baseball cards, clocks, coins, comic books, diamonds, dolls, gems, photographs, rare books, rugs, stamps, vintage wine, writing utensils, and a whole
host of other items.
Although connoisseurs of fine art, antiques, and vintage wine wouldn’t like
the comparison of their pastime with buying old playing cards or chamber
pots, the bottom line is that collectibles are all objects with little intrinsic
value. Wine is just a bunch of old mushed-up grapes. A painting is simply a
canvas and some paint that at retail would set you back a few bucks. Stamps
are small pieces of paper, usually less than an inch square. What about baseball cards? Heck, my childhood friends and I used to stick these between our
bike spokes!
I’m not trying to diminish contributions that artists and others make to the
world’s culture. And I know that some people place a high value on some
of these collectibles. But true investments that can make your money grow,
such as stocks, real estate, or a small business, are assets that can produce
income and profits. Collectibles have little intrinsic value and are thus fully
exposed to the whims and speculations of buyers and sellers. (Of course, as
history has shown and as I discuss elsewhere in this book, the prices of particular stocks, real estate, and businesses can be subject to the whims and
speculations of buyers and sellers, especially in the short-term. Over the
longer-term, however, market prices return to reality and sensible valuations.)
Here are some other major problems with collectibles:
✓ Markups are huge. The spread between the price that a dealer pays for
an object and the price he then sells the same object for is often around
100 percent. Sometimes the difference is even greater, particularly if a
dealer is the second or third middleman in the chain of purchase. So at
a minimum, your purchase must typically double in value just to get you
back to even. And a value may not double for 10 to 20 years or more!
✓ Lots of other costs add up. If the markups aren’t bad enough, some collectibles incur all sorts of other costs. If you buy more-expensive pieces,
for example, you may need to have them appraised. You may have to
pay storage and insurance costs as well. And unlike the markup, you pay
some of these fees year after year of ownership.
✓ You can get stuck with a pig in a poke. Sometimes you may overpay
even more for a collectible because you don’t realize some imperfection
or inferiority of an item. Worse, you may buy a forgery. Even reputable
dealers have been duped by forgeries.
✓ Your pride and joy can deteriorate over time. Damage from sunlight,
humidity, temperatures that are too high or too low, and a whole host of
vagaries can ruin the quality of your collectible. Insurance doesn’t cover
this type of damage or negligence on your part.
✓ The returns stink. Even if you ignore the substantial costs of buying,
holding, and selling, the average returns that investors earn from collectibles rarely keep ahead of inflation, and they’re generally inferior to
stock market, real estate, and small-business investing. Objective collectible return data are hard to come by. Never, ever trust “data” that
dealers or the many collectible trade publications provide.
The best returns that collectible investors reap come from the ability to identify, years in advance, items that will become popular. Do you think you can
do that? You may be the smartest person in the world, but you should know
that most dealers can’t tell what’s going to rocket to popularity in the coming
decades. Dealers make their profits the same way other retailers do — from
the spread or markup on the merchandise that they sell. The public and collectors have fickle, quirky tastes that no one can predict. Did you know that
Beanie Babies, Furbies, Pet Rocks, or Cabbage Patch Kids were going to be
such hits?
You can find out enough about a specific type of collectible to become a
better investor than the average person, but you’re going to have to be among
the best — perhaps among the top 10 percent of such collectors — to have a
shot at earning decent returns. To get to this level of expertise, you need to
invest hundreds if not thousands of hours reading, researching, and educating
yourself about your specific type of collectible.
Nothing is wrong with spending money on collectibles. Just don’t fool yourself into thinking that they’re investments. You can sink lots of your money
into these non-income-producing, poor-return “investments.” At their best
as investments, collectibles give the wealthy a way to buy quality stuff that
doesn’t depreciate.
If you buy collectibles, here are some tips to keep in mind:
✓ Collect for your love of the collectible, your desire to enjoy it, or your
interest in finding out about or mastering a subject. In other words,
don’t collect these items because you expect high investment returns,
because you probably won’t get them.
✓ Keep quality items that you and your family have purchased and hope
that someday they’re worth something. Keeping these quality items is
the simplest way to break into the collectible business. The complete
sets of baseball cards I gathered as a youngster are now (30-plus years
later) worth hundreds of dollars to, in one case, $1,000!
✓ Buy from the source and cut out the middlemen whenever possible. In
some cases, you may be able to buy directly from the artist. My brother,
for example, purchases pottery directly from artists.
✓ Check collectibles that are comparable to the one you have your eye
on, shop around, and don’t be afraid to negotiate. An effective way to
negotiate, after you decide what you like, is to make your offer to the
dealer or artist by phone. Because the seller isn’t standing right next to
you, you don’t feel pressure to decide immediately.
✓ Get a buyback guarantee. Ask the dealer (who thinks that the item is
such a great investment) for a written guarantee to buy back the item
from you, if you opt to sell, for at least the same price you paid or higher
within five years.
✓ Do your homework. Use a comprehensive resource, such as the books
by Ralph and Terry Kovel or their website at www.kovels.com, to
research, buy, sell, maintain, and improve your collectible.
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