At the level of a single digit millionaire, it might become viable for you to look at alternatives. One particularly fun and engaging version of this is collectibles: this can range from rare coins, to trading cards, to antiques and toys – the range is limitless. Quite often, investors commit a small portion of their portfolio – perhaps around five per cent – to these alternatives. But besides having fun, you probably hope to see appreciation and gains from these as well; and if so, you should understand what “rare” really means and how it can affect your investment strategy:
There are different types of rarity
When it comes to collectibles, there are different versions of rarity, which don’t all mean the same thing (although in some cases they overlap). Knowing the right type of rarity can help you to make the right purchases or sales, at the right time. These are:
- Absolute rarity
- Conditional rarity
- Historical rarity
- Artificial rarity
- Variant rarity
1. Absolute Rarity
These are often one-of-kind pieces, which can only shrink in number as time wears them down. An example would be original paintings by Modigliani, or the First Folio.
Absolute rarity tends to constitute the “blue chips” of the collectibles world: prices almost never go down, and transaction volumes are extremely low – some of these haven’t been sold more than once or twice over many decades.
For absolute rarity, a very long term holding period is the norm. These are capital intensive purchases, which buyers may keep for several decades, or even intend as generational heirlooms.
These collectibles are frankly tough for single digit millionaires, as the high cost tends to lock up too much capital (if you can even afford it.)
There’s also significant liquidity issues, as you may need an agent or auction house to sell such items. This can lead to high transactional costs, so for many these are once-in-a-lifetime purchases, likely left to children or sold to extend a retirement fund.
2. Conditional rarity
These are collectibles which were mass produced, but of which mint or near-mint conditions are very rare.
An example of this would be vintage lunchboxes or tin toys: while they were often made in large numbers, rust and constant play left most of them in poor conditions. As such, only the most pristine versions of such collectibles retain their value.
(Singapore’s Mint Museum of Toys, by the way, derives its name from the fact that most of its museum pieces are in mint condition; some of those pieces are not particularly rare outside of that condition.)
This is also commonly seen among sports and trading cards, as well as comic books, as the material is very susceptible to wear and tear.
These types of collectibles are best left to investors who have the right storage facilities. Temperature and humidity controlled storage, acid-proof backing, and other such complexities will have to be considered.
Their fragility also means the existing number will deplete much faster, which can make for good long-term investing. However, you may not derive much joy from having to keep them from sight (eg. you may need to play with proxy Pokemon or Magic The Gathering cards, while sealing away your real copies)
3. Historical rarity
These are items that are rare because of a historical event, or their connection to a particular era. For example, a Brown Bess used in the Battle of Waterloo: this musket was produced in rather large numbers, but being used in a historical battle (with proof) is what might give a piece its value.
This is also frequently seen with sports memorabilia, such as the baseball or mitt used at a particular game. Balls and mitts are mass produced and not rare – but being used in a history-making game is.
For investors, historical rarity comes with the risk of forgery, and buyers’ skepticism. It can be quite hard to prove that a particular item was used at a given point in history; and this could involve a lot of expensive certification, as well as paid investigative work.
Nonetheless, these items tend to have a very stable if niche market; and a bonus is being able to sell to institutions. State bodies, national museums, sports and associations, etc. can make for deep-pocketed and interested buyers, all year round.
4. Artificial rarity
This occurs when a producer is able to create more of the collectible, but has pledged not to. An example would be Magic: The Gathering’s reserve list, or postal agencies that promise to limit the number of a particular stamp.
Luxury watch companies are the main proponents of this, and often produce limited numbers of serialised watches.
This is considered risky by collectors, as you’re relying on the word of the manufacturer. Some investors also feel that certain customers – such as those who missed out on limited time details – will complain and pressure the company into making more. This is quite common for trading card games, where some players will decry reserve lists or lack of reprints as being unfair to the game.
For these collectibles, most investors look at short to mid-term holdings. They might wait as little as three years before selling, or aim to flip while the collectible is still hot.
That said, the more established and trustworthy the manufacturer is, the more the market will overlook the artificial scarcity.
5. Variant rarity
This occurs when there are multiple versions of the same collectible, of which only one or two variants are investible. Disney’s Lorcana trading cards, for example, have “enchanted” versions of cards which are much more valuable than the standard print runs.
In some cases, variants are unintentional. Among stamp and currency collectors, misprinted notes and stamps may fetch exceptional prices, even if the “standard” versions are common and have no outstanding value.
These are highly volatile and uncertain investments, for which no clear rules apply. It may not even be clear how much a variant is worth, if it’s a one-of-a-kind misprint.
Just being “rare” doesn’t actually mean much
When investing in collectibles, be aware of what types of rarity are involved; and don’t end up chasing Beanie Babies. For help on investing, buying, of reselling collectibles, reach out to us on Single Digit Millionaire.
