Thursday, February 15, 2007

collectibles as an asset class

Do you consider collectibles as an asset class?

I've read about various hedge funds incorporating art and coins as investments. Actually, I believe one state retirement plan pursued rare coins, but ended up being defrauded by the advisor they hired - he was caught.

Here are examples of collectibles:

  • Rare art
  • Coins
  • Jewelry
  • Wine
  • Furniture
  • Comic Books
  • Baseball Cards
  • Rare cars
  • Rare documents / autographs
  • Rare books

To be a collectible the following characteristics should be present:

  1. There must be an established market
  2. Pricing and sales history should be available
  3. Products must have a provable history of resale (you can't just speculate what something will be worth in xx years. Products should have been bought and sold.
  4. The market must be liquid (ready buyers must be available)
  5. There must be a limited number of each item available; i.e. scarcity - no one pays a premium for something ever present.

Would you invest in collectibles?

Off the cuff I would never do so - to obtain market value you usually need significant presence in the market place, reputation and established customers. This moves you away from the collector position and closer to the broker/dealer position.

Another consideration is cost of recency of appraisal. How convenient is it to have an appraiser available to price your item(s)?

Ultimately, your passion for collectibles will either propel you into the market - and therefore create a presence and liquidity - or it will not and remain a hobby, rather than an investment.

Achieving liquidity is the most important goal when collecting for a profit.

Regards, makingourway


fin_indie said...

I think one of they key issues with collectibles (or any physical asset) is the added risk of owning, managing and protecting them. Also, adding insurance to the mix means more expense and fewer returns. Managing investment-based physical assets such as these are not interesting to me at all, but I do still have my childhood baseball card and comic book collections. :)

Anonymous said...

We have a lot of original art from Russia (long story) but I don't consider it an asset. Partly because I have no plans to sell it, and partly because as soon as a profit motive entered, I'm afraid I'd start buying based on something other than what I simply love. I do keep all the paperwork in a file, though, in case something happens to both my husband and I, requiring the pieces to be sold. Would make a nice chunk for the kids' college funds ...

Also, the market fluctuates so much for this kind of thing - it's hard to even assign a reasonable value from year to year.


traineeinvestor said...

I have looked into both art and wine as investments. While some people have done very well out of such investments, the returns for each asset class as a whole appear to be lower than for the share market (to the extent that it is possible to find comparable data). Also, the information for these markets is much less transparent for larger, more liquid markets.

Storage, insurance, valuation issues and transaction costs all make these sorts of investments more challenging in terms of producing a return (they actually have holding costs instead of producing yield). I view them more as a hobby rather than a serious investment and do not even include them in our balance sheet.

Adventures In Money Making said...

as in all things, this asset class is cyclical. i think now is a good time to buy.

you can check out stanley and gibbons - a UK based company. you can buy art/collectibles/stamps from them for $5k and they promise to (a) buy it back in a 5 years with a 4 or 5% annual increase (b) sell it on auction for free (c) give you catalog price less 20% (i think)
they've been in biz for i think 70+ yrs so thats one way to invest in this asset class.
disclaimer: my only association with this company was a stamp book I bought from them in 1985 (i still have it but haven't been able to fill it fully yet!)

I also make it a point to mail my mom postcards from every country I visit - that way she feels i'm thinking of her, and also i get local stamps + post marks.

Bug-Z said...

I don't consider those as assets per say. Cuase Isee an asset as something that generates money for you while you own it. But I somewhat think of them as assets since they can be considered investments.