15. April 2020

Should Collectible Cars and Watches be considered as Alternative Investments?

Who would have thought that at the end of 2019 a virus could trigger such a worldwide pandemic? Lockdowns everywhere, the number of infected people is increasing by several thousand each day, the global economy is at a standstill and the stock market is at its lowest point since the financial crisis of 2008.

In times like this, where people lose a sizable amount of money in the stock market, there is always a question of alternative investments. So, over the past few days I had several discussions and phone calls with clients and friends on whether cars or watches could be considered as alternative investments and what role collectible items will be playing in the future. I exchanged a good amount of thoughts with our clients and here are some of the insights I’ve gathered.

The price of a share is based on supply and demand within the stock market – basic economics that I’m sure you paid attention to in the classroom. So, let’s take Tesla as an example. The Californian company has made several breakthroughs in the electric vehicle industry and, as such, investors started to believe more and more in the company and bought stocks to hopefully sell it at a profit in the future. The more people believe in the innovation and technology of Tesla, the higher the price and vice versa.

In recent weeks, investors panicked as a result of the impact of COVID-19 on business operations worldwide. This literally triggered a wave of panic, thus, causing the entire stock market to collapse. The rest is history.

Well, when it comes to collectible cars, watches or even art as an alternative investment the game of supply and demand applies as well. But there is another component to it, which we call EMOTION. For rare objects like a Da Vinci painting or a 250 GTO or an old Patek Philippe Reference, you also pay for the history of the object, which is in turn attached to an emotional value for avid collectors worldwide. That’s the reason why art, collectible watches and cars gain value over time.

Companies come and go, and so does their product or technology, as they are substituted by competitors or they get redundant due to innovation on the market. Whereas each Da Vinci is a piece of history and will never be replaced by any other painting. In reading this, you might ask yourself “but what’s the right price for such a rarity?” Is it reasonable to pay almost USD 12 million for a Patek Philippe Philippe Ref. 1518 or USD 60 million for a Ferrari 250 GTO or millions of dollars for a Rembrandt painting? For most people it’s not; but for collectors, it is because of the emotional value.

The more people share this emotional value, the higher the price of the object. Imagine you own one of only three ever produced Ferrari F50 GT (read the full article here) and you are the only owner, who wants to sell it. Whatever your emotional value is becomes the market price. And as long as you are not facing any financial difficulties, you will not sell the car until someone is willing to pay this emotional value you’ve set.

So, let’s get back to my initial question on whether a collectible car or watch is a good alternative investment. The last few weeks have shown that global stock markets can be directly influenced by political uncertainty and other exogenous factors, such as the current epidemic. Sophisticated diversification, especially in terms of alternative investments, are therefore becoming increasingly important. Even in times like this, a rarity stays attached to its emotional value.
So yes, collectible cars, watches and art are a good alternative investment and they will gain importance not only for collectors worldwide but also for companies who work with High Net Worth Individuals (e.g. family offices, private banks etc.) because collectible items will be a serious component of one’s investment portfolio.

The Collectors Circle is happy to assist in case of any questions during this difficult period.

Stay home, stay healthy.

Photography:
Mercedes-Benz SLS Black Series Image by Stephan Bauer IG: @stephan_bauer 
Rembrandt Image by Louvre Museum
Patek Philippe Ref. 1518 by Hodinkee
Ferrari 250 GTO by RM Sothetbys

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