Daily Gains Letter

Investing in These Collectibles a Better Bet Than Wall Street?

By for Daily Gains Letter |

Investing in These CollectiblesNot all investing opportunities are created equal…

Thanks to Antiques Roadshow and American Pickers, everyone thinks investing in collectibles is a great idea. However, the truth is that few actually have anything worth more than the day they were first purchased.

That doesn’t prevent people from trying to guess what the next great cultural commodity is going to be. I remember (briefly) watching a home shopping channel years ago and listening to someone explain why “Beanie Babies” were the next big thing for those interested in investing in collectibles. He couldn’t guarantee they were a slam-dunk investment, but the prices on the secondary market had soared. Take that into consideration as you call in your order.

Interestingly, there is no Beanie Baby segment on any home shopping channel today.

Unlike stocks, there is no discernable way to say why, when, or if a collectible will ever increase in price; they also don’t provide a dividend. Investing in collectibles is as difficult as trying to time the stock market—it’s virtually impossible.

Collectibles can also be difficult to value, as it’s a subjective art. For example, on eBay (NASDAQ/EBAY), you can purchase a rare Princess Diana Beanie Baby bear for either $400,000 or get one from the same edition in similar condition for just $5,000. That’s quite a discrepancy for a really small target audience.

Here’s a hint: when it comes to investing in collectibles, look for the lowest-selling collectible you want, as that’s the bottom basement price no one is willing to pay. I’m not picking on Beanie Babies, I’m just using them as an example.

Investing in collectibles isn’t exactly a slam-dunk investment when it comes to your retirement portfolio, at least not for the average investor; though when you consider the record prices modern art is commanding this art auction season in New York City, it’s easy to see why many investors, tired of record-low interest rates and near-zero returns on their income investments, are looking elsewhere.

On November 12, an art collector shelled out over $142 million at Christie’s (a private company) postwar and contemporary art auction for a painting—actually a triptych—by Francis Bacon. A few minutes later, a collector purchased Jeff Koon’s sculpture “Balloon Dog (Orange)” for $58.4 million, an auction record for a living artist. The third-most expensive lot for the night went to a graphic of a Coca-Cola bottle by Andy Warhol, selling for $57.3 million.

If you’re considering investing in collectibles like art, wine, furniture, etc., but aren’t sure where to start, you could look at Sotheby’s (NYSE/BID), the only publicly traded auction house.

If investing in collectibles or paying $50.0 million for a Warhol isn’t in your budget, you could consider doing due diligence on some of the subjects he painted, including The Coca-Cola Company (NYSE/KO) or a motorcycle company like Harley-Davidson, Inc. (NYSE/HOG).

The point is that you can find reasonable, affordable investing ideas anywhere.

When it comes to investing in collectibles, buy what you like, not what you think you can flip for a profit. After all, investing in collectibles can be a risky venture; not only do you need to find the next hot collectible trend, but you also have to get it at a reasonable price and find someone willing to pay more for it than you did.

The fact of the matter is it’s easier to perform a little due diligence and find a stock with better prospects. Investing in collectibles might sound like fun, but investing on Wall Street is a better bet.

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