Collectibles FAQ

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What is a collectible?

A collectible in the investment sense is an asset acquired for a price with a view to selling the same at a higher price at a later date. What distinguishes a collectible from other financial assets is that it is generally not possible to generate an income stream from the collectible.

'Traditional' collectibles include Paintings, Sculptures, Embroided rugs, Antique Furniture and Jewellery. These days Postage Stamps, Phone Cards, Classic cars, Personalised Number Plates, Rock and Roll Memorabilia etc all qualify as well.

Collectibles are of course subject to the laws of supply and demand and what makes a collectible valuable is its scarcity value.

HOW DOES ONE FIND A FUTURE COLLECTIBLE?

Typically collectibles must earn their status -they are not created collectible.

But quite ordinary items can become collectible if they are tied to a unique event. For instance the dress that Princess Diana wore on a certain Australian Royal visit walkabout, being a one off, would have scarcity value. Contrastingly an exquisitely designed ring with gemstones, may be worth no more than the price of its constituent parts if it is part of a mass production run for a retail Jewellery Chain Store . So the chances are that if you see some great new item advertised as 'collectible', it isn't.

Death of the creator (which cuts off any possible future supply) is often a turning point that marks a spike up in value of the recently deceased's works. However this is not a wise self-wealth creating strategy! It is surprising the number of exceptionally talented artists that have died penniless.

Quite often, modern collectibles peak in value 20-30 years after they were first produced. This is a generational effect. An item may be lusted after when young. Then after 20-30 years in the workforce where the once spotty faced youth, now a beer bellied executive is now free of family commitments, he is finally able to indulge his teenage fantasy. An example of this is the Classic Car market where something that was a fantasy machine in 1970, becomes an old car by 1980 with many going to the car knacker's yard. But by 1990 the supply has gone down and the number of well-heeled interested buyers has gone up- the wreck of 1980 has become the 'classic' of 1990!

What are the most common collectible 'scams'?

Since an item is worth what someone is prepared to pay for it none of what I describe below is illegal. But people have lost more than shirts on such err 'schemes' in the past so don't say you haven't been warned.

The Limited Edition: Quite a genuine sales technique is to produce a 'limited edition'- say 500 copies of a particular picture print. The problem is if such a venture is successful there is nothing to stop the creator making another 'limited edition ' of another print. So you can end up with an unlimited number of 'limited editions' which of course ruins the scarcity value of that type of item.

The 'Tightly Controlled' Market: This is the kind of thing where there is a highly regulated market, for instance the annual auctions of 'investor' number plates. An annual auction is held each year where a limited number of plates are accepted for auction. The limited number of plates accepted for auction ensures that bidding is keen and prices remain high. The problem here is liquidity. What happens if you want to sell a plate and it is not accepted for auction? Your option is to quit it privately outside of the official marketing channels and because you have upset the tightly controlled supply/demand apple cart a big loss is likely.

What is a sound collectible investment strategy?

All collectibles operate on what is termed 'The bigger fool theory'. This being that in order to make a profit you must find some turkey that is willing to pay a greater price to you than you paid someone else.

There are people who grow rich with collectibles, but picking winners is notoriously difficult. If you want liquidity and income, then from a purely 'investment ' point of view you should look elsewhere. So buy all means buy collectibles and appreciate them for their inherent beauty and form. But it would be a real gambler who would rely on such things to fund their retirement.