalyst that opens the market up and makes it grow in order to put that supply and demand equilibrium out of balance. So if a card is cheap because nobody wants it, it's not value. Always make sure to ask yourself when you find something to be cheap, do people want this card? Now the real way to avoid the value trap is to understand the permeance of the card. And if you're a Slabnomics listener for a long time, you know that I look at market, legacy, and demand for the player and the set that the card is in in order to see what the lasting relevance is for that player. Once you find a value, and you can't for the life of you tell why this card is so, so cheap, think about how big the market is. Will the market grow? Is that legacy of the player going to grow? What level is that legacy for the player? And is it in a set that people are going to continuously go back to? In a word, value works when you combine it with quality. Cheap vintage of a permanent player from a flagship set is an asset you want. Cheap vintage of a forgotten player from a forgotten set is a value trap. The discipline of separating one from the other is what divides the value collector from someone who just willy-nilly buys old cardboard. Most collectors are unintentionally growth concentrated these days. They probably don't think about it that way, but they might own 40 different rookies that are diversified. In a way, though, they're not diversified at all, because they're concentrated in one factor, growth. And if the market switches back into having a premium of value, they're going to get burned. I think this was a lesson that was missed in the hobby in 2023. The hobby was still trying to grow at that time. And most people didn't have a way to really separate what was going on in terms of this growth and value type lens. Now, contrasting everybody being all in modern to someone who has a value-tilted card portfolio, and it looks a lot different. You can have vintage cards of many different players across all of the old sets: basketball, football, baseball. You can be diversified against those industries, as I call them, in the card markets for the different sports. And if different car markets are going well, you can go in and out of those while the other ones might be lagging behind. That allows you to buy low and sell high. And as a whole, compared to that modern portfolio that I was talking about, it has lower drawdown risk, it has faster recovery, and in the long run, it's just more built for premium. Now, what I don't want you to do after this is go tell all your friends that Subnomics says don't buy any modern cards, because that's not what I'm going at. Growth wins in a lot of time frames. But the longer it goes on and the frothier the market gets, the more likely it is that we're going to tilt back the other way. And those that are prepared for that are going to be the ones who have dry powder ready, 10 to 20% cash, and are watching the signs for seeing when that happens. If you go to a stock market advisor and you say, I want to have a long-term portfolio to help me in my retirement, he's going to say something like, put 40% into the SP, put 20% into mid-cap, 10% into small cap stocks, and then maybe throw 15% into international stocks, and then you have 15% into alternate assets, maybe cards. We can do the same thing in cards. I keep calling it a portfolio, and it really is. If you own a whole bunch of cards, then you technically have a portfolio of assets. And the more that portfolio is honed into being able to capture any kind of event status, the more you are going to grow with your portfolio year in and year out, no matter what happens. So the value premium has been documented in the stock market for almost 100 years. And the same pattern as I showed you guys has shown up in my own trading data. Vintage got me about 62%, modern 40% on my win rates. The same macroeconomic dynamics that crush long-duration growth stocks in 2022 are the dynamics that crush modern rookies in the same year. Same conditions that have favored value over the last three years are still in place. This is not a prediction, but what it is is an observation about structure. Structure that humans have been looking at for a long time and we've seen in much more liquid markets than we have in this one. You can run a card portfolio without thinking about any of this. And plenty of people do. They will tell you that they're doing fine. Some of them will be telling you the truth, but most people tell you about the positions that worked and not about the ones that didn't. And if you get the ones that didn't into a smaller and smaller percentage of your plays, you are going to make so much money as you keep pushing that investment forward. I want to be honest with you guys about my frameworks because the data is honest. That's why I always say show me the math, because math is older than all of us and it makes up pretty much everything in the universe. I would say that value beats growth over the long run, but it also loses sometimes for multiple years. It will come back. And I would implore you to always be positioned for the next structural tilt and do not pretend the next rookie is an asset class in every case. Boring is profitable. Exciting is how you blow up your portfolio. Thanks as always for listening. This is Slabnomics. If you liked anything in this podcast, make sure to share it with a friend. And thanks so much for being here. As always, keep building, and I will talk to you later.