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When there's blood in the water, the sharks will start circling. In the summer of 2021, that's exactly what happened in fractional markets for blue-chip comic books.
In June and July of 2021 alone, 12 comic book buyouts were completed on fractional platforms. A buyout is one of the main ways fractional investors can exit their investments. Essentially, a deep-pocketed collector will submit an offer for an asset, and shareholders then vote on whether to accept or reject.
The surge of buyout activity came at an interesting time in fractional markets. Marketplaces had only recently introduced daily trading, and the intensity of the late 2020/early 2021 fractional frenzy had begun to fade. The ability to sell shares any time, combined with waning interest from many early participants, pressured fractional markets immensely heading into the summer. Unlike in 2022, when secondary market declines in fractional mostly mirrored the realities of broader markets, 2021's drawdown impacted most assets regardless of whether or not they had actually declined in fair market value.
Comic books in particular were unduly bludgeoned. For sharp and deep pocketed collectors, there was no chum more alluring than grail editions in high grades that infrequently surface at auction. Suddenly, those books appeared to be on sale in the fractional shop window. In a foreboding sign of things to come, after spring months that saw values of many assets drop 30-40%, fractional investors expressed a great eagerness for liquidity. On average, 77% of shares voted to approve the 12 offers, with just one other offer narrowly rejected.
These weren't fire sales, though. On average, the offers delivered a 42% net return since IPO and - even better - a 61% return over the last trading levels, depressed though they were. Still, given the top tier nature of many of the books (think: best grade of Avengers #1, a copy of X-Men #1 with only six graded higher), many scratched their heads at the hasty exits and suspected the buyers were sealing bargains to the common man's detriment. Was it short-sighted to cast these grails aside for a quick return? Did those decisions eschew the core fractional purpose of democratized ownership of great assets over the long term?
Two years have passed, so why revisit this now? Just last week, one of the 12 bought-out books sold again at auction, and this isn't the first time that's happened. We figured, then, it's a good time for a little "where are they now?"
Four of the exact books that were bought out from fractional platforms have returned to auction since. On average, they've sold for a price 69% higher than the gross buyout price. Net of buyer's premium, the sharks made out with a 40% return on average. Here's the rundown of outcomes:
Now, those sting a little bit - Thor's hammer to the collective fractional groin, if you will. But before we wind up Mjölnir for another swing, consider the alternatives fractional shareholders could have entertained. They could have taken their chances on the secondary market. Of course, fractional markets were certainly no friendlier in 2022 than they were in 2021. Our comic book index dropped 10% last year. Shareholders could have held out hope for better buyout offers, but those would have been needed quickly before broad markets started to nosedive in late 2022, and perhaps the unfriendly trading environment would've invited lowball offers happily entertained by liquidity-starved investors.
In cases where the exact book hasn't yet returned to auction, we compared buyout levels to the most recent recorded sale. On average, the most recent sale was executed at a level 16% higher than the buyout price. A couple of books actually lost value, though, as shareholders shrewdly accepted offers that seemingly top-ticked the market.
You'd still be inclined to assess the summer of comic book buyouts on the whole as mostly short-term thinking that foretold a significant reason for fractional struggles in the years ahead: a need for quickly-realized gratification, and absent that, a desire to abandon ship with all the order and calm of Jack and Rose trying to escape the Titanic. It may also deprive us the chance to see what kind of performance a fractionally-owned collection of true comic book blue-chips could deliver over an 8-10 year horizon.
Heroes of comic book lore have done some remarkable things in those colorful pages, but even Spidey and Thor can't save humans from impatience.
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