Everything is Awesome (for Lego Collectors)!

LEGO, sometimes referred to as the Apple of Toys, is one of the most popular toys in the world. Some fun facts: the plural of LEGO is LEGO and the name is derived from the Danish word leg godt, meaning "play well." The 83 years old company also happens to be the world's largest producer of rubber wheels, making more tires per year than Bridgestone, Michelin, Goodyear, etc.! 

Well, now there's another reason to be interested in LEGO (if that was even necessary). They apparently make pretty good investments, too! That's the finding of a study by Victoria Dobrynskaya and Julia Kishilova: LEGO - The Toy of Smart Investors. LEGO are collected by thousands of adults and has a thriving secondary market. The authors tracked the returns of 2,322 sets over 18 years and found that they had an average return of 18.5% p.a., with a standard deviation of 35%. The authors then constructed a LEGO price index from a hedonic regression of coefficients. The LEGO index outperformed large stocks, bonds, gold, and alternative investments in the sample period 1987–2015, yielding an average return of at least 11% (though LEGO underperformed the CRSP index consisting of all stocks in the NYSE, AMEX and NASDAQ exchanges by about 100 bps p.a.). 

Source: Dobrynskaya and Kishilova (2018).

They also found that LEGO returns were not significantly exposed to market, value, momentum, and volatility risk factors. Only the Fama–French size factor demonstrated significance, suggesting that LEGO investments perform similarly to small stocks. The LEGO return index had a correlation of just 13% with the S&P 500 and exhibited a positive skew (0.7). The uncorrelated nature of the LEGO market is reflected in its strong performance through the "dotcom" bubble and Global Financial Crisis.

The main reason for such high returns on the secondary market is diminishing supply over time. LEGO releases new sets each year and retires existing ones periodically. This sets ups interesting pricing dynamics. In the study sample, the returns on individual sets varied from −53.61% to 613.28% p.a. (with the average return of 18.5% p.a., as noted earlier). Very large sets, those with 1200+ pieces, and small sets, those with <340 pieces tended to perform better. Returns also varied dramatically by theme. Out of 44 themes identified by the authors, the 5 best performing were: Ideas, seasonal, superheroes, Minecraft and Friends (averaging 50% returns p.a.); the 5 worst were: Simpsons, Prince of Persia, factory, TNMNT, and space (averaging 2% returns p.a.).

         Source: Dobrynskaya and Kishilova (2018).          

                    

   

                                                                                        Source: Dobrynskaya and Kishilova (2018).

So, from now on always buy two sets of LEGO. One for the kids (or grownups) to play with and one for the investment! Who knows that new set could be the new Lego Millennium Falcon which retailed for $500 in 2007, and today sells for $9,000 on eBay.

How Safe is Your Password?

Using an easy-to-remember password is convenient but risky. And if people have to choose...well, they generally choose convenience. According to Statista, 123456, picture1, password, 111111 and 123123 were the world's most common passwords in 2020; all of which could be cracked in less than a second by bots. However, as Statista's Katherina Buchholz notes, even little tweaks can make passwords a lot more robust: "adding even one upper case letter to a password can already dramatically alter its potential. In the case of an 8-character password, it can now be broken in 22 minutes instead of instantaneously in one second...A 12-character password with one uppercase letter, one number and one symbol is almost unbreakable, taking a computer 34,000 years to crack."

How? Combinations and permutations. There are 26 lower case letters in the English alphabet. A password of eight characters has 26^8 or ~209 billion possible combinations. Adding the uppercase, we already arrive at 52^8 or ~53.5 trillion combinations. With the numbers (0-9) in there, it’s 62^8 or 218 trillion combinations. Symbols add another great potential for security, but since only the handful displayed on computer keyboards are convenient to use, this ups the number of combinations once more to around 90^8 or 430 trillion combinations.

If you're still wondering how much of an effort you need to make, the below graphic provides a useful convenience-risk guide.

Also, if you can see your password from this weighted list of the world's most common ones, it really is time to change to something else.

Jaws of Life?

Nearly 50 years after they first terrorized the folks at Amity Islands and got their own week-long TV programming block on Discovery...are sharks becoming our allies? A new study in Nature Communications, reported by the Daily Beast, suggests shark proteins can act as antibodies against COVID and its variants. According to the report, researchers at the University of Wisconsin-Madison ("UWM") have discovered a protein unique to sharks that is small and nimble enough to "get into nooks and crannies" of Covid-19's spiky structure that human antibodies cannot, which allows them to recognize coronavirus proteins more effectively than our own antibodies. As a result, they are better able to neutralize the COVID-19 virus. The proteins, called VNARs, are produced by shark immune systems naturally and are about one-tenth of the size of human antibodies. 

That's promising news with Delta, Omicron and other variants possibly on the way. Oh Jaws...frenemies?

Squid Game: South Dakota Edition

Teachers in South Dakota competed in a "Dash for Cash" game that was reminiscent of the mega-hit Netflix show. Perhaps that was the point, life imitating art. The teachers, wearing hockey helmets, "crawled into the pile of cash, frantically stuffing the bills into their shirts as an arena of spectators hollered and cheered until every dollar was snatched up." 

According to Kelo, the Sioux Falls Stampede, a local hockey team, hosted the event using money donated by CU Mortgage Direct, a Sioux Falls lender (of course!). It was billed as an opportunity for teachers to gather money for their classroom needs, with the rousing tagline: “put it in their shirt, pants, wherever... they can take as much money as they can grab during the time that we have during the intermission.”

