Investments of Passion - Heritatum Collectables Ltd

Investments of

Where Collecting and Investing Collide

Whilst the market for ‘collectibles’ covers items from the earliest of times, their journey as an investment class is a relatively modern one.

Collecting the finest examples of any given asset was historically the preserve of a small number of ultra-wealth landowners, particularly with the creation of the ‘Grand Tours’ of the mid 17th century. Thanks to the industrial revolution, newly wealthy industrialists and the growing middle classes, ‘collectibles', whether art, coins, books or stamps, were increasingly sought after by a much wider collector base, many of whom aspired to own items they could only dream of as children. This not only created some of the most popular hobbies, but in-turn also drove prices up.

Over the last 50 years the unprecedented wealth creation, particularly in the West, has been the major driver for collecting rare and high-quality items, but with very few buyers using them as an investment vehicle. With factors such as the low interest rate environment and the prevailing concern with stock market, (and this was pre COVID-19), they are no longer outlier investments.

Whilst almost anything can be viewed through the prism of collecting, when it comes to investing, you want a healthy, (and ideally growing), collector base. It’s therefore best to concentrate on items such as coins, stamps and books where there is a global market with a large number of participants.

Who Invests in Collectibles?

Whilst investing can work for a wide range of individuals, the market for rare collectibles is naturally dominated by the wealthy. ‘Barclays US Wealth’ estimate that globally, on average, 9.6% of their clients' assets are held in what they term 'Treasure Assets’. This percentage varies by geographical location and in some countries can be as high as 18%.

My clients range from celebrities through to financiers, but one common characteristic is a strong independent mind of the type you often see in entrepreneurs. The reason is simple – collectibles are outside of the normal investment sphere. This makes them appealing to someone who is comfortable in making their own decisions and, at times, going against the grain. It is also very rare for a wealth manager to recommend collectibles, rightly in my opinion, as they have no knowledge or specialisms in these areas, which removes many ‘normal’ investors from the market.

In reality anyone can be an investor in collectibles. They just need to understand the risks vs rewards and be interested in a rewarding journey.

An exceptionally rare ‘Spur Ryal’ from James I dated 1619/20. Only 20 of these coins are believed to exist and this is one of the finest known. The Royal Mint recently sold an example for £162,750.

Investments of Passion

How technology has changed the Markets

Technology has had a profound impact on the collectibles' markets and more specifically, the opportunity to invest over the last 20 years. When it comes to investments, there are two areas where impact has been most significant - the way items are traded and the transparency of information.

The internet, from platforms such as eBay through to auctions being held online, has been a major catalyst for change in the way items are traded. The increased access to items has opened up the markets to many more people and the hobbies have, in many instances, grown in popularity. This increased access has also provided a healthy level of liquidity to the markets and helped push prices higher.

Arguably, the most important change for investors has been the increase in the transparency of information. Until recently, only experts would have had the knowledge of historic prices and whether an item was priced low. Now, with access to historic auction realisations and the ability to see comparable items available for sale, individuals have powerful tools in the decision-making process that can be used to their advantage. Technology will inevitably continue to have a major impact going forward. We can’t yet be sure how things will change, but there can only be upsides for investors with more people coming into the market and putting upward pressure on prices.

An extremely fine ‘William and Mary’ Guinea struck in 1694 (the year Mary died of smallpox). As they ruled together this is a rare example of a coin showing ‘co-regents’.

The appeal of collectibles as an investment

For any investor, the decision to take a position is driven by either the search for returns or for wealth preservation. Rare collectibles are one of the scarce asset classes where the upsides can be significant, but the downsides have historically been minimal.

Knight Frank track the prices of a basket of assets in their ‘Knight Frank Luxury Investment Index’, which range from coins through to classic cars and jewellery. This shows overall growth of 141% over the last 10 years with no asset dropping in value over that period. Stand out performances come from cars (194%), coins (175%), and art (141%). Of course, this takes an overall view, and within this it would be possible to make much greater gains by choosing carefully selected items.

One of the major advantages of collectibles is that they are truly un-correlated. Because these assets are driven by the passion of collectors, they are outside of the ‘fear and greed’ investment cycles and can perform even when stock markets are in turmoil. These same collectors also provide a solid backstop in any collectible market downturn. With diversification now being a key consideration in managing investments, the inclusion of collectibles can add extra protection to a portfolio.

They are also under-priced. This does not apply to all collectibles, but when you consider that only a few dozen coins and a small

One of the greatest stamps of the British Empire. An stunning £100 stamp from KUT (Kenya, Uganda & Tanganyika) with only between 4 and 10 believed to have survived.

number of stamps have achieved seven figures, they seem undervalued in comparison to items such as art.

