CBS MarketWatch: Collectibles Are "The Stupid Investment Of The Week"

[delekkerste]

Good article that appeared today on CBS MarketWatch.com. It says that the people who do best in collectibles (including comic books, which are cited) are the ones who buy and sell without emotion (like Comgeek, who I believe has never even read a comic book in his life), not the fanboys who invariably do not realize that demand for memorabilia at some point stops growing and actually starts shrinking...

 

 

Valuables that aren't investments

 

By Chuck Jaffe, CBS MarketWatch.com

Last Update: 12:04 AM ET Nov. 21, 2003

 

 

BOSTON (CBS.MW) -- In my office, there is an old box of baseball cards from my childhood.

 

There is a small plastic container that holds a few old coins from the small collection I once maintained.

 

There are a few autographed books, including my signed copy of disgraced corporate raider Ivan Boesky's "Merger Mania," written before he went to jail for trying to fix the merger game.

 

There's an original painting from an artist whose work I like.

 

In addition to their proximity on one of my shelves, this lame conglomeration of collectibles has another thing in common:

 

They're not investments.

 

They may have value (probably not, in the case of Boesky's book), but that has nothing to do with why they were acquired.

 

But for many people, tzotchkes and knick-knacks, souvenirs and trinkets -- traditionally just a way to spend money -- have become perceived as an investment. And for the average person, that's a huge financial mistake.

 

That's why collectibles whose true purpose was something besides an investment are today's pick for Stupid Investment of the Week.

 

Stupid Investment of the Week is designed to highlight the flaws and characteristics that make a purchase less-than-ideal for the average consumer. By spotting the flaws in an investment or an entire category of investments, investors can avoid making the same mistakes in their own portfolio.

 

While obviously not meant as a purchase recommendation, neither is Stupid Investment of the Week intended as an automatic sell signal, as there may be times when unloading an investment compounds the problem. That is particularly true in the case of investments in collectibles, where virtually everything except for coins and jewelry makes for a great hobby and a questionable way to make money.

 

In the case of collectibles, it is crucial to understand that the problem does not lie in "collecting," but rather in the idea that the average person can turn them into an investment.

 

The best investors in antiques and collectibles don't actually own any. They've got the money made from trading in the items, but they don't buy or sell with emotion.

 

Collectors are all about emotion. They have a love for something -- vintage clothing, comic books, sports, movie posters, typewriters or anything -- and they make it a hobby. Like any hobbyist, they have a particular love for what they are involved in, which makes it easy for them to overvalue it because they are certain others will feel the same way.

 

If they are fortunate -- and plenty of collectors are -- their collection will grow into something of value.

 

But history is littered with cases of people who turned their hobby into a business proposition, bought an item for its "investment value" and sold it for pennies.

 

Think Beanie babies.

 

While there were stuffed animal "investors" who bought the small toys for a few bucks and wound up selling them for four figures, there are plenty of others who expected the bull market to continue and who paid those big prices and who are now looking at huge losses.

 

What's more, some of those losers were investing the college savings fund, looking for fast profits.

 

"I collect by the toilet method," says national antiques and collectibles expert Harry Rinker, host of "Collector Inspector" on HGTV. "Every time I go buy something, I go into the bathroom and flush the toilet to remind myself of what I'm doing with my money.

 

"But that doesn't bother me because I'm a collector, not an investor, and true collectors die with their goods. They buy something because they love it and want to live with it, and their crazy if they think it's going to make them rich."

 

As an investment, collectibles have many issues.

 

Unlike companies, collectibles have no fundamental value. While many different types of collectibles are graded by experts, those marks are no guarantee of underlying value.

 

Prices move based on current consumer sentiment and tend to be divined by "experts," which leads to inestimable "dealer risk."

 

In fact, dealer risk -- the potential to get fleeced by an unscrupulous dealer -- is greater than market risk, and that's saying something in markets as volatile as you can find in most collectibles. (Even in collectibles meant for investments, notably coins, dealer risk can be huge; an investor seeking gold, for example, might be sold something from a dealer's inventory rather than something that is most appropriate.)

 

"You'll find dealers who only deal from their own deck, the things they have in stock and where they will make the best price, rather than trying to find something that fits in with the intention of the customer," says Bret Leifer of Bret Leifer Numismatics in Wayland, Mass. "But the one thing you will find with anyone who deals in collectibles is that they're never going to tell you they have stuff that is an awful investment. They will always tell you there's money to be made."

 

After dealer risk, collectibles face inestimable "trend risk." In stocks or other investments, that focuses on where a stock's sector falls in the current economic cycle. In collectibles, today's trend can become tomorrow's forgotten footnote.

