Collectibles — an enjoyable way to lose money

I have a recollection of some 18th-century Frenchman once writing: “Collectors are like a man who eats oysters — he chooses the best at first but ends up eating them all.”

Collectors will recognise this tendency. I confess I count myself in this camp, though I am having counselling to resist the urges.

For me it started with buying a first edition of Raymond Chandler’s 1953 classic, The Long Goodbye. Next it became a full set of American first editions. Then others. They were always books that meant a lot to me — like Molesworth, Pooh or Dickens. With Dickens it was bound copies of some of his books as they were first published in monthly instalments. The pleasure was in reading him as those first readers had nearly 200 years ago.

Often, we collectors mask our affliction by pretending it is investing. We take pride in boasting about the high potential returns we have made on one or two items, while having selective memory loss around our failures — more so even than equity investors (which is going some).

The difference with equity investing is that most platforms today will show you very clearly in red where you have made a dog’s dinner of your stock and fund selection. As a collector, you rarely have to suffer these salutary reminders.

Naturally, there are some people who have made a very good profit indeed on their passion. Four decades ago car collector Jim Jaeger paid £500,000 for a 1962 Ferrari that raced at Le Mans. He must have felt very smug last year when Sotheby’s sold it for £51.7mn

Of course, that means buying and selling at the right time. The headlines around the Ferrari auction must have sickened the family of the person who bought it originally for $6,000 in 1964 — and others who had bought and sold similar old racing cars too soon.

One of the excitements of collecting (like share buying) is the idea that you might just identify a winner early. You might be — as one of my friends was — the person who spotted the potential of Harry Potter while you could still buy all your nephews and nieces a first edition from Blackwell’s. You may spot the bargain in the jumble sale or the young artist before they are famous.

Sometimes it is about affirmation. When the market values what you value it feels like a vindication of your expertise or good taste — though looking at some contemporary art that sells at auction for ludicrous prices I would be wary of drawing the taste conclusion too confidently.

For all collectors, though, I think it is useful to be reminded of where your obsession is more likely to lead. Head to a regional auction house sale preview. Look at the number of collections being sold on a person’s death — unwanted by their long-suffering families and stuffed in cardboard boxes on grubby trestle tables, being rifled through by bargain hunters. Too many end up disposed of for a fraction of what they cost.

And do not heed those with a vested interest in promoting the investment value of their products. The most recent update of the Knight Frank Luxury Investment Index shows it rose by 7 per cent in the year to June 2023 — a little less than the MSCI All World equity index, which rose more than 11 per cent in that period. The report suggests that rare whisky, wine and watches performed better than art, jewellery and coins last year — though in previous years each has had its turn, as have classic cars, musical instruments, furniture and Hermes handbags.

Simon Edelsten’s rare edition of Charles Dickens’ ‘Bleak House’ © Charlie Bibby/FT

Apply the rules required of me when I was a regulated investment manager and you may conclude that these numbers are overstated. If you buy shares the transaction costs are modest: commissions of less than 1 per cent, a tiny bid-offer spread on liquid stocks, 0.5 per cent stamp duty in the UK and negligible platform costs or custody charges if you ask a broker to hold your share certificates. Transaction costs for collectibles tend to be a large multiple of this.

When I was a stockbroker, my old boss was a keen collector of coins. In 2013 he bought one at auction for a hammer price of £900. He sold the coin last year in a US auction for £1,495. On the face of it that is a 66 per cent return — or a smidgen over 5 per cent a year. Not great — but not bad.

However, when he bought the coin he had to pay a buyer’s premium and VAT — bringing the cost to £1,116. After paying the seller’s premium a decade later he received just £1,225. So, having “invested” in a coin whose value had risen by £595 in a decade, he received just £109 of that uplift and the auction houses the rest — in other words, an annual return of less than one per cent.

The 80 per cent of the profits taken by the auction houses in this example seem oddly similar to the 70-100 per cent mark-up that most dealers would add to any collectable they buy. Perhaps this explains why the St James’s area of London, where I worked, has seen few changes of fine art dealerships over the past 20 years, while their fund management neighbours have come and gone rather more frequently.

When looking at the real value of a collectible you must also take into account other expenses. Storage costs for wine or classic cars can be significant. Then there is the insurance.

Cars in particular may need some serious looking after. Three decades ago I was working as a stockbroker with a petrolhead who loved his classic cars — not just to polish them at the weekend but to drive them. He bought an early Porsche Carrera and drove it to work. Manufactured before 1973, it ran on two-star petrol, which was no longer available, so he souped up some equivalent. One crisp winter’s morning the police stopped him halfway along the Embankment with six-foot flames coming out of his exhaust system.

For myself, beyond my small collection of first-edition books, I have two cellos and some bows. Collectors will often argue: “They are not making them any more.” That does not mean something will be valuable. There is often a reason something is no longer made! However, there is some truth to this in the case of older musical instruments — particularly those made in Cremona, Italy, in the 17th century. These have long been collectors’ items, regarded as the best instruments by leading soloists and priced accordingly.

The springiness of a good antique violin bow often comes from being made of Pernambuco wood — a slow-growing and now protected Amazon species. This is another example of “something they don’t make any more”. Carbon-fibre bows are not the same, though the consequences if you break them are not so dire!

Cellos and bows are shooting up in value. If you insure them you can also lend them to promising music students who cannot afford to buy a good instrument. There may be some satisfaction to be drawn from that.

This brings me to the only reason I think you should collect. Do not do it as an investment — shares are a much more dependable way of making money. Collect, instead, for the joy of it.

Playing my cellos with my antique bows gives me enormous pleasure. I only wish those having to listen enjoyed it so much.

Simon Edelsten is a former professional fund manager

Via

Leave a Comment

bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd bcd