Collectibles As Investment Assets

Owning unconventional collectible assets can be a delightful experience. Besides the joys of ownership, their returns are reasonably good, but risks including liquidity are also elevated

Their otherworldly qualities attract investors. Alternative or unconventional asset classes –including the art, vintage cars and comic books that we’re covering in this section – are markedly different from financial assets because they’re also collectibles. These collectibles help investors diversify risks while enjoying something connected to their passion. Other popular unconventional assets include wine, stamps, coins and musical instruments like violins and guitars.

The uninitiated should ponder a few things before acquiring these assets for their long-term return potential. Firstly, because Sri Lanka’s market is small, these usually illiquid assets are even more difficult to dispose. Finding a buyer for a rare vintage car is far more challenging here than it would be in a larger market. Transaction costs are often higher than for financial assets, and collectibles incur insurance, storage and maintenance costs. Secondly, some collectibles, like vintage cars, can’t benefit from foreign demand because they can’t be shipped overseas, and other types of collectible assets may have limited appeal to overseas investors. Comparatively, buying, managing and disposing of financial assets is more straightforward, irrespective of the investor’s country of origin.

However, investors derive an enjoyment from collectibles than they can never derive from a share certificate. Art can be displayed in the home and a classic car can be driven during the weekend – albeit carefully.

More recently, the definition of alternative assets has grown to include investments like private equity, venture capital and hedge funds. But these new alternative investments are all financial assets.

Besides diversification, non-traditional investment valuations tend to move in the opposite direction to financial markets, helping a portfolio sustain volatility better. Since there isn’t always a market, a sharp investor can seek out more arbitrage opportunities because alternative assets are often mispriced.

SUPERHEROES AS INVESTMENTS

Comic books, usually a childhood passion, can also be an investment. But there’s more to this geek passion than mere accumulation.

A few years ago DC Comics, one of the two top comic publishers, pressed the reset button. Every one of its 52 series restarted from scratch, including the storyline. Aman Ashraff, a Sri Lankan fan of all lycra-clad heroes and villains obtained the issues he expected to be later sought after, including the new No.1’s of Batman, Superman, Action Comics, Swamp Thing and the Detective Comics. Ashraff thinks each of these issues are worth $100 now and that their prices will appreciate.

super-heros-343Cartoon superheroes aren’t mere childhood fantasies. Millions of their fans are now paying premiums for collectibles from rare and important comics to action figures and statues. A declining industry in the 1990’s has also reversed course due to a string of blockbuster movies that have won millions of new GenY fans. A geek fantasy has now gone mainstream.

Comic book collectors start as fans. A gift of a comic or one lent by a friend sparks a journey into a fantasy world, but they soon discover there is more to heroes and villains than is obvious to the uninitiated. Soon they start identifying with the superheroes that share their own insecurities, complexes and strengths. When fans start bartering for stuff they want and learn what drives prices up and down, they turn from purely comic book fans into investors. This often happens when they are young.

In 2013, a copy of Action Comics No. 1 – the first appearance of Superman, published in 1938 – sold for $175,000. In 2002, Hollywood actor Nicolas Cage found himself in a financial tight spot and sacrificed his comic book collection. An auction combined with private sales brought in a whopping $2 million. But not all comics are created (or preserved) equal. While some can be sold for thousands of dollars, others trade hands for mere dimes and pennies.

The writers and artists who create them determine a comic book’s valuation in the future. Usually a comic sells for about $3 in the US, but if a famous comic book artist like Greg Rucka or Stan Lee signs it, the price skyrockets. New York’s top comic book vendor sells a Stan Lee autographed comic for $500 per issue.

Comic issue number also matters. Those very first issues from the 1930’s are valuable because wellpreserved copies are rare. Fewer copies of a title were printed then and, because children were the main consumers, they were easily damaged or lost. The few preserved by collectors – or discovered decades later in someone’s attic – are valuable.

super-hero-dLimited run special issues and ones that launch a character – for instance, the issue in which Wolverine appears for the first time in a Hulk comic – tend to appreciate in price much faster. Like in all book collecting, the comic’s condition matters too. A pristine copy and one with a minor tear of the same issue can fetch vastly different prices.

Ashraff who is Chief Creative Officer of Ashraff Associates – a design studio and advertising firm – was a child when he became a fan and investor. After moving to the UK and discovering specialty stores for comics and related collectibles, he became an avid collector. As he collected, he gradually learned the different values attached to items and the art of collecting comics as an investment rather than just a hobby. Most regular issues – even in a decade – will be relatively worthless, he says.

