What I Learned from Running an Investment Fund for Sneakers
The first one of its kind. Ever.
Investment? Sneakers? Now those are two words you don’t hear in the same sentence often. But I promise you that it is exactly what it sounds like.
As of today, my investment service, which runs a fund consisting of investments made solely in the sneaker market, concluded its first 6-month investing period. We netted a total of 11% ROI, of which 7% goes to our clients. Compare that with the S&P 500’s decline of -9% over the past 6 months in the current unstable economy. Not bad, right?
Sneaker investing is a growing trend, reflective of the opportunity that lies in today’s streetwear resale market.
So what does it mean to “invest” in a shoe?
I first discovered the world of sneaker investing a year ago when I met my roommate, an avid sneakerhead and skilled investor. Using reselling platforms such as StockX, he would map out his portfolio and strategically buy into certain sneakers off of the secondary market — these were assets that he projected to increase in value over time. Experienced sneaker investors like my roommate would be able to spot massively undervalued sneakers such as the Travis Scott Air Force 1, which ended up increasing in price over 250% from its initial resale value.
I was getting into trading stocks at the time, but I also saw the advantage of taking part in the sneaker market — low input costs, limited volatility, and relatively high average returns. Not only did the market suit my needs as a college student, but it was also relatable and naturally engaging to me, having always been passionate about fashion and streetwear. After earning my first couple of hundred dollars in profit, I knew that this was a financial opportunity that I wanted to share with others.
With the vision in mind, I formed a small team and built The Hype Advisor, a company founded on sneaker investing that aimed to help young adults invest and grow their money in the sneaker market while simultaneously teaching them its fundamentals. We created a system where clients could invest in our fund, which would then be allocated towards a diversified portfolio of sneakers ranging from vintage Jordans to Off-White Nike collaborations.
After a year of operating the business, I’ve gathered many insights into the world of sneaker investing and its future. I wanted to share them with you here.
Know the Culture & Reap the Profits
Sneaker investing is all about gauging hype. It’s about knowing what people want and why they want it. It’s about breaking that desire down into its components and analyzing them.
What is it about a certain sneaker that makes people willing to pay three to four times its original value? Is it the brand name? Is it endorsed by a cultural icon? Is it extremely rare? Is it the materials used? Silhouette?
Most of the time, it is a fine balance of all of the above and more.
But the fact that there are fewer moving parts in the sneaker market than there are in the complex machine that is the stock market means that it is easier to understand. And easier to predict.
With our experience, we found that most of our buy-ins would result in a profit, with margins ranging from modest to unbelievable. This is a market that you can take risks in, but only if you first take the time to understand how hype works.
There’s One Drawback…
There is one major inconvenience in the sneaker market that I would like to point out.
Liquidity.
At the end of the day, sneakers are commodities, and they need to be delivered like any other consumer good. While stocks and other assets can be traded with a click of a button, sneakers need to be bought, shipped, received, re-packaged, and resold. That’s a pain, especially when you’re operating out of a cramped apartment like we are.
Even with a smooth operational system streamlining the entire handling process, the sheer volume of shoes that we were managing had put a lot of stress on the team.
At the end of the day, a major ceiling of sneaker investing lies in your capacity to store & ship an exponentially increasing stock of shoes.
Streetwear in Desperate Need of More Data
The streetwear market is a powerful, untapped source of income. Yet unlike stock investors, streetwear investors don’t have access to unlimited data points, financial indicators, and experienced advisors.
An influx of more data — and more ways to gather, visualize, and analyze that data — into the market will unlock the market’s potential and take it to new heights.
With the resale market already worth over two billion in 2020 and predicted to shoot even further upwards, sneaker investors will need the tools to make better-informed decisions, more complex projections, and larger investments.
If you are thinking about getting into sneaker investing, I would not hesitate to do so. A solid grasp of the market is all that it takes to cultivate a consistent source of side income.
Want to know more? Visit our website here. Contact me at tylerwu@berkeley.edu