There is one area in which collectibles have an edge over all other investments – their ability to provide ‘emotional returns’. It may seem a strange notion that you could enjoy an investment, but ‘emotional returns’ are a rarity in the world of investing and an underrated upside. The only other investments that may come with a sense of wellbeing are ‘sustainable’ investments, but these are far less personal than collectibles. It might be that you have an interest in history and therefore buy coins that include an iconic figure such as Alexander the Great, Julius Caesar or Henry VIII. You might have a thirst for travel and buy stamps from countries that no longer exist such as Ceylon or Persia. You have an interest in a particular subject so buy books on calculus or an individual author so concentrate on First Editions of H.G. Wells or Roald Dahl.

I also find that when an investor actually owns an item, there is great peace of mind in the knowledge that they hold something tangible. Other investors also find intellectual rewards from building a highly personal collection that lets them delve into history or indulge a passion.

Collectibles can provide impressive returns, as well as a level of enjoyment rarely seen in the world of investments. Furthermore, because prices are generally stable, there is a piece of mind only usually found with investments that have a fixed and limited upside. There are, of course, disadvantages, (such as a lack of liquidity), which must be considered as part of the decision- making process. Collectibles would seem to have it all and there are certainly few investments where you can enjoy the journey as much as the destination.

The difference between investing and collecting

It may sound obvious but there is a significant difference between investing and collecting. The challenge for many is that collectibles tend to blur the lines between the two. The key differentiator is motive – the heart drives collector behaviour, whereas the head rules when it comes to investing. The two rarely run in parallel!

I often come across people who consider themselves a ‘collector investor’. In my experience, very few actually fit into that category and most are actually a ‘pure’ collector. These clients are trying to convince themselves that spending their funds on a hobby is a prudent financial decision. This in no way detracts from a worthwhile pursuit, but if they wish to invest, they will often have to look outside of their collecting interests. It is also worth remembering that collections, by their nature, will usually span a whole range of the market. This means that a unique, high value item, will sit next to one that is widely available and low in value - this only makes a portion of the collection fit the criteria of ‘investment ’.

If you want to be a ‘true’ investor in collectibles you have to take a more structured approach and be driven by both qualitative and quantitative information. Whilst this does remove some of the romance, it makes it more likely that you will ultimately own a selection of quality items. There is also no reason you can’t indulge and focus the investment in an area you personally find interesting (ancient coins for example), but you just need to make sure the items purchased fit with the definition of an investment item.

In short, a collector uses a spreadsheet to catalogue their collection, whereas an investor will use it to consider price histories and spot trends.

One of the great stamp rarities of China’s People's Republic. Issued in error in 1968. A true icon of Chinese philately.

What Should I Buy?

This is the question I get asked the most. In truth, there is no silver bullet and there are no guarantees. Coins, stamps and books for example all have different merits and it is worth considering a mix of these to hedge yourself. Each item will perform individually over differing timeframes. There are, however, some rules to follow to put you in the best stead.

Firstly, only buy rare items that are in the finest condition available.

Secondly, items should be in a growth area (this can be in either popularity or geography).

And finally, the price must be right. If you overpay at the start, it will seriously hamper any opportunity to make returns.

The best course of action is to speak with an advisor such as myself who can advise you on the best way forward. If you are determined to ‘go it alone’, then it is worth thinking about some key considerations alongside the ‘rules’. These considerations range from the potential liquidity, the timeframes for hold and the spread on both buying and selling.

You must also carefully consider the source of the items and your intended exit strategy, as transaction fees will make or break the purchase as an investment.

The Outlook

With the long-term impact of COVID-19 on the global economy yet unknown and with the prevalent geopolitical risks, it is easy to argue there has never been a better time to start buying collectibles as an investment.

With governments having done everything in their power to calm markets, the excess liquidity has caused many assets from stocks through to Bitcoin to spike. This creates a dilemma for central banks who will have a tough time managing the tapering of their bond-buying programs and means the markets will be easily spooked.

Should even a small percentage of investors decide to take their gains from these high growth assets and place funds into collectibles, it could have a significant impact on prices.

In conclusion, if you combine the current economic environment, with both the potential for returns and the pleasure you can derive from owning these pieces of history, there are clearly few investments out there that can beat these ‘investments of passion’.

Please note: All items featured in this article are available for purchase from Heritatum.

Heritatum Collectibles Limited was started by its founder, Brett Pitcher, in the belief that things could be done better.

He noticed mass inefficiencies in the collectibles markets for both collectors and investors so set out to make the experience not only more enjoyable, but also fairer for both buyers and sellers.

Specialising in helping individuals and enterprises invest in, and build, highly personal collections, Brett has placed some of the rarest stamps (including Britain’s rarest stamp in 2019), coins and books in existence.

Brett has a passion for collectibles and this translates into helping clients on what is guaranteed to be a fascinating journey.

He can be contacted on info@heritatum.com , on 07738 444880 or visit the website www.heritatum.com