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    How A Blue Elephant Named Peanut Sparked The Beanie Baby Craze

    Meet the stuffed animal that started it all.

    On June 3, 1995, Ty Inc. released a royal-blue-colored Beanie Baby named Peanut the elephant.

    The suburban Chicago small business had been selling the line of five dollar animals for the past year and a half. Sales had been so poor that stores told Ty Warner, the company's owner, that they would only buy Beanie Babies six at a time — instead of in the twelve-packs he was offering on his order forms. Even then, most buyers passed. Ty was unfazed. "Most retailers don't know what they're doing," he wrote in a note to an employee. "When retailers are angry with you, it means you have a good product."

    At first, Peanut did nothing to substantiate Warner's instincts. Entrepreneurs of lesser conviction might have moved onto their next idea, but Ty wasn't done.

    Four months after Peanut was released, Ty reached a decision: He would change her color, taking her fur from royal blue to baby blue.

    The change was part of an ethos that Warner's ex-girlfriend Patricia Roche, who'd been with him when he started selling plush animals out of his condo in the mid-1980s, remembers as his "never-ending striving for a perfect that doesn't exist." Warner once proclaimed that "Even perfection has room for improvement," and Roche remembers the eight hours that Warner once spent taking a photo of a single stuffed cat for his company's catalog.

    In the case of Peanut, punctiliousness paid off. In the span of less than three years, the decision to change Peanut's color after only a couple thousand royal blue ones had shipped would, perhaps more than any other decision he ever made, propel Warner from small-time toy baron to the richest man in the history of the industry.

    By the beginning of 1996, four months after Peanut's color changed, Beanie Babies were taking off as a popular toy in Chicago's northern suburbs. Ty Inc. was shipping more than half of the Beanie Babies it sold to retailers within Illinois, and their popularity was spreading without the benefit of any advertising. That was unusual in an era when virtually all popular toys were promoted on television.

    In an embodiment of the consumerism-focused soccer mom culture that defined 1990s America, the collecting was quickly taken over by mothers. What had been a children's toy was to become, as Dave Barry put it in a 1998 column on the Beanie craze, "an obsessive, grotesquely over-commercialized 'hobby' with the same whimsy content as the Bataan Death March."

    The world of hardcore collectors was tiny, geographically close-knit, and cult-like in its intensity. As Malcom Gladwell writes in The Tipping Point, fads and trends that are seen as spreading by word of mouth among the masses are often really ignited "by the efforts of a handful of exceptional people." The four women and a few others were determined to accumulate complete sets of all the animals — before there was any publicly available information about the line. "We were very busy trying to get each one, and we were trying to figure out what each one meant," remembers one early collector.

    To figure out how many Beanie Babies there were and get the ones they couldn't find locally, along with extras to trade, the two Beckys, and Paula and her sister Peggy, started calling gift shops all over the country. In a single month, Becky Phillips' long-distance phone bill surpassed a thousand dollars. Sometimes Peggy would reach a store, only to be told by a puzzled manager who'd only vaguely heard of Beanie Babies that the inventory had just been sold over the phone to a mysterious buyer from Illinois.

    "All the people who were driving this lived within 10 miles of each other," remembers Mary Beth Sobolewski, a friend of Peggy Gallagher's who became the editor of a million-copy-per-month Beanie Baby collecting magazine. The growth of Beanie Babies into a national phenomenon can be traced to those four women. The first major story on Beanie Babies ran in People; it was written by Joni Blackman — who heard about Beanie Babies from her neighbor, Becky Phillips. The creator of the first and most successful Beanie collecting website was a Virginia mother named Sara Nelson; but she first heard of Beanie Babies when her friend moved to suburban Chicago and came back to visit with stories about the craze for Beanie Babies emerging on her block. Becky Phillips was that woman's neighbor too.

    As the early collectors called stores in faraway states to ask about Beanie Babies, they started to notice that there were a few varieties that were especially hard to find. Rarest of all was the royal blue Peanut.

    Beanie Babies had become a craze in the Chicago suburbs, and local and then national collectibles dealers and magazines started to cover it. In early 1996, Peggy Gallagher wrote the first magazine piece on the animals for a collectibles magazine called Rosie's Collectors' Bulletin. She emphasized the rare pieces, especially Peanut, and their rising values — and included her address where collectors could send a SASE to receive her price guide. But Peggy's price guide actually came before there was a well-organized market for Beanie Babies. In many cases, she just made values up. She watched in elation as the market moved up to reflect the prices she'd concocted.

