Savvy investors are mixing their passion with opportunities to rake it in with watches, cars, vintage tees, sneakers and even cards. What’s driving this alternative investment boom?
Back in 2013, The Edge Media Group’s Personal Money magazine looked into the viability of several alternative investments. The article quoted Ronald Chiew, a Malaysia-based collector of watches and classic cars, saying: “The value of currencies rise and fall every day, but a Rolex watch will always be one wherever you are. Watches are tangible investments that you derive pleasure from, compared to generic financial instruments that amount to only pieces of paper in physical form.”
As for classic cars as an investment, Chiew said: “Year after year, [the numbers of] these cars only get fewer, and that’s the value of it.”
At the time, Chiew had over 100 watches in his collection and did not entertain any thought of selling his watches. The way he saw it, just as long as he could afford the maintenance to keep them, he would hold on to them.
“I’ll pass it down when the time comes for me to let go. All investments are like that. It’s not for us, but for our children,” he said. “Trends come and go, but essentially you can’t change time. For that reason, watches are always going to be something collectible.”
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The Edge Singapore recently got in touch with Chiew again. His collection of watches has since grown to over 400, while his classic car collection has remained at over 30 due to space constraints.
Today, however, he is considering selling some of his watches. “I might sell some of my watches soon, but that’s because I’m running out of space to keep them,” says Chiew, adding that if and when he does sell any of his watches, he is sure to make a profit.
Collecting watches and classic cars, along with his keen interest in the industries, is one of Chiew’s preferred ways of investing his money.
Personal Money, Issue 148, June 2013
Typically, investment products include intangible assets such as stocks, bonds, funds and cryptocurrency, while common tangible investments include commodities such as gold and foreign exchange currencies. In this issue, The Edge Singapore looks at the collectibles market and alternative investments that are far different from what investors today are used to.
The term “collectible” is a broad term that essentially means an item that is valued and sought by collectors. These items are usually old and considered to be antiques, but can also be new items that are produced in a limited quantity.
According to data from online platform Market Decipher, the global collectibles market was estimated to be worth about US$372 billion ($505 billion) in 2020. At the time, it had a total addressable market of US$440 billion, underlining its potential for growth.
This was thanks to the pandemic-driven boom in e-commerce and online sales of collectibles, as consumers were more inclined to spend on their “passion investments” with the disposable income they would have budgeted for oveseas holidays pre-Covid. This growth trajectory for the collectibles market is expected to sustain through the coming years with new trends positively impacting growth. Market Decipher expects the collectibles market to grow by a 7% CAGR from 2020 to 2028 and reach some US$522 billion in 2028.
Already, 2020 saw the highest global online sales in the art and antiques market in the past 10 years, as it clocked in US$12.4 billion, more than double that of the previous year, according to data from Arts Economics, the research and consulting firm focused on the art economy. Though the growth rate is expected to slow down this year, the online antique market is still expected to be worth more than US$10 billion by the end of the year.
Hence, it is no surprise that many collectors and investors are jumping on the bandwagon to profit from these rare items.
The shift comes at a time when financial advisers are recommending that investors allocate 5% to 10% of their portfolio to the asset class. Not only is it a form of diversification, but it also acts as a safe haven with a reasonably good track record of capital appreciation.
For example, between 2005 and 2019, collectible classic cars were the top performers in the segment. Their returns in that duration were 246%, followed by rare coins at 230%, fine wine at 199% and classic watches at 126%.
“It seems that these alternative investment assets are the investment of choice for a lot of people in this generation [millennials and Generation Zs],” says Jackson Aw, founder of local toys and art collectibles studio Mighty Jaxx.
“I think it is because they relate to it. They grew up with these and have a genuine passion for them and a natural affinity towards these assets. If you think about it, several others would have gone through the same thing. And when you have millions of people who like the same thing and there is only a limited set amount of these collectibles in the market, then it naturally creates an economy by itself,” adds Aw, who notices that this does not just apply to collectible figurines, but also other lifestyle items such as sneakers and trading cards.
Aw recalls that several traditional investment products introduced to him only yield at most 7% annually — a decent level of returns by most measures. Yet, Aw finds it rather unattractive. On the other hand, he has seen the value of sneakers and figurines shoot up by 100% or even 200% annually. “These items see great demand and you can liquidate them whenever you choose to. The supply-demand mismatch is so great. The potential for these alternative investment assets are so high that it is difficult for regular investment products to match. I think that this is going to change the way of how investing is going to be,” says Aw.
Hence, it goes to say that most of these investors or collectors already have a passion for the items that they are collecting, as the act of hunting down the investment pieces is often a hobby on its own and part of the thrill.
Demand-driven
Typically, the value in these products lies in the second-hand market, when other collectors ascribe a higher value to the items because of their rarity. As long as the market ascribes a higher value to the product than its retail price, there is much to gain from owning these items that are usually limited edition or special edition, or have a long waitlist to procure.
Just like stocks, the prices of the items, be it luxury handbags or watches, are driven by the market’s demand.
According to Dominic Khoo, founder and resident watch expert of The Watch Fund, there are four factors for watches to be considered an investment-grade piece.
Firstly, it is about access. This is when buyers have first dibs to obtain a piece before it hits the market. This usually involves having a special network or some agreements with retailers or manufacturers.
Secondly, leveraging on the relationship one has with retailers or distributors, price arbitrage is another factor, as being able to secure a piece at cost price or below market price means the piece can be resold for profit. Another possible way to get a piece at a favourable price is also by having the scale and resources to buy in large quantities.
Thirdly, the availability of the piece can also drive the price higher in the second-hand market. Limited edition pieces can easily fetch a higher price in the market as these pieces are usually reserved for VIPs as defined by the sellers themselves, or those with exclusive access in the industry. Most of these are “money cannot buy” pieces and are collectors’ items, hence those who have them are likely to sell them.
Lastly, the fourth factor is provenance pieces. Once a famous person, such as royalty, historical figure, athlete or actor, has previously worn or autographed an item, it may become a special piece that can fetch a hefty price.
These four factors mentioned by Khoo seem to apply not only to watches, but also several other passion investments. For instance, the demand for luxury handbags from Hermès has spiked some 430% this year alone, according to fashion platform Vogue.
These handbags are easily considered investment pieces because each bag is customised and handmade to perfection. Similar to some luxury watches, making the items by hand takes a long time. While demand increases, production is stagnant as it depends on the speed of human labour — and as these brands take pride in their craftsmanship, the manufacturing process is never rushed.
Hence, the waiting list for these highly sought-after handmade items can go on for months and years until one finally gets their hand on a brand-new one from the retail store. With that, the second-hand market booms for those without the access to get on a waitlist and those without the patience to wait.
However, just like any other investment, there are still some risks to collectibles, such as the market not ascribing a higher price to the item and the difficulty to liquidate it.
The way Chiew sees it, this is where passion comes in when buying collectibles. “Just like any investment, you should not put all your money into it. And if you find that one of your collectibles is not increasing in price or gaining profits, it does not matter, because you would have bought it because you liked it. The beauty about it is that you can just hold on to it and actually enjoy it as an art form,” he says.
Photo: BOVET/XM STUDIOS/ HEENJA’S CARDS/DEATH THREADS