Today, Ashraff has a vast collection housed in a cave-like room at the top of a tower that rises from one corner of his home. Filled with floorto-ceiling shelves of comic books and red-painted walls lined with movie posters, the space doubles as his own studio and the office of his business, Ashraff Associates. Questioned about keeping his collection in a space through which many people walk in and out, he says that he needs to be around what inspires him – and inspiration plays an important part in his line of work. “If I was in a conventional office, I wouldn’t be as inspired as I am when I work here,” he says.

For Ashraff, part of the pleasure in collecting comic books and related collectibles is also people seeing and admiring them. “If I got a number one issue signed by Stan Lee, I’d put that in a bank vault, as it’s too valuable to keep,” he says. “But part of the pleasure in collecting comics is having them around me. Everyone who comes here thinks it’s a really cool office. Sometimes when I’m bored in the night, I come up here and read one of them. If they were preserved in a bank vault, I wouldn’t be able to enjoy them.”

Ashraff points out that there’s a misconception that comic books are for kids, which isn’t true. Of course, many of them can be enjoyed by children too, but some storylines are purely for more mature audiences. “Comics provide a lot of entertainment,” he says. “I find my imagination taken to another level when I read them.”

 

EXECUTIVE STRESS RELEASE

Classic cars bring a unique happiness unmatched by most other investments, however large their return.

For petrol heads, the potential for value escalation of a classic car is just one half of the equation. A classic car is an icon of power, beauty and speed and an irresistible flame for someone in whom automotive passions burn. This lure is the second half of the equation and often the one that influences a car collector to choose this over any other investible asset class. This is a tangible asset – a collectible – and comes with the joys associated with show gloating rights associated with collectibles. Equity and bondholders don’t invite their friends over to share the joys of their investments; classic car owners do.

exec-stressClassic cars are a formidable asset class in Sri Lanka even in purely investment terms because of their value appreciation. New cars quickly depreciate, but classic cars can appreciate by 20% to 25% within a few years unless they’re neglected, according to enthusiasts. Internationally, classic cars are also seen as a secure alternative asset and often beat fixed income security returns. The right classics can outperform most average asset class returns. This is also true for Sri Lanka, but it’s useful to appreciate the unique dynamics of this market. A one-year age limit on used car imports here restricts classic car imports. Importing a very old car requires special licenses, which are hard to come by, so only a handful is brought in each year. Meanwhile, the number of existing classics are deteriorating each year.

Because Sri Lanka’s classic car market is a closed and rather small one, its idiosyncrasies are amplified. Sri Lankan collectors have a penchant for classic sports car convertibles, which has inflated the prices of these compared to global valuations. Enthusiasts say it doesn’t make sense for a Sri Lankan investor to amass a large collection of this type. They also feel the Sri Lankan market has some classic cars that are relatively undervalued, because of a large supply here. Volkswagen Beetles from the mid-1950’s to the mid-1960’s and Mercedes saloon cars from the 1970’s are two examples. These two models are comparatively better investments, as their prices may appreciate much faster than those of expensive classic cars.

Here, the passionate collector is usually a successful businessman, and there are possibly only half a dozen outstanding collections. However, the pursuit isn’t entirely limited to the elite collector. Often petrol heads with flaming passions make a long-term commitment to restoring and maintaining one or two exquisite but aging beauties. If they pick the right and affordable car for that long-term relationship, the payoff can be impressive.

Some potential long-term deals may be found in Japanese cars from the 1960’s and early 1970’s. Some of these models are affordable and part with current owners cheaply here. But they’re hard to find internationally, and their prices are appreciating quickly. Meanwhile, the prices of prestige limited edition Mercedes, Porsche or Ferraris appreciate much faster than medium or low-range classic cars. Since people buy them for prestige, they’re easier to sell as well.

While there are many classic car collectors in Sri Lanka, few people collect vintage motorcycles. Some classic motorbikes are much more expensive than classic cars. Well-maintained classic motorbikes are more difficult to find than classic cars, as they’re more likely to have met with accidents and damage. A vintage motorbike in good condition is a gold mine. They’re also easier to maintain and store.

