Magazine article Newsweek

Time to Short Beanies? : Lessons about Investing from Peanut the Elephant

Magazine article Newsweek

Time to Short Beanies? : Lessons about Investing from Peanut the Elephant

Article excerpt

Checked the value of your portfolio lately? No, not that one. The one that might pay your kids' way through college: the Beanie Baby collection. Apparently there's trouble in the world of stuffed-animal investing. Sure, the Dow is playing footsie with 10,000, but the Absolute Beanie Index (www.absolutebeanies.com) is down 26.4 percent over the past nine months. The reasons, according to the experts, include "Beanie fatigue" and "market correction for hype." Come again? Does that mean the market is now "corrected," and that some animal- shaped bags of beans are trading for thousands of dollars for reasons other than hype?

There is perhaps no better evidence that we have become a nation of traders and investors than the Beanie phenomenon. Many people, after all, pick Beanies more carefully than they do stocks or mutual funds, and buyers await new arrivals more eagerly than they do a hot IPO. Play with Beanies? Forget it. These are investments.

If nothing else, the Beanie craze offers a good opportunity to bounce a youngster on your knee and explain some market basics. Lesson one could be the "greater-fool theory." If somebody buys Peanut the Elephant in royal blue at the current market value of $4,500, that person is betting someone else will pay more for it later. If your kids say that this reminds them of certain high-flying Internet stocks, time for ice cream.

Lesson two could be about liquidity. This is the ability of a stock to absorb lots of buying or selling without wild price swings. To illustrate, present your kids with this scenario: What if people start to panic that the Beanie Baby bubble had burst, leading everybody to try to unload their Beanies at the same time? They'd run into a lot of neighbors who were also selling, making for poor liquidity and an unhappy block party. Then again, the cratering values might free Beanies from their hermetically sealed containers so kids could play with them. …

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