 

About a decade ago, for example, Rinker wrote a book on Hopalong Cassidy, the "king of the cowboy merchandisers," that included prices a collector might expect for buying Cassidy's western souvenirs. Today, Rinker says he'd pay somewhere from 25 to 50 cents on the dollar for Cassidy goods.

 

As time passes and fewer people recall Cassidy, demand for his memorabilia fades. Without a boost from a movie or something else that brings the old cowboy back into vogue, the market will shrink and dwindle, at which point Rinker will be paying even less to add to his collection.

 

There are countless collectibles in this boat. Prices on Model-T Fords have been cut in half in recent years, according to experts. Logically, most hobbyists would think their value would grow as the cars get older.

 

Somehow, stories of those kinds of collectibles stories don't make the headlines; only the rare stamp or coin that draws a fortune at auction grabs consumer attention.

 

There's a cautionary tale in that too. In any given collectible, the market where the serious money can be made is in a very small group of rare, costly items. The idea that you can go into your local discount store, by a "limited edition" holiday collectible and wind up hitting the jackpot is about as big as the odds of winning the weekly lottery.

 

Perhaps most important from the investment standpoint, collectibles have tremendous liquidity risk. Unlike a security that can be brought to market, collectibles require a match with a buyer. A collector who needs to get out is a dealer's delight.

 

As one antiques and collectibles dealer put it: "There is nothing we love better than someone who has to sell for a divorce or sell because they are economically short. We'll pay pennies on the dollar." That dealer asked not to be identified for fear of losing business from customers who might expect him to help out in a time of need.

 

In the end, a collector's dream would be to have something they enjoy and that also grows in value, so that their heirs can either continue the collection or reap a windfall selling it.

 

Collecting is a wonderful hobby, something to be savored. But savor it only with the dollars you've got left after you set aside cash for your real investments.

 

Chuck Jaffe is a senior CBS MarketWatch columnist. His work appears in dozens of U.S. newspapers. His MoneyLife with Chuck Jaffe radio show airs daily from 11am to 1pm ET on Business 1060 AM WBIX in Boston and on the Web at www.business1060.com.

[Ares]

I liked the article especially the bit

 

While many different types of collectibles are graded by experts, those marks are no guarantee of underlying value.

 

Prices move based on current consumer sentiment and tend to be divined by "experts," which leads to inestimable "dealer risk."

 

How true.

People Buying CGC for the label not the comic

[g-man]

good stuff. Although I still have an attachment to a few books, I buy and sell what I can to obtain books or other items that I want. Once you put emotions, etc into the equation, you may start selling for a loss. Not good business.

[joe_collector]

That is an excellent article, and one that reaffirms my belief in the press. I can really empathize with the "toilet flushing" analogy, as that's what I'm doing each time I add a comic to my collection, rather than slapping it into investments.

 

But as long as you know it, then it's just like buying a new DVD or other entertainment-based item. You appreciate it for what it is, not some bizarre ideal where that book brings in 20% per annum over the next decade.

 

Obviously, I don't do something as insane as investing in funny books, but I'm still well aware that comics will go on a downward slide in the years to come, and only spend "hobby money" for any new purchases.

 

It's still tough to open up the wallet, especially at current, inflated price levels.

[OldSchoolTerry]

You mean beanie babies aren't valuable anymore?!? What am I gonna do with my closet full of em? I really missed the boat on that one.

 

I guess the comic book part of that piece was talking about people like me, who bought longboxes full of Peter Porker #1! I really thought that was gonna be the next big thing!!

[sfilosa]

Many good points except:

 

There are no guarantees in ANY INVESTMENT.

 

If anyone thinks that owning 100 shares out of 1,000,000,000 actually guarantees anything, you are sadly mistaken. Almost the entire value of any stock is based on the PRECEIVED PROFITS that a company will make in the future.

 

I while Real Estate usually looks like a good deal, ask the Japanesse Investors how much they lost on Rockafeller Center. I believe they paid 1.2 billion and sold it about 7 years later for 600 million. Plus there is a huge cost to maintain R/E, unlike collectibles.

 

And I do own lots of hundreds of thousands of dollars in stocks and real estate (I'm in R/E Development).

 

 

[OldSchoolTerry]

Good point. There is indeed no investment that is a sure thing. The closest thing to a guaranteed return is probably owning government paper. Any return greater than you can get with the government notes obviously involves a greater degree of risk.