At the end of the day, though, what’s usually uppermost in a classic car investor’s mind is the pleasure these investments bring. “It’s very nice to drive these vintage cars,” says Kapila Jayawardena, the Chief Executive of LOLC – a diversified firm with major interest in finance – who owns 45 classic cars and motorbikes. “People stop their cars and watch. You always get right of way – even from bus drivers and three wheel drivers! Because it takes them back to their childhood. They remember their parents or grandparents using these models, and it brings tears to their eyes.”

 

BETTING ON BRUSH STROKES

Sri Lanka’s contemporary art scene is catching on in the rest of the world, but collecting fragile works of art isn’t very easy here.

For anyone looking to invest in contemporary Sri Lankan art, now is the time to dive right in. Sri Lankan art is poised on the cusp of something much bigger. Last year, a representative of the premier London auction house Christie’s came to inspect the island’s art scene, resulting in curators from around the world visiting to write about the art being produced here. International interest in contemporary Sri Lankan art is quickening, which can be seen in the upward momentum of prices in the past few years. Industry insiders estimate an average 10% to 20% appreciation every year. Some artists have appreciated 600% in value since 2009, but these are a few special cases.

800_0259This movement in the Sri Lankan contemporary art scene has a lot to do with the growth of the post-war economy. It is only natural for people to look at diverse investments as the economy and stability pick up. There have always been art collectors in Sri Lanka, but recent years have seen a sudden boom in younger collectors looking for newer art. At the same time, there has been renewed interest in Sri Lanka from abroad, among foreigners and Sri Lankan expatriates alike.

Gallerist and curator Saskia Fernando has not only watched this change, but has probably been a key enabler.

“Right now we’re looking at a turning point where the value of contemporary art is appreciating,” says Fernando. “This is happening alongside a growth in interna – tional interest. We also see more profes – sional galleries, and local and interna – tional exhibitions. Sri Lanka is grabbing the attention of auction houses such as Christie’s, who’ve been watching the Sri Lankan art scene and waiting for this turning point. When they start to pick up on something, they start featuring the art from the country in their auctions.”

Fernando has already seen a large price appreciation in Sri Lankan con – temporary art even in the few years since she opened her gallery in 2009. But she thinks that it is still at a good entry point even today because it is still affordable compared to international prices. At the start, a majority of her buyers were foreign, but this has gradually balanced out, with more and more local collectors driving the prices and movement in the space.

betting-on-brush-strokesCollecting art is, of course, as old as time. For centuries, those with excess money have collected or even commis – sioned artworks for various reasons: decoration of their homes, the prestige of owning something delightful and pre – cious, the altruistic pleasure of supporting struggling artists, egoistic satisfaction from owning a piece of artistry and el – egance, or a combination of all or some of the above. But there has also always been the additional factor that money spent on art is usually as safe as money invested in something more prosaic like land or equi – ty – with the additional pleasure of being able to enjoy the beauty it purchases.

Unfortunately, Sri Lanka’s climatic conditions are not the most suitable for preserving works of art. The heat and humidity can warp paper and other ma – terials on which paintings and drawings are made or corrode sculptures. Anojie Amerasinghe has been collecting art for about six years and always takes the are she buys here to either of her homes in Belgium and London. She is loath to leaving them in her apartment in Colombo because of the warping and damage that occurs while they’re shut up in an airless space for several months, even if they’re cleaned and aired regularly. While oil on canvas works are widely known to be the most durable, drawings, prints and other works on paper do not weather well here. “They’re much more fragile in any climate or context, but it’s made worse by the high humidity and exposure to UV light,” she says.

PRAGEETH-MANOHANSA,-2014,-Elephant,-Crome,-10ftx7.5ftx5.5ftPreserving art requires dedication and a professional setup, more so in Sri Lanka’s climatic conditions. But this is exactly what Sri Lanka lacks. Amerasinghe says that the framing in Sri Lanka is not very professional, and speaks of instances where the techniques used have damaged the works or works accepted for framing are just left carelessly propped up against furniture or a wall, until they were ready to get to it.

This has led to Amerasinghe taking many works of art to a museumgrade framer in London, John Jones, where she describes the experience of seeing framers using white gloves to handle any work with great care and always providing advice on how to best conserve the artwork. “They handle any work really carefully, do any restoration such as removing staining or blemishes, treating the paper and so on, and finally

recommend framing that makes the work look stunning.” She adds that watching the way the London framers handle the work led to her increased appreciation of the value of the works. “It’s not about the price tag of a work. It’s an understanding and appreciation that this is something culturally valuable.”

