Sep 12 2008
Collections that are investments
Years ago I helped a new roommate move into our “pad.” I offered to help her move, glad to be of service to a new friend. She had the envy of all record collections, and when living with her, you could hear almost any of the best kind of music. But all those albums had to be boxed and moved, and in the end, I remember thinking to myself that if I ever had a collection, the first thing I would consider is collecting something light.
So when exactly is collecting truly an investment? Well, let’s get down to the basics. First, collectors need to separate whether they collect because they like something, or whether it is truly an investment. Years ago, for example, Beanie Babies were all the rage. People who collected these stuffed animals would tell me, ” This one is worth hundreds of dollars!” and “That one is very rare.” Some people even made extra cash by selling them on E-bay. Now I’m not meaning to insult anyone, but I could personally never see why anyone would spend serious money on a small stuffed animal. However, I think anyone who wishes to collect something because they like it should jump right in and enjoy life!
The purpose of this blog, though, is to speak about investments for the more experienced investor. And anyone with any amount of sense at all knows that the safety deposit box can sometimes hold more wealth for a person than anyone realizes. A smart collector holds only the best of the best. Let’s take, for example, coins. An average collector may collect a whole series of certain types of coins. A smart collector keeps only the coin worth hundreds of thousands of dollars. The same is true of dollar bills. A silver certificate is worth much more now than when it was issued. But a ten thousand dollar bill is definately worth the space in the safety deposit box.
I got on this collecting idea when visiting our local gold and silver trader. He had a five hundred dollar bill in the glass case. I hadn’t even known they existed. Then I spied a thousand dollar bill. Suddenly I was intruiged, and asked him about the $10,000 bill.
‘You know, I had a young man come in one day with seven of those,” said the shop owner. “He wanted to know if they were real. It seems his grandfather left him these in a safety deposit box and the old man had just died. He wanted to know what they were worth. I offered him $79,000 apiece on the spot for them.”
After I was done picking my jaw off the floor, I asked, “What did he do?”
“Well, he decided to keep them,” said the shop owner. “But then, since I didn’t know if he would come back in or not, I began to keep a little bit more eye on that bill on the markets. It went as high as $99,000 a piece there at one time, and then dropped way, way down after a stack of those bills were found in a Las Vegas bank. Now they are back to $79,000.”
The thing that I like about bill and coin collecting, is that no matter what, there is always a bottom line worth to them. My $500 bill will always be worth at least $500 at the bank. Of course, one can always hope that in ten years it can fetch even more than I paid for it.
Few other collector’s items has that intrinsic value. Even stamps, which were actually traded like currency during the Civil War, will hold only its face value of a few cents if any collector HAD to spend it. Collectors would scoff at my words, but in the worse case scenario, say triple digit inflation or an invasion, only coins and high face dollar bills would get any money from anyone on the street. Gold and silver would fare even better.
So if you are going to collect anything like stamps, baseball cards, dollar bills, etc, here are somethings to note. First, beware of salespeaple who tell you what they are going to be worth in three years. No one has a crystal ball. Second, salespeople need to charge at least 100% markup to make the profit for their company. I tested this by calling a reputable coin company out west that I had done business with before. I told them that I had a thousand dollar bill in mint condition. They told me they paid appoximately $1100 for it. But in the stores, everyone was charging at least $2600 for them. These shop owners must do that to pay their overhead, and people like me need them in business.
Second, decide right now that you are holding it for your old age. Very few people can make it buying and flipping in any market, whether it is in art (which has its own rules) or baseballs. Consider giving it to your grandchildren.
Third, if you choose to hold something outside of your safety deposit box, insure it well, and document your collection.
Finally, if it is for investment purposes, follow its rise and fall in value through magazines designed for your specific collection. Even following it on E-bay is surprisingly good at determining value for things, but beware buying sight unseen.
Most of all, enjoy what you do collect, and take pride in the sense you are showing to diversify.
