May 6th, 2021
“Do not invest in something you do not understand.” Warren Buffett’s words have always struck true with me. Not because he is the richest (he isn’t), not because he has never lost on an investment(he has), but because for many years I used that to be lazy about learning about a certain topic and I was never able to take a risk and invest in something. So when Patrick Mahomes’ debut collection of NFT tokens sold for $3.7 Million, I had to try and understand just how something that you can’t physically possess can go for so much money. So let’s go through my very basic understanding to try and understand the value.
When that story broke, I looked at my physical card collection, and I just couldn’t understand how something digital can bring in so much money. Who is willing to pay for it? Why is it going for so much money when his physical cards aren’t even going for that much? To first try and understand it, you must first learn what crypto is.
When you pay for something such as bitcoin, dogecoin, NFT’s, you are paying for a Digital currency, a video clip, animated graphic or image. My flawed logic at the time was that, “I would much rather pay for a physical card, after that I can physically hold it or show it off.” But when you buy anything crypto, you are doing just that. See, a physical card gets its value by the player that is on it, the limited number of cards that were produced on that particular card, and the condition it is in. When you buy crypto, you are essentially evaluating the same parameters, but there is another element to it, and that is that you are essentially paying for the labor that went into encrypting that item. For example, there are only so many block chains of bitcoin that will be available, because to encrypt it, it needs to have checks and double checks ran for possible cracks in the encryption. To put it into context, we aren’t talking about the power of your kids gaming computer. We are talking about some serious horsepower computers that have to be near bodies of water to use as its cooling source. With this understanding, you can actually see that owning a NFT actually protects against theft, accidental damage better than a physical card in your bedroom.
So with the very basic knowledge out of the way(Flame away in the comments, Interstellar is my favorite movie and I can’t even explain the bookcase scene other than “er Gravity!), if you’re looking to invest in NFT, where can you find value? What makes one better than the other? Just like physical cards, I would start with your favorite player! Now, with that out of the way, there is a way to try and find ones that will have more value than other. For example, this Patrick Mahomes video is visually striking. It is not something you would find on any physical sports card, and Patrick Mahomes now has a track record that proves he is elite, with no signs really of slowing down.
On the other hand, look at this Bryson DeChambeau Swing NFT. This one appears in the exact shape of a trading card, the picture is something you will see week in/week out on the PGA Tour just with a cheap looking IG filter, and Bryson is no Patrick Mahomes. So the price reflects that at $284 bucks. So is this a case of Buy low? I just don’t see that with Bryson. Sure, he is the rising start with enormous upside, he even had that upside before he became Mr. Pound of Bacon everyday, and he sells tickets. But, the world of golf is anti-sexy. Beauty is in the eye of the beholder, but unless the NFT is Tiger Woods, I wouldn’t expect a huge return.
So when thinking of investing in NFT’s, just remember Mr. Buffett’s words, learn a little about what you are jumping into, and find one you like!