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Collecting During a Time of Inflation
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Started by adamstrange,

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adamstrange

adamstrange

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This post involves math. :foryou:

 

If your comics increased in value last year by 15%, you, on the surface, appear to have done well, though perhaps not "sportscard well".  However, we had a much higher rate of inflation last year than we have had in a long time, so the picture isn't quite so rosy.

The typically quoted inflation rate is based on the Consumer Price Index, which was approximately 7% for the US for 2021.  The algorithm for the CPI has changed over time, most significantly when they excluded food and energy since they were viewed as too volatile.  I happen to occasionally eat and drive, so I prefer the algorithm from 1979 which included those useful but volatile items and which, if applied, would result in an inflation rate of approximately 15%.  Many books and PhD dissertations have been written about inflation rate calculation, so, as exciting a topic as it is, I'm not looking to get any further into the details of which algorithm is best. 

You can plug in your favorite inflation rate to determine how much of an impact you think it has on you.

Let's consider a couple examples.

Say that you have Uber-hero #1 worth $100 that increases by 15% so that, as of Dec 31, 2021, it's listed value is $115. :banana:  At 15% inflation rate, you broke even. :smirk:  Let's say you want to sell it and are able to do so in person with no transaction fees so that you net $115.  Congratulations!  You now owe taxes on a profit of $15 for a book that you broke even on, once inflation is considered. :flamed:

Let's say that, instead of selling, you hold onto the book another year, and Uber-hero #1 and inflation both increase at 15%.  Now, your comic's nominal value is $132.25.  If you sell for full value with no transaction fees, you will owe taxes on a profit of $32.25 for a $100 book you broke even on.

Let's say that you have photo-cover Western comic :yeehaw: that stayed the same value for those two years at a time when inflation was 15% per year.  Your comic is now worth $72.25.  If you sell for  $100, you will lose money, which is sad. :violin: Even worse, you will have no loss from that sale to offset the "big win" on Uber-hero #1 that increased by 15%. :cry:

Note:  I'm not a CPA or tax lawyer, but the issues described above are for the majority of asset classes, not just comics.  https://dsjcpa.com/capital-gains-and-inflation-a-double-tax/

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JustJimN

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As a long time collector I don't think I have ever once thought about tax consequences or inflation relative to my buying and selling comics. As one of the older farts, I was lucky enough to have bought a lot of Marvels during the 60's and 70's. I just wish I had kept more of what I bought. I buy books today with neat covers, with cool artwork and with writing that has something to say. I like the smell of the books, the way they feel when you turn the pages and the pleasure you get from a good storyline. Even with slabs I can still drool over the covers. I still have a 90/10 ratio of raws to slabs. I probably would have a lot more slabs if I wasn't so lazy.

If I  buy books today that I really like or to complete runs, I just don't think about the tax side or profit and loss. I just need those books for my collection. That's my fix for the day.

I think your comments are more applicable to dealers and flippers but not so much to collector collectors.

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Bookery

Bookery

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On 3/4/2022 at 9:54 AM, MrBedrock said:

What are the tax implications if you don't sell your photo cover westerns?

Well, according to Moody's Photo-cover western index (PCWI), the long term outlook is stated as "fair to middlin" (technical market jargon) with a hold/sell ratio leaning to the downside against comparable assets, though for some reason, it may depend on weather conditions due to a tendency for the PCWI to be tied to oat futures.

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jimbo_7071

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On 3/4/2022 at 4:32 AM, JustJimN said:

As a long time collector I don't think I have ever once thought about tax consequences or inflation relative to my buying and selling comics. As one of the older farts, I was lucky enough to have bought a lot of Marvels during the 60's and 70's. I just wish I had kept more of what I bought. I buy books today with neat covers, with cool artwork and with writing that has something to say. I like the smell of the books, the way they feel when you turn the pages and the pleasure you get from a good storyline. Even with slabs I can still drool over the covers. I still have a 90/10 ratio of raws to slabs. I probably would have a lot more slabs if I wasn't so lazy.

