Investing in Collectibles
From the right angle, almost anything can be viewed an investment. Maybe not hot dogs or grass clippings, but most things you pay money for - from stamps to dishware to shoes - retain a monetary value.In some cases, over many years, the worth of those items will increase and you will have, wittingly or not, invested in a collectible.
Of course, this isn’t your typical practice for collectible investing. Most of the time, lots of thought and a decent amount of capital goes into buying items that can hopefully appreciate in value, and those who scour antique stores and Ebay for valuables know this isn’t an easy way to pay for your second home. If you’re going to start investing in collectibles, you need great instincts and even greater patience.Even then, there are no guarantees.
I’m not quick to advise investing in collectibles, but I do support any form of smart spending. If you’re going to buy an ancient vase instead of a car, you’ve got a better chance of getting a good return on the pottery than you do the vehicle. There’s definitely money to be made on collectibles, you just need to have a good sense of the market before you get involved. If you’re thinking about dipping your toes in the collectibles pool, ponder these three ideas before you start.
1. Supply and Demand
What’s a collectible? Baseball cards and comic books certainly are. I think most people also consider art and vintage wines collectibles. How about precious metals and pieces of furniture? Are plants and the seeds they produce collector’s items?
To answer these questions, you have to ask whoever’s driving the markets. While you can collect whatever you want, the value is set by those willing to pay for certain items. Collectible investing is a quintessential model of supply and demand - when demand exists for a particular thing, the value will rise and supply will start increasing as well. Once the supply reaches a tipping point, demand will taper off.
Of course, collector’s items don’t play by the same rules as other markets affected by supply and demand. When you buy a stock, you own a share of a company that provides a service to consumers. That company may deal with rising competition, but it also has the ability to adjust strategies should demand change. When you buy a Babe Ruth rookie card, on the other hand, you own a small picture of a large man. That small picture cannot reinvent itself, but you don’t have to worry about the Babe running into any new competition.
The obvious issue is that no one could see the future value of sports cards when they were first printed. I’m sure some of you have parents and grandparents who threw out old trading cards back in the day.In hindsight, that was a mistake. At the time, however, the demand didn’t exist to make those items a valuable commodity, and supply remained limited. Since then, trading card supply has shot up as more people try to get their hands on the old, rare, valuable prints. Today’s cards are mass-produced as part of a sizable industry, and it’s not likely they’ll be as coveted as Babe Ruth or Mickey Mantle cards when they reach old age.
Sports, art and music will always be an important part of our culture, so it makes sense that memorabilia from those arenas holds some value. Does that mean a Taylor Swift CD will sell for thousands of dollars in 2075? It’s not likely, but who knows? That’s going to be decided by the people of 2075 and what they see as valuable.
2. Be Realistic
Stamps are a prized collectible for many, and,as with trading cards, no one saw it coming at the outset. Did anyone alive in the 1800s think a $0.01 stamp would be worth thousands at some point? Not a chance. In 2017, of course, a piece of paper from antiquity that’s still in good condition has obvious value.
Does that mean you should stockpile modern-day stamps and wait for them to be worth as much as your home? If you ask Warren Buffet, he’ll tell you that’s a bad idea. Buffet once bought $8,000 worth of stamps, then went on to sell that collection for $7,200 about 25 years later,taking an $800 hit (without accounting for inflation).
Investing in collectibles isn’t about saving something that’s currently worthless and expecting that to change. That’s closer to gambling than investing. If you want to see returns during your lifetime, you’ll probably have to spend a little money. People who buy art and relics at auctions aren’t just doing it because they’re millionaires looking to unload some cash. A von Gogh bought for $66 million is simply a diversification of assets; an investment that will go up in price as the years go by and inflation rises.
If you want to invest in collectibles like stamps, trading cards and art, you’re going to get what you pay for. A standard Forever Stamp that you buy today probably won’t be worth anything for several decades, no matter what picture is on the front. If you actually want to consider yourself a stamp collector, and see some returns within your lifetime,you might have to spend a few hundred dollars on a tiny square of paper.
3. Go Bargain Shopping
This is the fun part of collectible investing.While logging into E-Trade to manage your stocks isn’t particularly exhilarating, searching for hidden gems in obscure locations is pretty much a treasure hunt for grown ups. You can find valuable collector’s items in all sorts of places, including:
● Thrift stores
● Garage and estate sales
● Flea markets
● Online marketplaces
Bargain shopping definitely doesn’t sound like professional investor terminology, but that’s the basic philosophy for all investing. Whenever you buy stocks, commodities or real estate, you’re looking to get those assets at the best value. You’re hoping to buy something at a price that will be comparatively cheap once that asset increases in value. You are, for all intents and purposes, shopping for a bargain.
When you do this with old furniture, posters, vinyl records and the like, it can be pretty exciting. You might even get to do some haggling! But searching for under-priced items isn’t just done for kicks; this is how the savviest collectors see quick returns. If you know the markets well enough to find an item, estimate it’s worth and buy it at a discount, you can turn an immediate profit. On the flip side, if you judge wrong and buy something that isn’t in demand, you’ll just waste your money. It takes a lot of research to know whether or not you’re getting a good deal.
If you get too excited about collectible investing, there’s a good chance you’re going to be disappointed. Finding a collector's item that’s about to shoot up in value is somewhat akin to finding a needle in a haystack. It’s possible you’ll have more success if you stop looking for the needle and just invest in the hay.
On the other hand, collectibles aren’t a bad way to diversify your holdings. Precious items, while expensive, often hold value well and can fetch a good price down the road. You don’t have to deal with the volatility of the stock market and you can hang your investment on your wall for everyone to see, though putting it in a safe might be a better choice.
As with all investments, I advise people to be very thoughtful and careful before getting into this market. It can be fun and exciting, but it can also be treacherous. If you have an interest in a certain collector’s item, keep your eyes open for a good deal and take good care of whatever you buy.