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trains as investment.. TOY TRAINS:  A POOR INVESTMENT    by Tom Jarcho

     American Flyer trains are many things -- entertaining toys, a fascinating hobby, mementos of a better time, tokens of family love past and present.  One thing they are not, however, is a good financial investment.  If you think of your Flyer collection chiefly in terms of dollars and cents, you are on the wrong track.  Toy trains, and especially American Flyer, should never be considered an investment.  It is extremely difficult if not impossible to get back the money you put into them.  Buy trains that you like and can afford, and enjoy operating and collecting them.  Do not count on getting back the money you spend or you will very likely lose your shirt.  There is a great deal of confusion about this issue in the hobby, but almost anyone in the toy train business will tell you the same thing: trains are not a serious investment vehicle.  There are many reasons why this is true.


     There are several sources that publish price guides and other listings which claim to be accurate valuations of the various values and prices of toy train items.  The figures they quote are mythical:  a toy train item is worth exactly what you can get for it, and that is almost never going to be more than a fraction of the published price.   While you may be able to occasionally get full "retail price" for a desirable item from another hobbyist, most people do not have the means to realize these prices on a whole collection.  These books are helpful only in terms of evaluating the relative scarcity between one item and another.


     It is most unlikely that you can realize the full retail price of a whole collection.  If you have a large list of people who are actively buying what you have to sell, you may be able to get good prices for it. However, only a handful of dealers have such a client list.  Most people in the hobby do not.  You can advertise your wares in hobby magazines and sell them off by mail order.  You can drag your collection to train show after train show and gradually sell it off.  Both these methods are slow and awkward.  Again, chances are that you will have to choose between selling at lower prices than book value or not selling at all.  Also, it is highly unlikely that your heirs will have the knowledge to do this if the trains are sold after you die.  Finally, your collection can be sold at auction, but this is a crap shoot.  Items that you paid "full price" for may go for peanuts or be unsold, to be returned by the auctioneer.  Even if your stuff sells well, you must pay commissions and shipping charges, and the process is likely to take some time.  Selling by internet auction is unpredictable -- the best items will probably be "cherry-picked", leaving a mass of common stuff that must be unloaded cheaply.


     Most large collections end up getting sold to a dealer or group of dealers.  No one else will generally buy toy trains in large lots.  Since the "book value" does represent the highest possible price a dealer can resell your items for, you will be lucky to realize between 30 and 60 percent of book value from him.  Often, dealers offer less, and you may have no choice but to accept.  They are not being unfair.  It is simply that dealers have to make a profit and have expenses such as rent, preparing and reconditioning items for sale, advertising, transportation, interest, etc.   Generally, the most you can expect from a dealer is 60 % of "book value" for very desirable items, and a lot less for most others.


     Postwar American Flyer is even less suitable as an investment than other kinds of toy trains.  Prices are dependent on demand, and there are fewer than 5,000 Flyer hobbyists.  This figure has held steady for years as people join and leave the hobby in roughly equal numbers.  At its peak, Gilbert sold about 1/3 as many trains as Lionel.  Then, while Flyer was out of production for about 20 years, Lionel kept on going in one form or another,  continuing to build a following.  The demand for Flyer is nowhere near that for Lionel.  Moreover, to compete with Lionel, AF trains had to be not only better looking but also more cheaply made.  Therefore, they are much less durable.


