How to make money in collectibles
To really cash in as a value investor you need to be contrarian, buying what others scorn. Good luck with that.
A search of Bad Money Advice shows that in what is fast approaching 300 posts I have never discussed collectibles. Although it is true that there is relatively little bad money advice out there on this topic, just about everybody who mentions it, even in passing, says it is a poor place to invest -- it is an area in which people often make money mistakes. So not writing at least one post on it is an oversight that needs correcting.
In particular, I want to talk about a scheme to make money that has, at the very least, occurred to all of us at one time or another. It is buying, or merely not disposing of, the near-valueless noncollectible in the hope that it will one day become a valuable collectible.
The reason this has occurred to us all at some point is that the collecting world is full of examples of easy-money-in-hindsight. Just spend time on eBay. A quick scan recently told me that the first issue of Cigar Aficionado magazine (Autumn 1992) goes for $250. It was $3.95 on the newsstand. That’s an annualized gain of nearly 26% for 18 years. If only I’d thought to buy a thousand copies.
And then there are baseball cards. If you are about my age or older you remember that in the 1980s they became a hot collectible, with prices for older cards rising to the point that many of us began to feel quite foolish for having thrown out our precious collection in our teens.
Funny thing about baseball cards, though. Although not the craze they once were, old ones are still a serious collectible. But while a complete 1977 set (which, BTW I owned in 1977) will set you back $350, a complete 1987 set, printed about the time we all realized that baseball cards were a sound investment, is listed on eBay for $50 with the note “Make us an offer we just might take it!”
- Bing: How to sell on eBay
Of course, the fact that pre-1980s cards are valuable and post-1980s cards are not has everything to do with the fact that before the 1980s nobody thought to save them, because they were assumed to be worthless. (The story of the baseball card craze is detailed in the new book "Mint Condition: How Baseball Cards Became an American Obsession." I haven’t read it, but I did like the excerpt on Slate.)
There is a good lesson on investing here. To really cash in as a value investor you need to be contrarian, buying what others scorn. (And, it is worth adding, others need to eventually see things your way.) If everybody else thinks the thing you are buying is, or will someday be, valuable, then you are unlikely to make any money at all.
The value of a collectible, like everything else, is determined by supply and demand. The demand for collectibles, baseball cards, cigar magazines, fine wine, political memorabilia, and so on, waxes and wanes over the years. But what really drives prices, what makes one kind of item more expensive than another, is supply. And for the once commonplace objects that induce nostalgia in us old folks and have us slapping our foreheads when we wander eBay, what matters more than anything else is whether or not people were in the habit of saving the thing back when it was common.
By way of illustration, imagine you built a time machine that materialized a 1927 Packard in your driveway for only a minute or two, long enough for you to loot one part of it to sell on eBay. What would you take? Just about the last thing you would want would be the license plates. People save those. License plates from 1927 are on eBay for as little as a $1. In contrast, a single headlamp lens goes for $100. If you were really lucky the glove compartment might hold an owner’s manual at $125 or better yet a sales brochure at $175.
You would have to be a total mutant to save a sales brochure in the hopes that it would be worth something 83 years later. Which is exactly my point.
The reason that the missed opportunity of buying a pre-collectible and getting rich years later is a mirage is that, unless you are truly eccentric, anything you thought to buy and save would likely be bought and saved by others. So it would not turn out to be worth much.
This is why no “limited edition” figurine, plate, or any other example of manufactured collectible will ever be valuable. It is not that the edition is not truly limited, it is that the people buying it are (mostly) going to carefully save the damn things. And this is why no statehood quarter will ever be worth much more than 25 cents.
At the risk of stating the mundanely obvious, collectibles are for entertainment purposes only. You are not a fool for having trashed those baseball cards when you lost interest in them. But buying some new ones today in the hopes of making a killing in 10 or 20 years? That would be foolish. (Then again, if everybody thinks it is foolish ....)
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