Which is a ‘sensible’ investment now?
I found this to be a crazy interesting story by David Grainger of the Postmedia News.
The sword of Damocles has never been a more apt metaphor when describing today’s economic environment. Stock markets are a bigger risk than spending the day at the casino and real estate has lost its Gibraltar-like air of certainty when it comes to having a secure place to put your money.
So, with all of the uncertainty and the prospect of the skies actually falling in the next year or two, why is it that some commodities continue to soar in price and desirability?
Exactly what commodities, you may ask? High-end collectibles, which range from rare Art Deco glass figurines and Tiffany lamps to rare antique and classic cars. Now, I know I have mentioned this on more than one occasion, but the continuing strength of the high-end collector car market continues to puzzle classic car collectors and enthusiasts and genuinely confuse investment gurus, who preach the placing of big money in more “sensible” investments.
To give you an idea of just how good an investment these cars have become, one only has to look at the performance of classic car auctions over the last few years. Where, once upon a time, the sale of a $500,000 car was treated as an event, in this market, a car valued at that level doesn’t make a ripple. Million-dollar-plus cars are becoming more and more the norm at a lot of auctions and it is not unusual for an auction house to post 10 or more cars selling at that level at just one sale. As a matter of fact, $4-million and $5-million cars are not uncommon. And now it takes a sale of $10-million for a car to really arouse media attention.
This August during the Pebble Beach Concours week, the Gooding & Company auction house achieved a world record auction price for a single car — $16,390,000 for a 1957 Ferrari Testa Rossa prototype. (This is the same auction house that, by private treaty, sold a Bugatti Atlantique for $35-million a couple of years ago.)
At the same sale this summer, Gooding recorded 37 world record prices paid for cars. A Duesenberg Model J coupe established a record price of more than $10-million, putting an American-made car into territory normally occupied by European greats such as Ferrari and Bugatti.
The Canadian auction house RM also posted spectacular results at Pebble Beach, but that is not where it stops. RM has had several sales since then, and at auctions where prices would historically have been conservative — such as its event in Hershey, Penn. — prices this fall were still extraordinarily high. The world’s oldest running car, an 1884 De Dion Bouton steamer, sold for $4,620,000. That was despite a pre-auction estimate of $2-million to $2.5-million. Ten years ago, that car would probably not have sold for anything more than $200,000 or so. This all makes me feel good as I have a 1901 De Dion Bouton, and the sale of the 1884 De Dion can serve to pull up the value of other cars created by the same manufacturer.
There are several ways to play the game. One is to beat the bushes for extraordinary cars that are hidden in barns and garages. This is akin to hunting for Spanish treasure, although the odds are a bit higher. For instance, a rare original Italian car that I bought last year for $50,000 sold this year for $200,000 in its original shabby condition. I had even preserved the dust and detritus that was on it when it was pulled from its garage.
Another simpler method is to buy at auction, but this game is one of patience. While you can sometimes get a deal on the right car, most will invariably cost a premium. In some cases, aggressive bidding may end up with you as an investor paying a world record price — but that isn’t necessarily a bad thing. What this does is establish what someone (you) is willing to pay for the car. This means that it now has a new value exceeding its old value. Now, you can’t just throw it into the next auction or it will stall, but you can sit on it for a few years and then introduce it to potential buyers again. This is where you will likely make a killing.
Once people are comfortable with a car’s new price range, they will likely feel just as comfortable setting a new price range a couple of years down the line. This means that you are now a savvy player who can laugh all the way to the bank.
I used to advocate that cars are like art and should be bought because you like them first and secondly as investments, but, these days, with enough knowledge, there is little risk in buying them simply as investments. Seems a better bet than Research in Motion or Northern Telecom, doesn’t it?