A clip of the event went viral over the weekend and critics said the image of teachers on their hands and knees, scrambling for low-denomination bills, was “dehumanizing” and even “dystopian,” especially as teachers are paid relatively small salaries in South Dakota. In fact, according to a recent report from the National Education Association, South Dakota teachers in the 2019-20 fiscal year earned an average annual salary of about $49,000, behind only Mississippi. The state ranked 38th in terms of per-student spending, having spent about $10,800 per student in the fall term of that year...Are you not entertained?

Time's Person of the Year: Emperor Muskimus

Time's Person of the Year honors, like the magazine itself, doesn't carry nearly as much cachet as it used to, except maybe to one person. Still, be it tradition or nostalgia, the PoY edition does manage to garner a disproportionate amount of media attention, like the US News & World Report's college rankings. Time's purported criteria for PoY is “the person or persons who most affected the news and our lives, for good or ill, and embodied what was important about the year.” But you gotta sell magazines too. And so, in keeping with their annual buzzy-but-not-really-meeting-their-own-criteria choices, this year Time went with retail trading folk hero, SNL guest host, and noted EV evangelist, Elon Musk.

Time helpfully lays out its exhaustive methodology for the choice of Musk, the world's richest man and future ruler of Mars: 

"An army of devotees hangs on his every utterance. He dreams of Mars as he bestrides Earth, square-jawed and indomitable...He tosses satellites into orbit and harnesses the sun; he drives a car he created that uses no gas and barely needs a driver. With a flick of his finger, the stock market soars or swoons." But most importantly because "Lately, Elon Musk also likes to live-tweet his poops"...Hmmm. But please continue...“Just dropping some friends off at the pool,” the 50-year-old zillionaire informed his 66 million Twitter followers on the evening of Nov. 29, having previously advised that at least half his tweets were “made on a porcelain throne.” After an interval—21 minutes, if you must know—an update: “Splish splash.” Cool Time, you're so hip; maybe Elon will buy you now.

Ok, ok it's still something to be proud of (we're posting about it, aren't we?). Almost up there with when a budding multi-millionaire Elon got a chance to pitch Tony Stark all those years ago.

Bitcoin: Safe-haven or Fool's Gold?

U.S. equities had its worst day in a year on Black Friday, down 2.3%. Bitcoin ("BTC") fell even more, down over 7% during the day. BTC is many things to many people, from an instrument of world peace to a source financial instability. For enthusiastic investors, BTC promises not only to be a wonderful returning asset but also an important portfolio diversifier, a safe-haven asset that is a potential alternative to gold. Hmm, okay...so BTC fans have big expectations! True, in years past, when BTC was an obscure crypto-thingy interesting only to techno-geeks, it was largely uncorrelated to public equities. But as BTC has become mainstream, its volatility (always high) and correlation to broader markets have increased as well. Consider that in 2019, BTC exhibited a beta of -0.28 to the S&P 500; in 2021, its beta has risen to +1.83!

                                    Source: Yahoo Finance, Mantabye

But what really highlights BTC's increasing correlation with public equities is the growing dichotomy of the cryptocurrency's performance on days the market is up versus when it is down, as shown in the up/down capture chart below. Over the past three years, the S&P 500 has been up on 320 days or 58% of the time; the positive days are roughly equally distributed across each year. In 2019, BTC was, on average, positive when the market was negative and captured roughly 50% of the market's upside on positive days. In 2021 so far, BTC has on average underperformed the S&P 500 on market down days and outperformed on market up days, consistent with its growing beta of ~2x. 

                                   Source: Yahoo Finance, Mantabye

BTC's seeming change from a diversifying asset to a levered equity bet is best reflected during large market moves, defined as +/-1% days. The S&P 500 had 115/85 of them, respectively, over the last three years. As shown below, BTC has gone from exhibiting characteristics of a safe-haven asset in 2019 to becoming the go-to "risk-on" asset in 2021. And it's not just BTC. Ethereum, the second most popular cryptocurrency, exhibits an 80%+ correlation to BTC and displays similar dynamics. (Together, Bitcoin (50%) and Ethereum (25%) make up 75% of the $2 trillion crypto market, i.e., basically the whole market) By contrast, gold continues to be a source of diversification in periods of stress (if not a great source of returns). As they say, all that glitters is not gold... 

                                  Source: Yahoo Finance, Mantabye

                                  Source: Yahoo Finance, Mantabye

Winter is Coming (Again)

Last November we wrote about how bad the Covid pandemic in the U.S. could become once winter arrived...and that was before we had vaccines. Well, we got vaccines in 2021, plenty of them (at least here in the U.S). Yet, the number of Covid deaths in 2021 has already surpassed that of 2020, with 5 more weeks to go. In 2020, there were 327,027 Covid-related deaths, according to Worldometer. As of Nov 24, 2021 there were already 428,215 Covid deaths or 58,188 more. 

Looking at the chart below, we can see a surge in deaths in the colder months between Oct and Mar; roughly 45% of all U.S. Covid deaths happened in those six months. With the rapid uptake in vaccinations in the early months of 2021, deaths fells precipitously in Q2. But the onset of the more contagious Delta variant, lower adherence to social distancing and masking, and the plateauing of vaccination rates, all contributed to a significant increase in deaths in the Q3 and Q4. In total 798,242 Americans have died due to the virus since January 2020.

                          Source: worldometer, Mantabye. *As of Nov 24, 2021.

To put those numbers in context, according to the Peterson KFF Health System Tracker, "COVID-19 was the third leading cause of death across most of 2020, but in December 2020 and early 2021, the illness surged and briefly became the number one leading cause of death in the U.S., far surpassing even cancer and heart disease deaths in those months." Historically, heart disease and cancer have averaged around 600K-650K deaths a year, Covid is averaging over 400K (click chart to enlarge)...and winter is coming, once more!