Cognitive Bias Sparked The Finch Dallow Surge

Forget about investing in Apple, Tesla, or pork belly futures because the stocks on nearly every investors’ lips these days aren’t the normal Wall Street-listed companies that are shaping the way we live. Instead, it’s the companies that are benefiting from the way people have managed to get through the COVID-19 pandemic that are shaping the stock market.

Sure you could buy some shares in a pharmaceutical company or even one that makes toilet paper, hand sanitizer or disposable face masks. Or you could even stick some money on a certain online retailer who stocks everything from A to Z, or perhaps a chain store selling video games is where you want to put your money?

Alternatively, you could invest in LEGO; not in the actual company though, because it’s still owned by the family who founded it, so it’s not on the OMX Copenhagen. But you can invest in LEGO sets, which as everyone knows, are more valuable than gold.

However, with so many people brick banking, there’s a lot of competition for those deemed a good investment – so another way to make big bank on bricks has emerged. That new trend is minifigure collecting, and there’s been one that has captured more attention than any other to date: Finch Dallow.

If you’re new to the story of this character you can check out our previous coverage:

As of this week, sw1005 Resistance Bomber Pilot (Finch Dallow), who was originally included in 75188 Resistance Bomber for $109.99 – or for free if you contacted the LEGO customer service team – is now selling for anywhere between $300 and $500. Given that these exchanged hands for around $5 when it first appeared on the secondhand market sites like eBay and Bricklink, that’s an increase of at least 5900%.

On social media, the prices have surged to beyond $650 and those listed for sale commonly draw in a commentary that expresses utter disbelief. Yet, they still sell.

Run-of-the-mill collectors, many of them members of popular Facebook groups and Reddit forums, have been competing hard against each other – believing that the minifigure is in short supply, and this has drawn the attention of the serious LEGO investor who quickly got in on the action. This, in turn, increased bidding and caused a price squeeze.

But what has caused this sudden surge in interest?

It all began around two and a half years ago, at the start of February 2019, the LEGO community realized the significance of Kevin Layne’s original tweet in November 2018 that his The Last Jedi character was getting turned into a minifigure: the set it came would be retired in the near future.

Unknown to most LEGO Star Wars collectors, 75188 Resistance Bomber had been dropped from the production cycle the previous September, and stocks were being run down – but the running change to the spaceship’s pilot meant that it went back into production.

For the North American market at least, where the set was available for purchase via LEGO.com until June 2019 and reported in the wild for most of the year. The rest of the world missed out on this opportunity and weren’t able to take advantage of the free helmet and head that LEGO customer services were giving out.

When sales of the minifigure moved to the secondary market the price saw a general upward trend of 2.5% per month, a trend that continued until late December – roughly a year after the Finch Dallow minifigure became available – and saw the market value reach around $150.

It was at this point that the minifigure’s value leveled out, and for seven or eight months it stayed stagnant, when – seemingly – the demand for this minifigure was fulfilled. What caused this flattening of the line will likely never be known. Perhaps it was the cost of Christmas further burdened by COVID-19 hardships, or maybe something else caught the eye of LEGO investors.

Interestingly, if you connect the first data point to the most recent – a trend that roughly represents a 39% compound annual increase – the extrapolated line lands squarely on the most recent valuation, suggesting that the current melt-up could be the secondary market rebounding to its natural position after being suppressed for five or six months.

Source: Brick Economy

What’s not reflected in Brick Economy’s visualization, who use a variety of primary and secondary market sources for data, is social media trends, where sales that would double the height of the Y-axis have been witnessed in the last two weeks.

This localized increase, which started at the end of July 2021, has seen prices jump up by an average of $50 a week in a trend that has more to do with behavioral psychology than financial competitiveness.

Creighton University financial psychology professor, Brad Klontz, explains that “It’s a collective delusion that we all believe, that we will take a dollar today and put it in something we think will be worth more tomorrow.”

Basically, once stocks start shooting up, a few instincts start to kick in among investors, Klontz says. A powerful one, he says, is the impulse to go where everyone else is going. “What you’re experiencing there is really hard-wired in your animal brain,” he says. “Think about how we survived as a species. When the herd is running in one direction, it’s abnormal for you not to be really concerned that you’re being left behind.”

This cognitive bias (a systematic error in thinking that occurs when people are processing and interpreting information in the world around them in a way that affects the decisions and judgments that they make), is amplified by social media networks, and as the recent short-sale on GameStop stock – or Tulip Mania if you’re reading this in 1636 – illustrates once people start talking about it online, there is an attention cascade.

Raife Giovinazzo, a partner and portfolio manager at asset management firm Fuller & Thaler says that “the idea that if something is working now, it will keep working,” is a strong one. Fundamentally though, we know Finch Dallow isn’t worth several thousand times what it was worth a couple of years ago.

None of this is to say that the people who have made a lot of money selling Finch Dallow minifigures and 10179 Ultimate Collector’s Millennium Falcon sets have done anything radically wrong. But collectors and investors who come late to the party could get their fingers burned as enthusiasm for the theme peters out and investors realize that their purchases may not be worth the price of admission – after all, it needs LEGO to revisit a set and the original’s secondary market value plunges.

This was highlighted by a sudden drop in the cost of the first Ultimate Collector Series Millennium Falcon (10179) when rumors of its replacement started to circulate at the beginning of 2017 and the release of 75192 UCS Millennium Falcon, at the end of September 2017, suppressed its value for a full six months after the updated version first appeared on LEGO.com and their brand stores’ shelves.

In all likelihood, prices have peaked and – unlike the price of a barrel of oil or the housing market – the cost of a Finch Dallow minifigure isn’t likely to come down, so if you don’t already have one and your funds are limited, the chance that you’ll get one for a reasonable price is exceedingly slim.

Unless the official LEGO Star Wars Magazine in Europe decides to include a cover-mounted minifigure in an upcoming issue. A real concern to those who have spent big on Finch Dallow already.

Entertainment Earth

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