Investing in collectables

In early November, art from the collection of the late Paul Allen, co-founder of Microsoft, sold at auction for US $1.5 billion. Five paintings were sold for at least US $100 million, including a Van Gogh, a Cezanne, and a Gaugin. The top price of US $149.2 million was paid for Les Poseuses, Ensemble by Georges Seurat. Closer to home (and more modestly priced), a rare Australian penny minted in 1929 recently went to a Western Australian auction bidder who paid $59,415.

Frustrated by volatile financial markets, investors are increasingly seeking alternative assets not only as a hedge against inflation, but as a lucrative investment option.

Many of us have something tucked away that we suspect might be valuable one day. It could be collection of old coins, some antique furniture, or even a vintage car. But how do we know what’s going to become valuable, and what’s going to end up as landfill?

Scarcity

One of the most important determinants of future value of an item is scarcity. If something is rare or unique, chances are it’s going to be worth more than something that’s readily available.

Take a cricket bat signed by the great Donald Bradman. A desirable piece of sporting memorabilia perhaps, but probably not valuable. The reason? It’s hardly scarce because Bradman signed hundreds (if not thousands) of bats over his lifetime. They regularly sell at auction houses for below $200.

Desirability

When Mercedes released the 300SL in 1954, there was nothing else like it. Americans were driving around in bloated gas-guzzlers, and suddenly there’s this lightweight, gull-winged coupe capable of 260 km/h. The 300SL featured in a string of films, and was driven by movie stars and Kings. It was desirable then, and it’s desirable today, regularly selling for $2 million or more.

It’s also scarce. Only around 1,400 were made and not surprisingly given the performance on offer, many were crashed and smashed over the years. That combination of both scarcity and desirability can help push an asset to record prices, whether it’s a work of art, or Mercedes.

Aesthetics

We all have different tastes, but people generally tend to prefer items that are aesthetically pleasing to those less agreeable. The Ancient Greeks knew this, recognising that certain styles, proportions and symmetry were pleasing to the eye. The form and function of classicism continues to influence modern design in buildings, furniture and art. But again, we’re all different. Some people prefer to invest in Toby Jugs than Swarovski crystal vases.

Durability and condition

“They don’t make things like they used to”. That’s a common complaint, and there’s a lot of truth in it. The furniture built in the days of our grandparents was made to last a lifetime, and often did. Surviving antiques from the 18th Century and before were generally built by master craftsmen and even until the 1950s, most furniture was hand-made.

And even though nothing survives without some level of maintenance, the condition of many collectibles is less important than their originality.

Imagine if the Mona Lisa had been given a “freshen up” every few decades to bring her into line with contemporary tastes… Whether we’re talking about heritage real estate, antique furniture, cars or rare guitars, the best approach to maintaining or increasing long-term value is to conserve what’s already there, rather than trying to improve it.

Provenance

To many collectors, provenance is the most important consideration when investing. Case in point – a pair sandals once worn by Apple co-founder Steve Jobs has just sold at auction for $220,000. And going back to Don Bradman, a signed bat might not be worth a great deal. But the bat he scored a triple century with in 1934 last year sold for $250,000.

In terms of collectibles, provenance simply means an authentic, verifiable history. And the higher the profile of the original owner, the more valuable the item.

Fashion, fads and fraudsters

All investments carry an element of risk. If you invest in property and shares, you’ve probably got an idea of the things that could go wrong.

Venture into the wonderful world of collectibles, and suddenly you’ve got another set of potential problems to deal with. Changing fashions and social trends can make today’s collectibles worthless (visit your local antique store, and you’ll see shelf after shelf of what was once “the good China”). Antique silverware now often sells for scrap value or below. And of course, for every original Van Gogh in circulation, there are 100 that look identical, painted by skilled forgers.

How to protect yourself

If you’re going to start investing in collectibles, whether you’re thinking of books, art or cars, there are a few ways to minimise the risk of being ripped off. First, be wary of buying something sight unseen, or over the internet. Sometimes only a visual inspection can alert you to something being not quite right.

Choose your experts carefully. Often, items will be supplied with a “Certificate of Authenticity” which means nothing. Instead, look for a verifiable provenance and check it yourself if you have any doubts. The best way to stay safe is to become an expert yourself. If you’ve got the time and application, it’s the perfect way to outsmart your competition and keep the dealers honest. And whenever you hear of someone spruiking the next big investment opportunity, whether it’s racehorses, whisky or diamonds, ask yourself this question: “What’s in it for them?”