From stamps and coins to paintings, wine, watches and even cars at the opposite end of the spectrum, collectibles have served to inject wonder in our everyday lives. Moreover, they can rival if not outperform the competition as an investment tool.
Knight Frank’s Investment Index, which tracks a portfolio of nine collectibles, grew 44 per cent during the past five years and 182 per cent over the last decade. These figures stand as of 2014 and the trend is set to rise with enthusiasts funnelling their investments towards more creative areas.
Investopedia defines a collectible as ‘any physical asset that appreciates in value over time because it is rare or it is desired by many.’ It also states that the main objective of entering the market is for capital appreciation, inflation protection as well as self-fulfilment. For the sake of this article, we will focus on capital appreciation as well as inflation protection as the driving force behind the purchase of such items – basically, purchasing something with the possibility of re-selling it at an opportune time for a profit.
Apart from the one-off trading cards selling for over a million dollars as well as diamonds going for 10s of millions on Sotheby’s via auction, trading in collectibles requires both industry knowledge and a bit of luck in order to scale. Buyers are known as being fickle with trends notoriously evolving erratically.
New Channels and Avenues to Trade:
Honus Wagner’s baseball card was sold on eBay for USD$1.1 Million in 2000 (therichest.com). Although there have been many examples of such occurrences in the industry since then, the sale paved the way for a shift in the way collectors thought about their trade.
The last two decades have seen the introduction of Internet platforms and online marketplaces that have dramatically changed the collectibles world. Where before one could only attend auctions and walk into brick and mortar shops to purchase or add to a collection, one is now suddenly able to browse whole catalogues of items listed in almost any particular category from the comfort of home. All that is needed is an Internet connection and basic Internet know-how.
The one thing that all budding collectors must know before entering this highly volatile market is that it is a highly illiquid asset.
One is not always able to find a favourable buyer at a favourable price at call. This is one of the reasons why it is said that serious collecting is a rich man’s game. One has to have excess funds before entering the market.
Another disadvantage facing investors of collectibles is the limited information available on trends compared to the traditional shares and bonds markets. Couple that with the fact that they do not pay dividends, and you have yourself a delicate proposition to manoeuvre.
Collectors are also unfortunately subject to a booming counterfeit market. Buyers have to be issued with authenticity certificates as the last decade has seen a plethora of scams and improvements in techniques to create replicas that only an expert can distinguish.
The Carriage Behind the Horse
It makes sense that collectors often start by having a particular interest in the items they are investing in. If one has enough knowledge on a certain collectible, be it art, wine or even vintage cars, they will have the ability to persevere and go the distance in an area of investment which is as complex as it is pleasurable.