I think most, or all of us here are collectors, because we like to read comic books, or like to complete runs of our favorite books, or just like finding the best specimen of certain books we cherish. Let those specs out there worry about the stuff they're now bidding up to utterly ridiculous levels. I think most of us are probably sitting back on a lot of these books, and when prices come down, we'll buy the stuff we want for a more reasonable price.

[joe_collector]

There are no guarantees in ANY INVESTMENT.

 

Of course not, but when you hear about people actually taking money from an education or retirement plan and buying comics for investment, it boggles the mind. This kind of person really needs to read this article and come back to the real world.

 

When those kids grow up, they're gonna be on CNN once they find out that Mom and Pop sunk their college fund into a pile of funny books. "You did WHAT with my college fund???" BLAM!

 

On the other hand, kids are currently enrolling at Harvard based on smart investors who bought in the 60's and 70's, then cashed out to the current brain-dead speculators. It's the Circle of Life, and today's speculators are actually paying for the retirement and education needs of the real investors.

 

Hot potato, hot potato...

[valiantman]

On the other hand, kids are currently enrolling at Harvard based on smart investors who bought in the 60's and 70's

What a waste...

Want a good, high-paying job? Get a degree for say, $30,000

(instead of $200,000) and pick a job that you're GOOD AT.

P.S. Keep the $170,000 difference for a nice house and car.

[dam60]

I while Real Estate usually looks like a good deal, ask the Japanesse Investors how much they lost on Rockafeller Center. I believe they paid 1.2 billion and sold it about 7 years later for 600 million. Plus there is a huge cost to maintain R/E, unlike collectibles.

 

Columbia University sold the Rockefeller Center plaza to an investor group in the mid 80s for something to the tune of $400 mm; the current owners are Tishman Speyer (Speyer is actually a big Columbia family, ironically) but I believe that the price was for substantially more than $600 mm but do believe that the previous owners did lose a hefty %.

 

DAM

[sfilosa]

The one point that I have always tried to remember with buying any collectible is:

 

If it's brand new, and everyone is buying it as an investment (and thereby taking good care of it), in the long run it probably won't make a good investment.

 

[dam60]

On the other hand, kids are currently enrolling at Harvard based on smart investors who bought in the 60's and 70's

What a waste...

Want a good, high-paying job? Get a degree for say, $30,000

(instead of $200,000) and pick a job that you're GOOD AT.

P.S. Keep the $170,000 difference for a nice house and car.

 

Valiantman, I had an interesting debate with my mother the other day about the cost of higher education where I insinuated that the high prices of ivy league education might not be worth it. My mother than replied to me that for the extra $5K / yr an ivy leauge education is worth more than a comparable education at Fairfield (no disrespect to anyone at Fairfield). I don't think you can argue with that logic.

 

However, based off of the personal experience of several friends who graduated from Stuyvesant and Bronx Science (the #1 and #2 respectively public HS in the NYC teaching area) the mantra there seems to be: go to a to 25 school and take out the loans as necessary or go to a good SUNY (State University of New York) for "free".

 

DAM

[valiantman]

On the other hand, kids are currently enrolling at Harvard based on smart investors who bought in the 60's and 70's

What a waste...

Want a good, high-paying job? Get a degree for say, $30,000

(instead of $200,000) and pick a job that you're GOOD AT.

P.S. Keep the $170,000 difference for a nice house and car.

 

Valiantman, I had an interesting debate with my mother the other day about the cost of higher education where I insinuated that the high prices of ivy league education might not be worth it. My mother than replied to me that for the extra $5K / yr an ivy leauge education is worth more than a comparable education at Fairfield (no disrespect to anyone at Fairfield). I don't think you can argue with that logic.

 

However, based off of the personal experience of several friends who graduated from Stuyvesant and Bronx Science (the #1 and #2 respectively public HS in the NYC teaching area) the mantra there seems to be: go to a to 25 school and take out the loans as necessary or go to a good SUNY (State University of New York) for "free".

 

DAM

 

Here's the best quote I've seen on the subject:

 

---Krueger and Dale concluded that smart, talented kids who attended less selective schools did just as well in their careers as their counterparts at elite colleges. There was no difference in average earnings. The same traits that made the students desirable candidates for admission to Yale--ambition, intelligence, wit--carried over to the workplace, where they were duly (and comparably) rewarded, even though they had turned down an elite education. Krueger says this is because the positive characteristics attributed to selective colleges were actually characteristics of the students, not of the schools. The advantages of Harvard, in other words, confer few benefits on the class slacker.

[OldSchoolTerry]

SUNY Albany alumnus in the house!....

[delekkerste]

There are no guarantees in ANY INVESTMENT.

