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"Sorry, collectibles are terrible investments"


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An interesting article regarding the financial performance of "collectables," even "serious" collectables like fine art. It is worth pondering the next time one considers purchasing an instrument, and is worried about its "investment value."

"Collectibles have a fundamental flaw: they don’t generate cashflow. In fact, after maintenance, storage, deterioration, and transaction costs, their cashflow is usually negative. That means that in the long run, they'll consistently under-perform conventional assets like stocks and bonds."

And

"You might justify owning some collectibles because it gives you joy to see them, providing a psychological return. That’s fine; if your collection brings you joy, keep it. It’s fine to have hobbies. But one shouldn’t delude oneself⁠—or worse, others⁠—into thinking that hobbies are good schemes for wealth-building."

https://fullstackeconomics.com/sorry-collectibles-are-terrible-investments/

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It's like winning a lottery. Sometimes a collector will luck out...mostly just on a single item.

But it's enough incentive to keep collectors collecting - oftentimes thinking they know better than the average Joe. ^_^

I remember watching TV shows where people had enormous collections (one was of cat figurines) thinking they could retire on the thousands their collection was worth...only to find out it was worth hundreds. And then they wouldn't believe it. Everyone else was stupid instead.

And...I always wondered who was supposed to be selling these collections? Imagine the work involved in parcelling out 10,000 ceramic kitties!

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Not "terrible", but yes, when you consider all the costs (esp transaction costs) they will largely underperform against the stock market in the long run. But if you already have a good amount of exposure to stocks and bonds, physical items sometimes have advantages, esp in times of inflation.

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The other thing I've never quite understood is the use of the term "investment".

"I'm going to invest in a new car!"

New cars depreciate the instant you drive them off the lot. They are not even a poor investment.

I suppose restoring a collectible wreck might be a worthwhile investment. My younger son is maybe making a wee bit of money flipping junkers. Mostly he's just having fun though...and breaking even...which is awesome.

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If you took a sampling stock from a random assortment of companies over time and tracked its performance, you could wind up with the same conclusion. Expertly chosen collectibles perform, junk/average stuff doesn't. 

I buy and sell various collectibles for a living, and have managed to routinely outperform the stock market with my own tangible investments, but that seems to be a function of expertise.

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21 hours ago, Three13 said:

I buy and sell various collectibles for a living, and have managed to routinely outperform the stock market with my own tangible investments, but that seems to be a function of expertise.

In this description, you're acting as a dealer, not an investor. 

I don't have my copy of "The Fulton Collection" book with me, but David Fulton, who collected the most valuable private collection of "the best" violins and bows ever assembled, recorded his average annual yield after selling most of it in the single digits. (I believe it was around 8%.) Needless to say, he does not recommend violins as investments.

Update: Fulton's actual average annual yield was 5.54% (Hat tip to @Bishopstrings)

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12 minutes ago, GeorgeH said:

In this description, you're acting as a dealer, not an investor. 

There are plenty of situations where my approach is that of a dealer, but the ones where I've done the best have tended to be objects where I've been - in essence - a long-term collector. The most successful collectors that I've known have all developed their expertise to the point where they have ended up playing dealer with some frequency.

edited to add - My experience with collectibles as an investment is that those approach the subject as an investor get wiped out, and those who do quite well tend to be obsessive collectors, who - ironically - don't value money as much as the object.

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38 minutes ago, Three13 said:

edited to add - My experience with collectibles as an investment is that those approach the subject as an investor get wiped out, and those who do quite well tend to be obsessive collectors, who - ironically - don't value money as much as the object.

Interesting point. I think that people get caught-up in the perplexity of deciding if one instrument is a better investment than another, when the answer is likely that neither are particularly good investments if one wants to make money over time.

I think owing a fine instrument that you love to play is an excellent investment one's life experience. Monetary appreciation should be a secondary consideration, if it is to be considered at all.

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2 hours ago, Rue said:

"I'm going to invest in a new car!"

New cars depreciate the instant you drive them off the lot. They are not even a poor investment.

 

Have you tried to buy a used car recently?  In 2019 I paid $49,000 for a Jeep Rubicon. Put six thousand miles on it and sold it to a dealer, no less, in January for $53,000.   

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1 hour ago, GeorgeH said:

I believe it was around 8%

I'd be tickled pink if felt I could get that return on my investments going forward. I cant really believe this number, we're talking comparable to the S&P over the last 30 years.

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1 hour ago, martin swan said:

8% of 10 million is quite a lot of money …

It could make an 8% return on a $25 beanie seem disappointing 

:D

The average annual return for the S&P 500 from 1957 through Dec. 31, 2021 was 10.67%. Over the last 10 years, the average annual return for the S&P 500 was 13.6%. And don't forget about cashflow from financial investments is usually positive whereas cashflow from art investments is zero or negative...

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2 hours ago, fragslap said:

Have you tried to buy a used car recently?  In 2019 I paid $49,000 for a Jeep Rubicon. Put six thousand miles on it and sold it to a dealer, no less, in January for $53,000.   

A one-off example of lucking out - er, unless you added $5000 worth of "improvements" while you had it...in which case you still came out behind. ^_^

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19 hours ago, GeorgeH said:

In this description, you're acting as a dealer, not an investor. 

