Collectibles are the first types of alternative assets made available on the Koia platform. Perhaps you’ve never bought or invested in collectibles and you’re wondering what factors drive the value and price changes of these collectible goods. Read on to learn more about the collectibles market.
In the broadest sense, a collectible is ‘an item valued and sought by collectors.’
Most collectibles share at least these 2 characteristics:
Collectibles can be old items, but can also be sought-after, new items produced in limited quantities (e.g. limited edition sneakers). Some of the biggest categories of collectibles in terms of annual sales are classic cars, books, toys and coins.
There are several reasons why people buy collectibles. The 3 most common reasons are:
Passion & Hobby
Most collectors have a real passion for the items they’re collecting. And the act of collecting itself is often a hobby. Hunting down the internet and hobbyist fairs, and bidding at competitive auctions is all part of the fund and thrill.
For instance, take this quote from a collector who recently bought the most expensive American football card to date, a US$1.32 million a Tom Brady Championship Ticket
“I lived in Boston for 10 years and so am a huge fan of Brady. The last Superbowl Win was just a mind-blowing accomplishment. I’ve also had a love of collecting cards since I was a kid. Given Brady’s uncontested status as GOAT [Greatest Of All Time] in football, this card is an important piece of sports history and of any collection.”
A Unique Status Symbol
As collectibles are always limited in supply, it means that it’s difficult to acquire them. This is especially true with items that are one-of-a-kind, like a work of art, or anything produced in very small quantities.
As art marketplace Widewalls put it:
“Rather than having something “ordinary”, something that everybody (who has money, of course) can buy (i.e. big houses, expensive cars), billionaires are looking for possessing something unique (...) They want unique, expensive things that no one else could have.”
The human need to acquire social status and show off is deep-rooted in our psychology. Humans want to elevant status in order to feel good about ourselves, impress others, or attract members of the opposite sex. As long as this need exists and a growing class of millionaires and billionaires have the means to acquire unique items at high prices, the market will likely keep thriving.
“The highest compliment you can pay a guest is to open a bottle of Petrus for him or her.” - Sotheby’s Head of Wine
Collectibles can also be acquired with investment goals in mind. Depending on the asset and price history of the collectible as an asset class, the goal could be seeing the item increase in value, or having the item retain its value throughout economic downturns. As collector items will have intrinsic value to collectors, they can help protect against inflation.
Scarcity & Diminishing Supply
One of the main reasons that collectibles are so highly valued is due to their scarcity. As long as there is more demand than supply, prices will likely remain high or increase.
Luxury brands such as Rolex and Hermes artificially limit supply in order to maintain a sense of exclusivity. Both brands are family-owned and it only makes sense that the families care deeply about long-term value, rather than making a quick buck. Long wait lists are common and brands like Hermes have even done away with their wait lists and simply made it almost “impossible” to buy due to extremely limited supply. As a result luxury handbags have increased in value by 108% over the last 10 years, according to the Knight Frank Wealth Report.
When it comes to fine wine, some of the most famous producers like Petrus only produce 2,500 cases a year. They are unable to expand their business as it can only be considered Petrus if it is produced on the specific plot of land. In the case of wine, not only is the supply limited, but as bottles are bought for consumption, the number of bottles will continuously diminish. A wine collector wanting to purchase a certain vintage (wine from a specific year) will have to pay a higher price as supply decreases.
Several macroeconomic factors contribute to the popularity and prices of collectibles. Two key factors include 1) the ability for people to purchase an item and 2) the motivation to buy from an investment perspective.
In terms of ability to purchase, over the past decade the number of billionaires has almost tripled and the number of millionaires is booming too, and it’s expected the growth will continue. These are strong signs that there will be no shortage of demand for luxury goods and collectors items.
When inflation rates are high, there is more reason for people to buy items that retain their value, as cash loses value. Perhaps you’ve heard people speak of gold as a “safe haven”. It’s traditionally seen as an asset used to diversify an investment portfolio and something that retains value throughout economic downturns. The same holds true for collectibles and arguably the rationale here is even stronger: collectibles will be valued by collectors for their beauty, sentimental value, utility or status-elevating capabilities, and therefore have intrinsic value.
Trends can drive the value of collectibles. Prices can increase at an astonishing rate when an item is on-trend. For instance, in 2020 trading cards have seen an enormous increase in popularity, with celebrities and online influencers getting in on the action and further driving up their prices. This has led to items such as rare Pokémon Cards being sold for $300,000 and sports cards being sold for millions; cards acquired for a little over $300,000 just 5 years ago are now worth over $5 million.
In the last paragraph we discussed trends. While investing something that goes on to become a big trend can lead to high returns, buying into trends also poses a risk as it can turn out to be a short-lived hype. Whereas the value of, for instance, vintage Rolexes has thus far withstood the test of time, other items have fared less well. This seems to hold true particularly for more niche items: antiques, art and furnitures in specific styles or from specific time periods. The same counts for some “hyped up” collector items such as CryptoKitties which at one point sold sky-high prices, but quickly lost value later.
Industries with a few stable key market leaders, such as fine wine, whisky, handbags and watches have so far proven to be less volatile over the years, particularly when it comes to the items produced by the biggest producers, though historical performance is not a guarantee for future returns.
Most collectibles have generated positive returns over the past 10 years, with rare whisky showing the highest returns of 478% over the past 10 years, according to the Knight Frank Wealth Index.
Below is an overview of the returns that some of the most popular collectibles have generated over the past 10 year and over the past year (2020).
In this article we’ve explained what collectibles are, why people buy collectibles and what drives the value of collectible goods. Excited to get started with your journey into buying collectibles? Sign up for Koia or learn more in our beginner’s guide to investing in alternative assets.
At Koia, we allow you to start investing in tangible assets for as little as €50, via fractional investing. Our experts make sure to source and buy the best assets, and we take care of authentication, storage and insurance. All of the benefits, with none of the hassle.
The articles and information made available on Koia are provided for information and educational purposes only and do not constitute financial advice. You are advised to consult with an independent financial advisor for advice on your specific circumstances.