 

True, and the sky-high level of real estate prices, generational-low bond yields and nosebleed prices of many stocks do not give me much confidence in most traditional investments (particularly with the government running unsustainably large budget & trade deficits and consumers leveraged up to their eyeballs).

 

However, a shrewd investor will at least be able to identify reasonably-valued investments that throw off interest or dividends to provide a solid cash-on-cash return and will buy stocks which represent companies with valuable underlying assets and cash flow generating businesses with fundamental intrinsic value. Many of my own investments are in commodity and energy-based securities, and I sleep really well every night knowing that while I'm sleeping, my portfolio companies are pumping many thousands of barrels of oil out of the ground and selling raw materials to satisfy insatiable Chinese demand.

 

The valuation of comics & collectibles is, on the other hand, determined largely by psychology and perception. There is very little inherent intrinsic value (maybe a few bucks for its reading contents or it's usage as a display item) in a comic book. Comics pay no interest or dividends and generate no underlying income. Even with eBay and the Internet, they are far less liquid than most investments (and, as with all real assets, liquidity will evaporate at an alarming rate when prices do finally start turning down in a more meaningful manner).

 

The biggest problem to me, however, is that some comic prices have continued to soar in a parabolic fashion even as other investment prices have declined, consumer debt levels have reached unsustainable proportions, income and job growth has slowed (if not turned negative), prices of many goods have fallen and the collecting base has continued to age and erode. I was at Alex Ross's book signing last night in New York and even the great Alex Ross commented how there were NO KIDS in the audience and that he never sees any kids showing up to his promotional appearances. Furthermore, he said he was very concerned about how there are much more interactive and cost-efficient forms of entertainment available to today's youth besides comics.

 

There are a lot of short and long-term risks in the comic collecting hobby these days. I would continue to advocate allocating only "hobby dollars" for purchases and not "investment dollars". Some of the prices we're seeing in the market these days are so obviously speculative and unsustainable that I'm thinking about unloading some of the books I had intended to hold forever. Unsustainably high prices have an uncanny way of bringing out new supply.

 

Gene

[delekkerste]

What a waste...

Want a good, high-paying job? Get a degree for say, $30,000

(instead of $200,000) and pick a job that you're GOOD AT.

P.S. Keep the $170,000 difference for a nice house and car.

 

There are many things a Harvard education may be, but one thing it isn't is "a waste". The opportunity to interact with some of the best faculty and students in the world is well worth the extra dollars (and the gap, in most cases, is not $170,000...my colleague's daughter goes to Yale now at a cost of $37,000/yr. including tuition and housing, not $50K, and even back in the '80s when I started college the University of California at Berkeley was close to $9K a year for state-discounted tuition and housing).

 

I went to Penn (another Ivy League school) and paid full boat instead of going to UC Berkeley for $8.6K a year or going to UCLA on a partial merit scholarship for even less than that. Even if I had gone to one of these two excellent state schools, I highly doubt I would have been recruited to Wall Street after graduation (which was partially enabled through a summer job I got through the alumni network) and that has paid for the extra tuition cost many, many times over.

 

Instead of advising people to go to a lower priced school instead of a top institution like Harvard, I would recommend that people "invest" less in comics and more on higher education and additional job/skill training - I'm sure for most, it will be a much surer way to increase your wealth (not to mention broaden your horizons).

 

Gene

[Darthdiesel]

However, based off of the personal experience of several friends who graduated from Stuyvesant and Bronx Science (the #1 and #2 respectively public HS in the NYC teaching area) ..

 

 

Poor Brooklyn Tech never broke into the top 2?

[Darthdiesel]

SUNY Albany alumnus in the house!....

 

Binghamton University (SUNY Binghamton) alumnus in da hizzy

[OldSchoolTerry]

SUNY Albany alumnus in the house!....

 

Binghamton University (SUNY Binghamton) alumnus in da hizzy

 

I was actually going to attend Binghamton myself, but I wound up leaning toward Albany because it was a closer drive home to NYC. Also, my buddy from HS was going to Albany, so I knew I had a roommate that wasn't a total freak!!

 

To keep this thread on track, wake up all you specs out there!!!! Hulk 181 and X-Men 94 won't put your kids through college!!

 

 

 

[OldSchoolTerry]

However, based off of the personal experience of several friends who graduated from Stuyvesant and Bronx Science (the #1 and #2 respectively public HS in the NYC teaching area) ..

 

Poor Brooklyn Tech never broke into the top 2?

 

Nah, Brooklyn Tech was always #3 of those schools. I remember that from when I was accepted into those schools...