What are Collectibles?
If you have a lot of storage space, your attic and garage may be stuffed with old furniture, books, and other items you've held onto over the years. At first glance, it may just seem like nothing more than a pile of junk. But, if you rummage through carefully, there may be a chance that you're sitting on a few valuable collectibles just waiting to make you money.
Collectibles are items that are worth far more than their original sale price and are considered alternative investments ie. they don't fall into any other category like stocks, bonds, cash, or real estate. Investing in this asset class can be both rewarding and help you maximize your returns. But it helps to know some of the basics.
This article looks at collectibles as an investment and helps you decide whether this emotional market is a good place to park your money.
All Things Old Made New Again
A collectible is anything that can be sold for more money than it was originally worth. These are items whereby their value increases over time. While they may be rare, some items are mass produced to become collectibles, think Beanie Babies when they first hit the market.
Another trait collectibles have is that they pique the interest of collectors, like photographs and many works of art. In order to get the most money from a collectible, the owner must ensure it's in stellar condition. Trading cards, stamps, and comic books are just some of the most well-known collectibles around. Here are a few specific examples:
A young Allosaurus dinosaur found itself mired in a sink hidden beneath the underbrush. Millions of geological ages later, an amateur paleontologist helped him out—or at least what was left of his head. In 2005, the Allosaurus' restored skull sold for the price of $600.
Honus Wagner of the Pittsburgh Pirates hit his tenth home run and ended the year with a .354 batting average, marking one of the best years of his career. The next year, the American Tobacco Company commemorated Wagner by putting a trading card inside its cigarette packages. Less than 60 made it into stores before the world found out that Honus was vehemently against smoking. In 2000, Wagner's cigarette trading card sold on eBay for $1.1 million.
Stan Lee created a superhero who worried about paying his rent, his ailing aunt, and passing his next test at school—all in addition to saving the world. Peter Parker's misadventure with a radioactive spider hit the stands with a $0.12 cover price. In 2006, the first edition of The Amazing Spider-Man was among the most valuable comics with a price of around $6,000 or more, according to Wizard: The Guide To Comics pricing guide.
While there is no denying the thrill of owning a juvenile Allosaurus skull, is collecting really a form of investment?
All That Glitters...
So what do a fossil, a comic, and a baseball card have in common? Most people have no qualms about calling them collectibles.
But when you speak about diamonds, gold, and other precious materials, people tend to call them investments. In theory, these materials and even stocks could be termed collectibles because their price is based more on what people are willing to pay for them, known as their market value, rather than on their actual intrinsic value ie. the calculated or perceived value of the good. In the practical world, precious metals and stocks all have an intrinsic value.
For metals, this value is based on rarity. If you melt it, burn it, or bend it, you still have the same atomic substance in the end. For stocks, the value is produced by the underlying brick and mortar company that the share represents—a company that generates earnings to justify the prices you pay for its stock.
What makes collectibles different is that even a little damage can erase all of a collectible’s value. This is because a collectible's value is based on nostalgia and other emotional factors which can be as erratic as they are powerful.
Collectibles that are in pristine condition are valued higher than those that aren't. So the value of a baseball card that's scratched or torn up is much lower than one that is still in its original condition.
The 20-Year Itch
It's believed that nostalgia runs in 20-year cycles. In other words, the things that are popular now will become collectibles in 20 years when people want to reconnect with their past. This doesn't mean that you can buy the top 10 items from consumer polls, incubate them for 20 years, then sell them for a fortune. If this were the case, everyone would be rich.
So what's the takeaway?
Some items this year will become collectibles if they meet two conditions: Rarity and appeal.
Rarity is becoming more difficult to find as mass production methods allow companies to fulfill demand without incurring an extra cost. Eg. Beanie Babies have devalued as more and more product lines are introduced.
Appeal is also a difficult thing to nail down. To make money at collecting, you have to predict what will become popular in retrospect perhaps something that isn't in high demand now will become popular in the future, either because they are rare or they were not fully appreciated when they first came to market. For example, in the 1950s and 1960s, wing-tipped plastic sunglasses with glass lenses were sold for a few dollars in drugstores, but they can now fetch hundreds of dollars in collectors' markets.
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