Why the Beanie Baby bubble burst

Our Econ Extra Credit project features one film a month on Marketplace themes. (You can subscribe for the weekly newsletters and follow along here!) In August we’re watching “Beanie Mania,” chronicling the rise and fall of the Beanie Baby investment bubble from the mid-90s into the early 2000s.

This was a time when the price of these stuffed animals skyrocketed, and people believed — sometimes rightly — that a Beanie Baby was going to pay for college tuition or retirement. This led to folks rushing out to buy up all the Beanie Babies they could get their hands on.

But someone who didn’t buy this in the film is Harry Rinker. He embraces the nickname “Beanie Meanie,” and he spoke about this with “Marketplace Morning Report” host David Brancaccio. The following is an edited transcript of their conversation.

David Brancaccio: People got really into these things, and look if they want a nice toy or they want to collect a few things because they’re fuzzy or they like the little eyes on them, more power to them. Right, Harry?

Harry Rinker: Exactly. But collecting long term, and long-term value in collecting, is about memory. And one thing that happened during the Beanie Baby craze is all the parents say to their kids, “Don’t touch them. They could be valuable.”

Brancaccio: So you couldn’t really play with them in that situation, right?

Rinker: Exactly. Who wants to collect something that you don’t have memories of touching? Seriously.

Brancaccio: I know. And in real time, you saw this as a bubble that might not be sustainable?

Rinker: Oh, absolutely. I ran, for 30 years, an antiques and collectibles research center where I studied the antiques and collectibles trade from the late 19th century through the 20th century, and looked for common cause. You talked about how you’re doing this as part of a broader picture. I always looked for economic trends and forecasts that applied to my trade, and one of them was that you can’t make money out of nothing. And so I created a rule in the antique trade called “Rinker’s 30 Years Rule.” It said for the first 30 years of anything’s life, all its value is speculative. And that rule applied to not just Beanie Babies, but Mattel holiday Barbies, Cabbage Patch dolls, Star Wars watches, all the different things that came along. And so when the Beanie Baby craze hit, we had numerous examples of similar bubbles from the past.

Brancaccio: So people need to be careful. But help me understand what happened with Beanies. People thought they were a slam dunk for storing value, that they were like a gold bar or something.

Rinker: Well, the Beanies hit at a very opportune time. And that’s when eBay got in the early stages, OK? When they first came out, people didn’t collect them for about a year or two. And then all of a sudden, they started to appear for sale on eBay at prices significantly above retail cost. And people started buying them, because when they’re a collector, you want a full range of stuff. And so some of the early ones started to bring very good prices. Well, then what happened is that dealers found out that if they could corner the market, at stores and stuff and scarf them up, so the addition wasn’t continuous, it was limited, that they could then throw this stuff on eBay and create a frenzy, a buying frenzy. And they did.

Brancaccio: And then, it’s the lesson that we try to teach about so many other financial assets: Trees don’t grow to the sky, you know. Yes, things can go up. But they also tend to come down on the other side.

Rinker: Yes, they do. And it raises a question, what is something worth in the antiques and collectibles trade? What something is worth is what someone’s willing to pay for it. So you could justify it saying, “Well, during the rise, people were willing to pay this.” But the question in my trade is, from a long-term perspective, who is the winner? Is the winner the guy that sold for cash along the way? Or is the winner the person who paid so much for something that when they go to sell it, they can’t get their money out of it? Well, that’s the thing that kills the craze. Because all of a sudden, the market got flooded. And it didn’t just get flooded on the internet, it got flooded in antique malls all across the country. And so all of a sudden supply exceeded demand. When supply exceeds demand, it’s all over.

Brancaccio: The film also explores some other interesting economic facets here. One of them is, there’s the primary market for Beanie Babies: the company that made them, Ty, selling them through retailers. It was interesting that they didn’t want to sell through the biggest of retailers, they tended to go with more medium sized and small. But then there’s the other market, the one you’ve just been talking about, the auction market or eBay, where if a Beanie Baby goes for $10,000, the company that made the Beanie Baby doesn’t really profit.

Rinker: Oh, but they do. They promote that market by restricting sales. In other words, they had a limited production run — one year, two years — and then they would go out. Well, the minute they would go out, that was like adding value to the thing. Now, did Ty benefit from that? Yes, because people would then buy future Beanie Babies in speculation that they would go up in value. So Ty would increase the runs of the later Beanie Babies. He was an incredibly smart man.

Brancaccio: So I understand this, right? So if you limit the supply of something, and people think it’s valuable, they might buy more of them. And that’s where the company that produced these toys benefited. Then there’s the secondary market, where someone holds on to something and hopes it’ll go up in price and maybe they sell at a profit or maybe they don’t get a profit.

Rinker: Well they hoard. What Ty counted on was people wouldn’t just buy one. Ty counted that they would buy as many as they could get of any one of them and hoard them. People, after three or four years, got tired of hoarding them, and then started dumping them on the secondary market to get the secondary market to collapse. Right now, if you have Beanie Babies, and somebody’s willing to pay you more than you paid for it, sell it. Because in another 20 years, you could buy it back for half the price, or 10 cents on the dollar. Because 20 years from now, no one’s gonna give a hoot about Beanie Babies. These are not investments.

Brancaccio: And what’s so interesting to me talking to you, you’ve thought a lot about collectibles in general. And you don’t have this view on everything? Some things you might collect might be a better bet?

Rinker: Uh …. no. It’s all risky! Collecting is about memory, right? Now, I was a big Hopalong Cassidy collector. I owned one of the only complete 10 Hopalong Cassidy bedroom suites known to mankind. I paid $5,000 for it. When I sold it at auction a couple of years ago, I got 300 bucks for it. Who cares about Hopalong Cassidy today? I’m a collector, and I once owned 50,000 objects. I’m down to 20,000 at this point. But I’m going to tell you what I did every time I went and bought something from my collection: I went into the bathroom and flushed the toilet to remind me what I just did with my money.

Brancaccio: So why did you do it then?

Rinker: Because I love the goodies! The question becomes, how do you know a person is a true collector? He dies with his stuff. Then it’s never about the money.

Brancaccio: Financial experts study this, desperate for some clues as to when a bubble pops. It’s extraordinarily difficult to determine what that moment is, be it housing prices or a crypto asset, right, these days. What do you think popped the bubble on the beanies?

Rinker: When the market gets to a certain point and it starts to sell for less, it’ll level off. There’s a definite curve here, David. I wrote a book called “How to Invest in Antiques and Collectibles,” and I had the curve in there. But the market shoots up very rapidly over a very short period of time. And then all of a sudden it goes through a peak period. A peak period is when the market is relatively stable but no longer growing at the same amount. And then all of a sudden it starts to drop, and when it starts to drop, the drop can’t be stopped. This concept that you can take an object and make it an investment thing instead of a play toy or an object to be looked at and appreciated. OK, and there are definitely ways to spot that flat plateau at the top. And the minute you see that, man, you better bail.

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