Treating Collectibles as Investments
Written By: Ryan Chan
Posted: 26th September 2020
During the pandemic, I’ve reconnected with baseball – a sport that I played and followed avidly in the past. One of the best players currently is Mike Trout, and he recently signed a 12-year contract worth USD 35.5m per year. I was reading the news and to my surprise, it was reported that one of his “rookie” collectible trading cards had sold for $3.93m USD - more than 10% of what he earns annually!
What has made this piece of paper so valuable? This article will identify the different kinds of collectibles that exist, the pros and cons of collectibles as an investment, and a brief overview of the general market trends and expectations.
What is a collectible?
Generally speaking, a collectible refers to any tangible good that may appreciate in value over time, based on demand factors such as rarity and condition. Collectible goods are usually associated with luxury consumer discretionary goods. Below is a brief overview of some of the major collectible markets:
Artwork
Artwork is among the most highly valued collectibles, with the global art market estimated at around $64.1 billion in 2019, according to economist Clare McAndrew’s report The Global Art Market 2020. The market is primarily concentrated in the USA, UK, and China. However, investing in artwork makes up a minority of the artwork market, and with these purchases rarely seen as only an investment. Rather, there is a mix of stakeholders in the art market, including collectors, museums, auction houses, galleries and dealers.
The highest value artwork collectible sold for $450.3 million at Christie’s New York in November 2017.
Leonardo da Vinci, Salvator Mundi (Savior of the World), c. 1500
Cars
It is well known that the value of typical road cars depreciates significantly after initial purchase, due to the physical deterioration in these machines. It is because of this rapid deterioration in quality that good condition, rare high-end motor cars (think Ferrari, Lamborghini, Maserati, Aston Martin, Rolls Royce to name a few) can attract returns on investment.
Hagerty, a collectible car insurance company, produces an index on the prices of such cars. For example, the Hagerty Price Guide Index for 13 of the majorly collected 1950-70 Ferraris has risen from under $1m per car in 2007 to roughly $5m in 2020.
Wine
Fine wines are one of the more stable collectible investments - older wines naturally become rarer, and the quality of such wine is notably higher. There have even been companies established that manage investment in wine portfolios, such as Cult Wines. Typically, fine wines hail from the Bordeaux region in France; however, the Australian wine market is also emerging. Brand names such as Penfolds Grange can fetch up to $80,000 for 1951 vintages.
Luxury fashion
More familiar to young investors are ‘hype’ fashion items - sneaker brands Nike, Jordan and Yeezy dominate the collectible sneaker market, with significantly inflated resale prices for rare and limited editions. Sneaker prices are a more affordable entry-level ‘investment’ with average Yeezy prices around $1000. In recent times, the sneaker market has been saturated with oversupply.
Another highly sought-after category of luxury fashion that can be collected is handbags. Exclusive bags like Hermès’ Birkin bags are handcrafted and can fetch resale prices of between $40,000 and $500,000, depending on design and wear. The significant demand for such bags has resulted in the emergence of a lucrative counterfeit industry, with seven former Hermès employees put on trial this year for producing counterfeits to a profit of $2m.
Jewellery and gemstones
Jewellery and gemstones are another sought-after category of collectible assets. Jewellery has long been seen by households as “heirlooms” and is associated with prestige and power. Gemstones such as diamonds, sapphires, emeralds and rubies attract significant prices. An index of Argyle pink diamonds, of which 60 are auctioned every year from Rio Tinto’s Argyle mine in Western Australia, had more than tripled in value from 2000 to 2015. Specific to Australia, opals are another significant gemstone market. Towns such as Coober Pedy and Lightning Ridge are famed for unearthing the rare gems, with their allure also contributing to the wider economy via tourism.
Collectible cards
Collectible trading cards originated from tobacco companies, who utilised the familiarity of sportsmen as advertisement for their product. The paper acted as a stiffener to protect the individual cigarettes. Nowadays, cards can be separated into game cards (Pokémon, Yu-Gi-Oh, Magic The Gathering), sports cards and digital cards.
In particular, the estimated $5.4bn sports card market has seen a resurgence in recent years, with demand continuing to grow and attracting the attention of the likes of Gary Vaynerchuk and Forbes. The demand has been driven by factors such as increased player popularity and excitement surrounding sports.
Pros of collectibles
Accessibility: Collectibles are accessible on a variety of platforms and are not exclusively reserved for high-net-worth investors.
Global and domestic appeal
Diversification of portfolio: Collectibles have generally performed well against the share market and are robust to economic shocks, as they do not diminish the value of collectibles
Emotional component: whilst also serving as an investment vehicle, the majority of collectors/investors have some sort of emotional significance tied to the collectible of choice
Tangible good: unlike stocks, bonds and most financial investments, collectibles are tangible goods that can serve a purpose outside of being an investment
Cons of collectibles
High transaction costs: auction house listing fees, commission, and shipping fees can add significantly to initial costs
Maintenance, preservation and restoration costs whilst holding the collectible
Problems with valuation and measuring financial return: although a lot of the value of collectibles is determined by rarity, the quality and ‘goodness’ of a collectible is often valued externally and subjectively
High proportion of private sales: A significant proportion of collectibles transactions are done privately, meaning that data collection is difficult and market assumptions may be inaccurate at times
Low liquidity of many collectibles: due to the unique process of the collectibles trade, and the fact that many collectibles are single-unit tangible assets, it is often difficult to move collectibles quickly. Nonetheless, collectibles can be pawned; however, this is often below the market value: see pop culture icons Pawn Stars and Uncut Gems.
Collectible market trends
In general, the collectible market has performed resiliently in the COVID-19 pandemic. Alongside their treatment as a diversifier for financial portfolios, the easy transition from traditional auction houses to online formats has facilitated the stability in the market. Fashion consignment platform StockX has announced its intentions for an IPO this year. Additionally, sales of rare whisky and wine have increased despite the pandemic, with whisky investment increasing by 540% over the past 10 years, according to Knight Frank’s Luxury Investment Index.
We have also seen a recent resurgence in using collectibles as a marketing mechanism. Instead of tobacco products, supermarkets have jumped on the collectible market - Coles with its ‘Coles Minis’ and Woolworths with its ‘Ooshies’. The Woolworths Lion King Ooshie campaign boosted sales by 7.5% in Woolworths stores in 2019.
A third development that has emerged is the transition towards digital collectibles. Panini America, the sole licensee of NBA collectible cards, recently released its Panini Blockchain range, which creates a digital asset alongside the conventional physical cards. The cards are obtainable via redemption format or through its Dutch auction system.