Chart of the Month – April 2019

How the Wealthy Save – The Value of Collectibles

The idea of a wealthy old curmudgeon “sitting in his counting house, counting out his money” conjures up the impression that the super-rich just horde gold and silver. However, the reality is quite different many of the super-rich pursue hobbies that can be quite profitable and by virtue of the scarcity value and cost of these activities, provides a certain level of elitism. This may involve collecting anything from baseball cards to sports teams. In addition to gaining pleasure from these pursuits many also become leading experts in the field and make significant profits from the “leisure pursuits”. Bill Gross for example may be the world’s leading bond investor but he also an avid stamp collector.

Some of these hobbies have proved to be a solid and secure store of wealth in recent years. There are several sources of information on the increasing value of these collectibles. The data for the table above was published by Statista Charts crediting the source as Knight Frank, an upscale realtor in the United Kingdom. There is the Coutts “Passion Index” which tracks the value of various collectibles. Coutts is a private bank in the United Kingdom which prides itself of “being banker to Queen Elizabeth II” Their index follows most of the same components as those listed above by Knight Frank.

To most of us this is an academic exercise. However, over the last two or three decades there have been several hedge funds established to allow the middle class into the collectibles game. For example, according to Bloomberg had you allocated $100,000 to Cult Wines, a U.K.-based wine portfolio manager, ten years ago your money—which is to say your wine—would have returned an average of 13 percent annually. The fine wine secondary market hovers at about $5 billion. Although it is difficult to comment intelligently on the “liquidity” (pun intended) of such investments.

Keen investors can buy a portfolio of stamps (or a portion thereof) from philatelist companies like Stanley Gibbons who recommend diversifying your investment into at least five valuable stamps and to expect to be invested for at least ten years. This is a far cry from the stamp collections most families used to acquire. I too have a “Penny Black” and “Cape Triangle” but condition is all important and most stamps in family collections are in poor condition and thus practically worthless. However, they remain great showpieces. The same is true of numismatics funds which invest in coins and rare wine funds of which there are many. The good thing with rare wine funds is that the product is held in a remote vault and thus you cannot “drink the profits”.

The star of the bunch over the past decade has been Rare Whiskey. Whiskey has long been a favourite of collectors but its value sky-rocketed with the emergence of young, very high net worth Chinese who started using gifts (known as bribes) of high-priced whiskey for business purposes and also as a badge of honour. Be warned a truly good bottle of scotch might fetch £70,000 at auction.

Is the performance of these luxury goods over the last decade a reflection of the increasing spread between the “haves” and have-nots”? Perhaps, but for those of us unlikely to spend £70,000 on a bottle of scotch, it is still fun to contemplate hanging out on the fringes of this elite club.