2021 Exit Strategy

[Snapolit1]

There is a lot of BS in the investing world, but the idea that one should diversify broadly is a new brainer. Stocks go down, bonds usually go up . . . . real estate goes up and down . . . etc. Don't put all your eggs in one basket.

[glchen]

I'm going to come off as a contrarian, but all of this sell everything advice, I do not agree with. If you look at financial history, many of the best times to invest are in a down or bottoming market, and the people who end up being worst off are those who sold during these "falling knife" times. Obviously, Phil has to sell something because he needs money to survive on, but I don't believe in this selling everything philosophy. Instead, if it were me, I would use the dollar cost averaging scenario. Just as dollar cost averaging is a recommended investment/saving strategy for buying, it can be the same thing for selling. The idea is that it is very difficult to time the market. Using dollar cost averaging will flatten out your risks, so that you will get some of the highs and some of the lows, ie, you won't get the best gains or the worst losses, but you will be somewhere in the middle.

I don't know how many cards Phil has, but I would try to put all of his inventory in a spreadsheet if he doesn't have one already. I would use the 2017 prices as the reasonable "floor" on the lowest the prices will go. I arbitrarily chose this year since it is pre-pandemic before the huge rise that happened there, and therefore, the prices for this year were not "irrationally exuberant." You can choose another year if you think that is better. Phil's cards will not go to 0. All of his cards as far as I know are HOFers, and not modern cards that folks are "betting" will be big stars in the future. If he held Stephen Strasburg rookie cards, I would say to sell those immediately because those cards could defiinitely go to 0. Hakeem's rookie cards will not go to 0. Saying that, I would still categorize him as a "minor" HOFer and not a gold mint one such as Lebron or Kobe, and put him on the sell earlier.

Therefore once the spreadsheet is put together, I would list the cards with their purchase price, current market value, and 2017 market value. Then based on this information, and Phil's own expertise on future ROI, I would rank each card with the smaller number being sell early, and larger numbers being sell later. Once the list is finished, review the totality of it to see if Phil is comfortable with the selling order, and the expected returns/income that he would be getting by selling each tranche. He would then sell these at regular intervals to get the income he needed to live on, have an emergency nest egg, as well as seed money for whatever business he is thinking of starting to generate future income such as card flipping. As I mentioned in my previous post, he should also consider tax consequences to minimize any liabilities there.

Speaking of taxes, he should also look to getting a seller's permit if he doesn't have one already. Getting a seller's permit means that you don't need to pay sales tax on your purchases, but it does mean that you will need to start filling out Schedule C on your taxes to declare your business income to the IRS (as well as your state's business sales tax forms). Schedule C income is added to your gross income on your income taxes. Typically the capital gains rate on collectibles is at a lower rate that the tax rate for your income taxes, so people often prefer just paying the sales tax and using the capital gains rate. However, if Phil's income is basically around 0 these days, he won't be paying income taxes, and getting the reseller permit may be more advantageous from the tax perspective. Obviously, it can also be a pain to do all of the record keeping if he doesn't have that already, so he still may not want to get the permit.

I want to add one more note to this sell everything discussion. There is an opportunity cost here. If you are selling the cards, you must believe you have a better alternative for your money somewhere else. If you are selling everything and getting a 5% CD, you are saying that you don't think the cards you would be keeping would return you 5% in the next year. If that is what you believe, then I agree, sell. If you think the cards will go up more than 5%, then keep those cards you think will beat that return rate. Of course, you must keep an emergency fund if things go sideways and take into account your risk tolerance threshold.