Alternative. When applied to music it refers to something more experimental than easily digested pop by chart-toppers. Applied to healthcare it’s “new-agey” herbal remedies and reiki in lieu of science-based Western medicine. In investment, the choices are just as varied. Alternative investment is still partially luck of the draw: no one could have predicted a Luke Skywalker action figure would be worth US$7,000 back in 1977, and chances the next set reach the same intergalactic heights are slim. Nonetheless there are strong options out there for creative investors.
Far from Nerdy
Not too long ago the idea of investing in wine was nearly unheard of. Today, wine, like art, lingers on the fringes of so-called traditional investment classes, just behind the classics: stocks, bonds, gold and property. But as wealth accumulates and truly investable assets dwindle, other items have stepped into the gap. According to research by Knight Frank, “investments of passion” are making incredible gains. The Fancy Color Diamond Price Index (for rare coloured diamonds) has gained 167 percent in value since 2005; classic cars have gained 487 percent on their HAGI index in the same period.
It’s easy to make jokes about stamp collections, but rare stamps are one of the strongest investments available. “There have been academic studies done around stamps. The most famous report was by LSE and a Dutch university, where two professors concluded that stamps outperformed everything over the course of the entire 20th century – including gold, bonds, stocks and property,” explains Marco Kaster, investment director with Stanley Gibbons Investment (Asia). “Our own CEO at the time also looked at historic prices for 40 or 50 years and came to the same conclusion.” Kaster pins the rising appeal of stamps and coins on the historical lack of correlation and volatility, and performance as a hedge against inflation for very specific items.
Stanley Gibbons specialises in stamps and coins and in April launched a fund for British (by far the most prized) stamps so that investors can buy into a large collection rather than individual items. Kaster admits there’s a stigma around stamps being for nerds and old men, but that’s less entrenched in Asia, where’s it’s considered cultured. Either way, “There are some very nerdy collectors who’ve made a lot of money,” quips Kaster. He cites investors like Bill Gross and John du Pont, whose 1856 British Guyana stamp is the world’s most valuable (US$9.5 million), as proponents of stamps.
Stamps and coins are gaining traction with investors and the fundamentals — the classic collectible trinity of rarity, condition and collector demand — mirror those of most alternative investments. A 1962 front engine competition coupe Ferrari GTO would not have sold for a record US$38 million at Bonham’s last year were it not in excellent condition, totalled no more than 36 ever — and was in huge demand by car buffs.
More than Money
But the appeal of items like stamps, coins, watches, jewellery or cars transcends cash. “Human beings have been collecting for millennia. If you ask a collector what he or she thinks when they buy at auction, I’m sure that most of them will simply tell you that they wish to be surrounded by the most beautiful objects and to enjoy their lives,” theorises Rebecca Wei, president of Christie’s Asia. “A collection is always the expression of the taste, status and vision of an individual. In addition to that, an object can be bequeathed to one’s heirs, transmitting not only a legacy but also real assets. The good thing about an object is that, even though its market value can fluctuate, it is a tangible good, which its owner can resell at any time.” Like property.
Aside from demand and rarity collectibles often have an intangible connection to history and stories that go along with items that make them special — and valuable. Stamps, as opposed to art or wine, have had their rarity determined. The next Lafite vintage may be the best ever; the next Rembrandt could still be out there. Similarly, the special edition industry — a memorial Elvis stamp, an Olympic coin — doesn’t have the value of something long gone. “Gold coins have a material value … and they fluctuate in price because gold does. But there are rare coins that sell for a hundred times their gold value because of their rarity,” says Kaster. One of the last Queen Anne five-guinea coins prior to the unification of England and Scotland may have a gold value of £1,000, but a sales value of £100,000. “Whether it’s a little piece of paper with no intrinsic value or a coin that has one percent intrinsic value you’re paying for its rarity,” finishes Kaster.
The value in uniqueness of these assets hasn’t been lost on investors, who are increasingly looking at passion-based assets as a way to manage wealth. As Wei notes, “The majority of the buyers at Christie’s auctions are private collectors and institutions who are seeking rare works of art of impeccable provenance across different categories and according to their personal taste.” Wei reasons most buyers are simply adding to existing collections, but adds, “Buyers are very savvy today and are not only aware of the status of the current market, but also of the fact that a good purchase can turn into a very good investment on a mid- or long-term basis.”
Switzerland-based watchmaker F.P. Journe makes the kind of exclusive watches that often grace the floors of auction houses, and suspects F.P. Journe purchasers are looking for authenticity, precision and innovation in addition to exclusivity. Of his timepieces (900 per year, total) Journe confidently states, “Given the specific requirements of collectors and the exclusivity of our brand, collectors look forward to see the new F.P. Journe watches and are anxious to own them. Also, I like to innovate and manufacture timepieces that nobody else does. They will leave an imprint in the history of horological science.” According to watch sale facilitator Chrono24, there are too many Rolex and Patek Philippe watches out there for significant investment value, and points to independent manufacturers like Sarpaneva, DeWitt, and yes, F.P. Journe (whose timepieces can carry $5 million price tags) as better choices.
Ultimately investments of passion, increasingly an international market as investors from the Middle East and China are buying back their own heritage, are lucrative as a secondary consideration — which ironically is where their value lies. So what is it exactly that makes a collectible an investment? Easy. Wei: “We at Christie’s believe that you should buy what you really like. Whether you are looking for a painting or a sculpture, an object or a jewel, you will be rewarded throughout the years only if you have carefully analysed that item beforehand … As the saying goes: beauty is in the eye of the beholder.”