The Economist is the latest serious financial publication to recognize the healthy interest in all things tangible.
Whatever you chose to concentrate on: Fine art, classic cars, vintage watches, coins or wine- this entire collectibles index has performed extra-ordinarily well over the past decade. So the economist has created an index to track the prices of various tangible assets. The weighting is as follows: 36% Fine Art, 25% Classic Cars, 17% coins, 10% wine, 6% stamps and 6% is guitars and violins.
The Economist have termed the index ‘The Economist Valuables Index‘. The results are as expected.
Since 2003, within a decade, the Index has climbed more than 211% in nominal terms (not adjusting for inflation). The MSCI World Index has climbed 147% within that timeframe. The best performer among the tangible assets was by far classic cars which is up 550% (most likely driven by Ferrari). Who says collecting and having fun doing so cannot be profitable?
I have always believed in allocating a good amount of capital to tangible assets. In my case it is towards vintage watches and classic cars. Not only does this offer some diversification (vintage watches and classic cars are not that highly correlated with equity markets- meaning they don’t necessarily move in the same direction), but also I also derive a lot of pleasure from owning a watch or a car that is over 50 years old.
The ‘pleasure’ component is the among the most important in the collecting category.
How do you measure the satisfaction of firing up a V12, Six dual Weber Carburettors belonging to a Ferrari 275 GTB/4? Or watching the color of a 1960s Rolex 5512 Gilt and glossy dial change color depending on the light reflecting on it? It is hard to put a price tag on something like that.
As fun as collecting might be- there are some points collectors should keep in mind.
For one transaction costs are very high. As the Economist article rightly points out- there are some costs associated with owning valuables. Buying a vintage Rolex at Christies will cost a significant amount. If your buying a $100’000 vintage Rolex your going to pay around $30’000 in taxes and fees.
Likewise buying a 275 GTB/4 at auction for $2m will set you back $200’000 before any taxes. Illiquidity is another problem. Whereas we can sell our shares of Starbucks daily if we chose to, trying to sell a 1968 Ferrari GTB/4 is not something as straightforward. For the full economist article click here. The only criticism I have of the Economist article is that they have not included watches in the collectible category.
In our view it is more important than guitars and fine instruments.