I don't have my copy of "The Fulton Collection" book with me, but David Fulton, who collected the most valuable private collection of "the best" violins and bows ever assembled, recorded his average annual yield after selling most of it in the single digits. (I believe it was around 8%.) Needless to say, he does not recommend violins as investments.

Actually Fulton returns were 5.54%

Not really mind blowing as an investment.

As I tell my clients...I can buy violins as an investment because it's my job, I can buy them and sell them.

You might find it harder.

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1 hour ago, Bishopstrings said:

Not really mind blowing as an investment.

Not mind blowing but certainly fits in with a mix of other investments, and solidly beats inflation. With low bond yields, an over priced stock market, and inflation looming, there's a place for tangible items. 

I think everyone should at least think of the investment aspects of their violins anyway. Even if you dont view it as an investment, you could actually see a return (or loss), which could impact how you handle the rest of your estate.

 

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Collectible items should be a hobby. Somethings that help in improving our lives is somewhat tangible.

We are very fortunate to have this option. And to contemplate such problems.

I understand value and am willing to share any opinions. As with many complex situations that have costs, there is also the unknown factor of time. With student purchases, the investment is not so much in the absolute monetary value but in the skill that is developed, perhaps earned more with hard work rather than raw talent. These are intangibles when it comes to the nuts and bolts on a spreadsheet.

When we crossover into intangibles, there is more gambling, more hedging, and therefore some thrill. Walking on to the grass to touch the horses, make better evaluations of the situation.

On the hundreds of instruments I have purchased, I take a loss on most. I sell close to the purchase amount. I am not a dealer nor is it my business. When I trade instruments to dealers after playing them, there might be a slight bump in value. There were only a few instruments that doubled or tripled in value over the years having owned them and were sold.

My friend with a very understanding wife, purchased at least one violin a year since the 60s. He would have done very well assuming he were still alive. His picks were good. But had he invested that money in real estate, I am pretty sure his kids would own a city block or two. They purchased houses instead.

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On 4/25/2022 at 9:23 AM, GeorgeH said:

IMHO, that article, while accurate as far as it goes, does not provide a well-rounded view of the profitability of buying and refurbishing serviceable antique tools (I'm including violins in this category) for continued use or resale.  I also find it inapplicable to items of historic or scientific interest which have their own very peculiar (in both senses of the word) expert niche markets, which don't play by the common rules any more than violins do.

The article appears to me to be a slanted and weaponized discussion (AKA: a propaganda screed) designed to prejudice readers against share-selling art investment schemes and similar alternative investments which are currently nibbling at the bottom lines of conventional investment brokers.  It first gets your attention with a photo of a dead-looking Beanie Baby, proceeds to shred the art and digital investments while promoting stocks, bonds, and real estate, then finally dumps a diversionary smoke screen of data about why toys (which have nothing to do with art shares, but make a great "straw man") are a bad investment.  The author's argument also seems to ignore cases where the items collected, by being used in production, performance, or exhibited for a fee, etc., are generating positive cashflow, rather than simply being socked away in storage awaiting resale.  Cases where a seller's market exists, rather than one flooded with overproduced trash, are similarly ignored.

While I also consider art shares, NFT's, and any mass-merchandised collectible (consider anything marketed with "Mint", or "Commemorative" in the name, for instance), to be very questionable investments, I feel that this article fails to make its case against profitable dealing in many other commonly collected items, particularly those which you are an experienced expert in the acquisition and trading of.  :)

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With so much new stuff to choose from, people seem to have less and less inclination to clutter up their lives with "collectable" old stuff. Consequently the antiques market in the UK has been in steady decline for decades. Punters on the Antiques Road Show usually look satisfied when told their thingy that cost them £100 in 1970 is now worth £300, but according to my PBI (price of beer index) it should be at least 5 times that and to sell for a sum equivalent to the initial outlay maybe twice again. My first serious violin bought around 1970 would probably cost 30 times more today but that still isn't enough to have been a "good investment".

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On 4/27/2022 at 2:36 AM, Violadamore said:

I feel that this article fails to make its case against profitable dealing in many other commonly collected items, particularly those which you are an experienced expert in the acquisition and trading of.  :)

The article isn't about "profitable dealing." It is about profitable investing in "collectables." They are different. 

In regards to violins, David Fulton collected the most desirable violins in the world, held them for an appreciable amount of time (10+ years), and realized an average annual return of 5.54%. That's a pretty good benchmark.

In regards to "being used in production, performance, or exhibited for a fee, etc.," I would posit that this is not the case for the vast majority of string instruments nor pieces of fine art that people own as "investments." 

Liquidity is also an important factor in investing, and violins are not a liquid investment. It takes time to sell a violin for a good price. It is not a "sellers' market," and selling a violin takes work. As @jacobsaunders said, "First you have to find somebody who wants one."

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Humans do have a built-in biological need/drive to collect...be it the essentials of life...or crap. ^_^

I think the trick is to be aware ... and manage it accordingly.

...yes, easier said than done. Looks at the totally unnecessary soft brush (for outside cleaning) she just purchased...given she forgot about the other three that were in the tool shed...

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