     Many other factors are at work to reduce the value of a train collection.  For one thing, these trains are old.  Paper, cardboard, rubber, paint, early plastics and white metal are subject to decay.  You may open a box, which may have faded or fallen apart, only to discover that your prize piece has crumbled to bits!  Paint may peel off, decals may crack, colors may fade, plastics may warp.  Bimetallic reactions, chemical reactions between two kinds of metal , are almost impossible to prevent.  Consider some examples.  The running gear and rods of a 322AC locomotive were made of steel, brass, cadmium, and nickel attached to a zinc alloy boiler.  These metals and their oxides will react with each other over time, degrading the appearance of the loco.  All Flyer PA's tend to develop a large unsightly crack in the nose.  Streamlined observation cars tend to develop cracks in the rounded end.  Heavyweight passenger car floors shrink enough to crack the screw holes in the car bodies and the cars then come apart. I have seen many steam locos that show signs of "white metal disease", in which the metal buckles and crumbles because of impurities in the alloy used.  A few people such as myself are working hard to develop conservation techniques that will preserve as much as possible of our toy train heritage, but these techniques, if we can develop them, will be expensive.  Meanwhile, your "investments" may fall apart!

     Some collectors who also think of themselves as investors limit their collecting to a few ultra expensive highly desirable pieces, especially mint items and boxed sets.  They figure that they will make a profit in the end.  This is far from certain.  One must pay top prices for these items, and yet they are exactly the kinds of things that forgers and other unscrupulous persons target.  Many boxed sets available  today were actually assembled by collectors, and may contain forgeries, repro parts and paper, and items from the wrong year's production.  The sole protection against train fraud is knowledge, which can only be obtained by owning, handling, and repairing a lot of trains.  Ironically, an individual whose strategy is to own only a few items has less chance to obtain the knowledge to protect himself against sharp practices.  He will also probably get a lot less pleasure from the hobby.


      A new element has begun to lower toy train values even further: the appearance of reproductions.  Train prices are set by supply and demand. The value of a choice piece is high because many people want it.  If the item is reproduced, many of these people will be happy with the reproduction and the demand for it will plummet.  This is especially true in a small group such as American Flyer hobbyists.  We have seen a lot of this in the Flyer world in the past few years.  Ten years ago, the most desirable sets were the Northern, Union, and Missouri Pacific passenger sets, the "big three".  Since these sets were callously reproduced by LTI, the prices or values of the originals have sunk considerably.  For example, a gorgeous original nearly mint Missouri Pacific passenger set has sat unsold in my local train store for years, despite the fact that the asking price is half of what it once was.  The more desirable and expensive a piece, the more likely it is to be reproduced.

     The growing popularity of newly manufactured items threatens to change the nature of the hobby.  New items, reproductions or not, have found widespread acceptance in the last few years.  While these items do not tend to hold their value, many people are quite happy with them.  Advances in manufacturing techniques make it possible to produce better toy trains than ever before, and our national policy of exporting jobs keeps the prices down.  I have seen train items that are made in China, assembled in Mexico, and packaged in the U.S.  The low prices of new items exert a downward pressure on the prices of old trains.  Beyond that, old trains may become a less and less important part of the hobby.  Demand for them may simply wither away.  The future is unclear.


     Let's compare Flyer trains to some other collectibles..  The first collectible was probably ancient coins.  These had a bottom limit on their value -- the worth of the precious metals they contained.  They offered several advantages -- they were often of historical interest, and, being small and easy to hide and transport, they represented a way to protect resources in troubled times.  Unlike toy trains, they were simple, durable historical tokens of international appeal,  desired and cherished worldwide.  Later, stamps became a similar phenomenon, but we can learn a lesson from the philatelic world.  A few years ago, demand for stamps suddenly decreased and prices in many cases fell through the floor.  There is no reason why this should not happen in the world of toy trains.

     Now compare toy trains to legitimate investment vehicles such as stocks or bonds.  The value of these investments may fluctuate, but their true value is generally known exactly.  It  is usually possible to sell them for their full current value in a reasonably short time in the financial markets.  As I have shown, it is impossible to do this with toy trains, because the marketing mechanism simply does not exist.  There is no stock exchange for toy trains.

     Trains are not easy to sell, and published prices are unobtainable. Demand can be fickle, and the market is uncertain.  Trains are subject to decay.  Let them enrich your life, but don't count on them financially.  The goal of toy trains is and always has been to create happiness, but if you think of them as an investment you will end up very unhappy indeed!