If I  buy books today that I really like or to complete runs, I just don't think about the tax side or profit and loss. I just need those books for my collection. That's my fix for the day.

I think your comments are more applicable to dealers and flippers but not so much to collector collectors.

I tend to agree. I don't sell many books, but I sort of figure that anything I sell will go up by about the same percentage as anything I buy—not necessarily on a book-by-book basis, but on average.

Unfortunately, there are enough flippers out there that they must have some effect on the prices of comics. Whether that effect is small or large is anyone's guess.

 

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adamstrange

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On 3/4/2022 at 5:58 AM, Flex Mentallo said:

Conversely, Adam, does rising inflation encourage more intensive investment in collectibles, and trigger higher prices at auction?

It could.

In the 1970s, the US experienced an ever-increasing inflation rate once they left the Gold Standard. Initally, the thought was that inflation would decrease unemployment and increase growth.  When years passed, growth stalled and unemployment remained, for the time, stubbornly high, the term "stagflation" was created to define the phenomenom. 

Eventually, people looked at the best methods to mitigate the impact of inflation, among them was a shift of assets from financial securities and stocks into physical assets (gold and land) as well as collectibles like coins, stamps and art.  In many cases, the rate of increase in these assets was greater than inflation.  

The Federal Reserve restricted the money supply and increased interest rates starting in 1979 to reduce inflation.  Once it was under control and the economy started growing in 1982, the flow of money reversed from assets and collectibles into business investments.  Some collectibles, like stamps, never recovered.

 

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adamstrange

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On 3/4/2022 at 9:22 AM, tth2 said:

Just burn them all, I say.

Not Uber-hero #1 :cry:

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adamstrange

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On 3/4/2022 at 4:32 AM, JustJimN said:

As a long time collector I don't think I have ever once thought about tax consequences or inflation relative to my buying and selling comics. As one of the older farts, I was lucky enough to have bought a lot of Marvels during the 60's and 70's. I just wish I had kept more of what I bought. I buy books today with neat covers, with cool artwork and with writing that has something to say. I like the smell of the books, the way they feel when you turn the pages and the pleasure you get from a good storyline. Even with slabs I can still drool over the covers. I still have a 90/10 ratio of raws to slabs. I probably would have a lot more slabs if I wasn't so lazy.

If I  buy books today that I really like or to complete runs, I just don't think about the tax side or profit and loss. I just need those books for my collection. That's my fix for the day.

I think your comments are more applicable to dealers and flippers but not so much to collector collectors.

Even if you don't sell, you are likely to find your collecting to be affected by inflation.

For example, let's say your collectible field increases in sync with inflation running at 15% per year.  Let's say your income increases at 3% per year.  You may find that you have less money to spend on your collection and that you are able to purchase fewer comics as each year goes by.  If there is a dramatic move into your collecting field by those seeking to shield themselves from inflation, you may find yourself priced out of most everything you used to be able to buy.

This is why the title of the topic is not specific to taxes but about the broader impact of inflation on the collector.

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adamstrange

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On 3/4/2022 at 11:14 AM, Robot Man said:

I hate math. I’m right brain. I much prefer to escape to my comics and come here to talk about how cool they are…

That's my preference as well, but I am observing some significant impacts to collecting habits of myself and others that I believe are due to inflation. I thought it might be a useful to point them out for comment by the community.

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sfcityduck

sfcityduck

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There are benefits to inflation.  For example, let's say you took out a $1M fixed rate loan at a 3.1% interest rate to buy a house or fund your comic purchases, then inflation is financially helpful.  When inflation increases, the fixed-interest rate financing you took out costs you less than when you took out the loan since the dollar has lost some of its value. You’re essentially paying the lender back money that’s worth less than what it was when you took out the loan.  In addition, wages and revenues tend to rise during periods of high inflation. So, if you’re making more money but your monthly payments for your fixed rate financing stay the same, then the payments take up a smaller percentage of your working capital.  Those of us who took advantage of the historically low interest rates during the pandemic will benefit from this effect.

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