<b>The Economics of Collecting, PART 1:</b>

Is your collection going to put your kids through school, let you retire graciously, and cure cancer? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

In a former life, I wore a tie and talked on the phone about money. The rule of thumb -in this particular world anyway- was that collectibles would -in the long run- keep up with inflation and nothing more. None-the-less, I remember gold getting to the north end of $700 an ounce from $400 a previous year. Diamonds had their run. Then it was re-prints of Salvador Dhali's work.

The SOURCE of Collectibles:
My own parents, for example, (and a hard-boiled conservative republican pair they were), started a stamp collection for each of their four children beginning with the month of our births. This involved a plate of stamps that came out every month. Then the post office got greedy -rather then one commemorative stamp every month -they decided to come out with two or three. Or four. And my parents decided to dispense with the collecting. It simply got too expensive. When you stop to think about it -they were making a gift to the post office -"Here is some money -give us these stamps which we will never use to purchase your services." "Good deal!" said the USPS and they did -and still do- everything they could to get people involved in the fascinating hobby of stamp collecting. Or to put it another way -they worked very hard to get people to donate money to the post office.
This brings me to the first point of my exploration -the value of some collections (be they stamps, Salvador Dali prints, or baseball cards) is often at the mercy of the source. To put it another way -if the USPS, Dali's estate, or a bubble-gum company discover that they have a good thing -they can fire up the presses. They can exploit that good thing to their own advantage and make end up making it a bad thing for the guy at the other end of the line.
It doesn't take a lot of study to find examples of this happening. Little islands in the Caribbean issuing stamps of American icons a weekly basis, the artist Thomas Kinkaid(1) franchising galleries to flog his work, the DeBeers diamond cartel manipulating the market, the Maple leaf and Krugerand advertised in every magazine in the world as the price of gold peaked somewhere north of $700 an ounce, (It's back to under $400 last I checked.) The list goes on.

But prices DO go up -sometimes:
None-the-less, if you talk to experts in any field of collecting, (and I talk to a lot of them) they assure that they make impressive returns. Their collectible -if only their collectible item and only the way they collect- will always go up in price. I am sure these people are sincere. I also suspect that the people who have not had such good fortune are less inclined to talk about it.
But I do not give sufficient credit to the serious collector. In talking to them, another thing becomes abundantly clear. These people know their stuff! I mean they REALLY STUDY IT. They own the books and subscribe to any number of journals. And they actually READ them. As in cover-to-cover -and they read the advertisements too. The question then becomes, do they do all this reading and studying for the sake of their investment or do they do it because they are fascinated by the subject at hand? I have to believe it's the later.

Investments as Collectibles:
Consider financial instruments. There are 'em what collect them to sell sometime down the road at what they hope will be a higher price. There are also those collect them as a hobby. Called SCRIPOPHILLY (and may -or may not -depending on who you talk to- include paper money). Completely different things you say? Well, undoubtedly so, but then again, let's look at the similarities. One gets the impression that collectors are history buffs of a particular flavor (2), but then, so are sophisticated investors. They just have a shorter -more modern- time-frame. But woe unto the investor who doesn't remember and understand the end of the oil & gas boom in '85, or crash or '29, or the collapse of silver prices at the end of the American Civil War, or the melt-down of Dutch tulip market in the 17th century. A lot of people were absent the day they covered these lessons and lost a lot of money it in the dot.com implosion of '99.(3)
As in interesting aside, the Walt Disney Corporation was having fits a few years ago because people were buying a single share of Disney stock to frame and put on the wall in the nursery. A lovely certificate it was -had Cinderella and Micky and I don't know what all, but people were using a financial instrument -and as such, one that needs a third party transfer-agent and no little paperwork- as a collectible or a decoration. The cost of transferring a share of stock - a lovely examples of the printer's art- is much higher then transferring a block of stamps, another lovely example the printer's art.

Collectibles as Investments:
So what about turning the problem around -and considering collectables from the view of the button-down guy in the three piece suit? If you were to ask -let's say- a stock broker to comment on the investment value of a painting, he would have to say (if he were honest anyway) that it's impossible to value something as vague as "aesthetics." He absolutely right, but he's going to use mathematical precession to come up with an accurate present value of future earnings? Fat chance. But there is the matter of liquidity. Our hypothetical stock broker knows he can find a market for his stock. May not be the price he would like, but within a week, the transaction is done and paid for. Not so with collectables. Not so for collectables. Sotheby's(4) has auctions every month or so. No telling, but I suspect if you needed the $'s in a hurry, your local pawn-broker could settle-up with you a lot quicker.
The British Rail Pension, of all people, did it well and gained some fame in the belt-and-suspenders crowd. They bought fine-art in the '70's and early '80's and sold the late 1990's fund. Despite good -indeed PERFECT- timing, British Rail's returns only matched that of the wider U.K. stock exchange.

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1) Some of the comings and goings of both Kincade and his company, Media Arts Group Inc. are the stuff of the tabloids. I lift just two quotes from Wikipedia: ..."uses Christianity as a tool to take advantage of people" and "...a devotee of ritual urination to mark territory" (?!?!). I leave it to you do your own research. He has been sued by many of his franchisees and while he made $53 million up to the point of taking his company public, the stock no longer trades. Draw your own conclusions as to the "investment" value of his work.

2) Before the internet came along, I sold my casework at various hobby & collectors show, including coin shows. On one occasion, my booth was next to a dealer in ancient coins. Over a weekend I got one heck of an education in Roman history from this old boy. And for every story, he was able to pull out a coin of the era. Indeed, sometimes it was a coin minted by the particular emperor and there was his ugly mug on the coin. As I have said in other of my ruminations, there is no better way to learn about a subject then having it explained to you someone who loves that subject and for whom had it has become a life-long hobby.

3) Swear-to-Goodness -not your author. I was on the sidelines trying to understand what these computer geniuses were talking about when they were tossing their 3 & 4 (& more) letter acronyms around. Made me feel old & dumb. Turned out I wasn't so dumb. Old, yes, but not so dumb.

4) Seems also that no less august an organization then Sotheby's of London & New York -founded in 1744 no less- was charged with -and found guilty of fraud in 2000.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ In Part 2, I take up how the Contraitian View. This is how 'pros' look at investments. They make mistakes all'a time too, but they do it with fancy titles and big words.

For the entire articel, check out Home Museum's COLLECTOR'S HOW-TO ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

About the Author

Bill Harvey is an expert cabinet maker and the author of COLLECTOR'S HOW-TO -a series of online articles for the dedicated collector or hobbyist to use in protecting and displaying his valuables. He is also the owner of Home-Museum.com -a source for display and drawer cases just for collectors.