    By 1997, a New Jersey father's self-published price guide pegged Peanut's value at $2,500. The book predicted that it would be worth $7,500 by 2008. That price guide, The Beanie Baby Handbook, sold more than three million copies to become one of the best-selling self-published books of all time. An ad in Mary Beth's Beanie World extolled the importance of purchasing hard-shell plastic lockets to protect the animals' heart-shaped paper tags that read "Safety Precaution: Please remove all swing tags." It led with this headline: "How Do You Protect An Investment That Increases By 8,400%[?]" On the left, with her trunk flowing off the page, was Peanut.

    The tulip mania of 1630s Holland had its Semper Augustus bulb, and the tech stock bubble had the stories of vast riches in early IPOs. For Beanie Babies, it all began with Peanut the Royal Blue Elephant. A stuffed animal had appreciated in value by a factor of a thousand, and that was a story that could spread. The Chicago Tribune explained it: "Start talking Beanies, and just about everybody knows somebody who financed a wedding, a vacation, a new van or what have you with the proceeds of Beanie sales."

    The Beanie market's self-styled experts stoked the idea that in the new Beanies Ty was releasing every few months, there existed specimens that would experience the same appreciation patterns of Peanut. The Beanie prognosticators operated in the same way that analyst Henry Blodget, who correctly predicted in October of 1998 that Amazon stock would soar by two-thirds in less than a year, used the credibility of his early success to promote newer companies with more dubious prospects.

    After Beanie Babies caught on, the Chinese factories started pumping them out in huge quantities — although Ty's decision to sell his animals only through small, independently owned stores masked just how many were being made because no store had more than a couple dozen of each style.

    "People didn't understand that the ones people were making $800 on were really rare," says Paula Abrinko, the doctor who'd been among the first aggressive collectors. "By the time they had heard that people were making money, the really hot ones were all gone." By mid-1998, all of the earliest Chicago collectors were sitting on six-figure fortunes. Abrinko quietly sold a few of her rarest Beanies and used the proceeds to adopt her first child. Her sister, Peggy, celebrated her Beanie winnings with a new Mercedes and a vanity license plate: "BBABIES."

    As the Beanie market reached its apex, latecomers made the worst investments of their lives. A former soap opera star poured his kids' six-figure college funds into hoarding more than 15,000 Beanie Babies after a store owner showed him a price guide predicting ever-soaring values. The Beanie Babies he staked out Hallmark stores in search of were too overproduced to ever be scarce — and the collection is, 16 years later, worth almost nothing. In West Virginia, a sawmill worker murdered a colleague over a Beanie Baby debt and in Las Vegas, a pair of divorcees divided up their soon to be worthless Beanie collection on the floor of a courthouse under the supervision of a judge and a bailiff.

    How are ordinarily reasonable people susceptible to the financial speculation that is so absurd in hindsight? Thousands of years of evolution have left us with brains that are on a constant prowl for patterns. For hunters and gatherers, it was a valuable talent: recognizing that the sound of a lion rustling in the grass often preceded a violent attack could be the difference between a violent death and passing on your genes. On the other hand, there was often little consequence to overreacting to an illusory pattern. As economist Daniel Kahneman puts it in Thinking Fast and Slow, "The tendency to see patterns in randomness is overwhelming." This instinct that is helpful in most situations is spectacularly dangerous in our financial lives. A willingness to extrapolate the rising price of Peanut into optimism about the appreciation potential of the newer Beanie Babies drove speculators to financial ruin.

    When it comes to financial decisions, this zeal to see patterns is amplified by the way we experience the world socially. Twenty years before Peanut, the economist Charles Kindleberger explained this phenomenon in his book, Manias, Panics, and Crashes: A History of Financial Crises: "There is nothing so disturbing to one's well-being and judgment as to see a friend get rich."

    So next time you find yourself tempted by stories of spectacular investment track records, upward sloping charts, and growth rates, ask yourself: Is investing in this really any smarter than stocking up on Gigi the Poodle because someone told you he got rich with Peanut the Royal Blue Elephant?


    Zac Bissonnette is a writer who lives in New York. He has written for The Wall Street Journal, Glamour, and Boston Globe Magazine. His new book, The Great Beanie Baby Bubble, is in stores now.