This lack of a well-established and professional art scene in Sri Lanka also affects investors’ accessibility to art. A lot of artists don’t work through a gallery so it is sometimes difficult to make that connection or establish credibility.

Sri Lankan art collectors have to contend with these difficulties of a young market. But Amerasinghe believes that it’s a very good moment for collectors and anyone interested in investing in Sri Lankan contemporary art. “I think there’s an amazing opportunity here right now,” she says. “Because some of these artists will become better known and appreciated both locally and abroad, and greater interest and exposure will naturally have a bearing on increasing the value of the works.”

PRAGEETH-MANOHANSA,-2009,-Bull,-Scrap-Metal,-200cmx90cmThe best place to start collecting is to develop a partnership with a gallerist. After that, it is a matter of following the market and constant research. The price of art is driven by several factors such as how much collectors are willing to pay, the price tags gallerists put on artworks and the global market. The local or international recognition of an artist or his representation by a credible gallery also affect price. The moment in an artist’s career and whether he has a body of work is also critical.

Fernando feels that those who have the spending power have a responsibility to support the art of local artists. “It’s important that people who have that spending power become more involved in collecting local art to sustain the development of the industry,” she says. “Very often people look overseas, or they will happily spend on expensive furniture as opposed to investing in art. It’s incredibly important for our art scene that Sri Lankans begin to acknowledge what’s happening locally alongside the growth in international interest.”

 

A SOPHISTICATED PURSUIT

Wine can be a chic and worthwhile investment – if you have the proer resources to store it and the willpower to not drink it

The Greeks considered wine a drink of the elite, but the Romans made it the drink of the common man. In the modern world, it has no class boundaries, ranging from cheap boxed versions to $10,000 bottles.

wineThe viticulture industry has promoted wine as a means of diversifying investment portfolios, with claims that their product provides above-average returns and lowers the overall risk profile. New York wine auctioneers Zachy’s says that the prices of top Bordeaux wines’ have increased 25% to 50% in recent years. But those who want to turn their passion into an investment should remember that most wines aren’t investment-worthy. Only the best from Bordeaux and Burgundy in France and a few from California provide high returns, and these sell at top-notch prices, making wine investment a diversion for the super-rich. Other wines don’t benefit from more than two to three years of storage, so they’re best drunk rather than stored for future large returns.

If an investor can buy the best of the best, he needs proper storage, because that determines how long a wine takes to mature to its optimum taste and sellable moment. Poor storage damages wine, making it undrinkable and unsellable. Too low temperatures create tiny crystals (a typical fridge is too cold for most wines), while too high temperatures age a wine too swiftly. The sooner an investor sells a wine, the less likely he is to profit. A 13 degrees Celsius temperature is best, while anything above 20 degrees will “cook” the wine, leading to flat aromas and flavors.

Wine needs a dark storage with a low temperature and humidity. In a temperate climate, a dark closet or cellar works, but in Sri Lanka, it gets more complicated. The temperature and humidity here are way above recommended levels. UV light also degrades and prematurely ages wine. Here, a wine cooler is essential, which can be costly to purchase and maintain for a large collection. Any sensible investor’s budget has to include these costs.

To become well-versed in wines, would-be connoisseurs need to develop relationships with a sommelier and wine retailers, who can help to develop a range of wines according to taste and budget. The best shops have tasting bars, while tasting classes are also useful. Budding wine investors should also explore wine-producing regions to learn which yield wines he favors and develop personal relationships with vineyards.

Just like in equities, investors need to research wineries to see the past performance of prices and keep track of prices on sites like Vinfolio.com. There are also apps that provide prices, reviews and the recommendations of industry pros. These apps also provide wine ratings, which, along with scarcity, are the best gauge of current and future value. Wine critics assign these ratings, usually on a 50-100 scale. As for scarcity, a limited production wine is always more expensive.

There’s also a way to be a wine investor without building a collection: investing in wine stocks and mutual funds. Unfortunately, Sri Lanka has none, although some asset managers are considering diversifying their clients’ portfolios with fine wine purchases.

Wine can be a way to hedge against market downturns. A research study on pre-2008 financial crisis Bordeaux auction prices found them to be independent of equity prices, which means that wine could balance out stock market risks. Plus, it’s a fun investment you can share with your friends – literally. And at the end of the day, if your investment turns out to be a loser – well, you can always drown your sorrows in it.