Returns from the heart – the art of investing in collectables

Do you own a comic book, a bottle of fine wine, a coin, medal, fine art, stamps, antiques, a classic car, jewellery? You could be on the path to becoming a collectables investor.

Most people shy away from any discussion that has to do with investments or financial planning, perhaps due to the misconception that you have to be wealthy to derive value from the seemingly complex world of money. When talking about investments, people think about the stock market, retirement annuities, savings plans and related investment vehicles. But there’s more to investments. Collectables are uniquely poised to provide an alternative way for any investor to generate returns while having fun. By definition, collectables are rare in nature and may include antiques, fine art, wine, top-end watches, comic books, cars, stamps and other unique items that may appreciate in value over time.

Love first, rewards later

The common theme among people who invest in collectables is that they do it for fun, passion or sentimental value. Their primary reason for purchasing a piece has very little to do with financial gain. Instead, they are driven by their love for the item, its significance in their lives and in keeping special memories. Over time, the item appreciates in value, leaving the owner with financial reward – sometimes significantly higher than expected. It’s similar to the classical investment cliché – “it’s about time in the market, and not timing the market” – which signifies patience, long-term planning and resilience to get great returns in the long run. The essence is that you should invest in the right vehicle, at the right time, for the right reasons. Wrong motivation may only lead to tears.

Collectables can provide an alternative investment vehicle for novice and seasoned investors. But, experts warn that investors should be motivated by passion and love for rare and high-demand commodities rather than financial return. In the process, they may reap great rewards.

Facts about collectables

Collectables, especially art, wine and classic automobiles, are an increasingly popular way for African investors to store their wealth. Collectables accounted for 1.1% or US$8.8 billion of the assets of African high-net-worth individuals in 2016, compared to only 0.6% in 2006. The AfrAsia Bank Africa Wealth Report 2017 estimates that African high high-net-worth individuals held US$870 million worth of fine art at the end of 2016. Globally, fine art prices have risen by 3% over the past 10 years, whilst African fine art prices have risen by 22%.

Andrew Amoils, head of research at New World Wealth, says that South Africa is the largest fine art market in Africa. “Investing in collectables is growing in South Africa and globally.” Leading artists in South Africa include Irma Stern, Thomas Baines, JH Pierneef, Alexis Preller, Pieter Wenning, Gerard Sekoto, Maggie Laubser, Hugo Naude, Portchie, Isabel le Roux and Dimitrov.

“The value of these artists has risen appreciably – an Irma Stern painting that sold for US$20 000 in 1995 fetched over US$2 million in 2011. The majority of major art galleries are located in Johannesburg and Cape Town and in second-home hotspots such as Stellenbosch,” says Amoils.

Where to start for first-time investors

There are different views about where to start, but some experts agree that entry-level investors should consider numismatics, which was once considered the “hobby of kings”. This is the study or collecting of currency, coins, paper money and related objects such as medals and medallions.

Bruce McLean, owner of Collectors Investments, a boutique numismatics outlet in Illovo, Johannesburg, says that people should invest in numismatics first as a hobby, as well as to diversify their investment portfolio. “Gold coins should form part of every investor’s portfolio. Collectable coins should be invested in for the love of numismatics[HA1] , and with astute investments, good returns can be obtained.”

Anton Welz of Stephan Welz & Co

McLean warns novice numismatic collectors not to be influenced by investor fads, unrealistic sales and marketing ploys. Instead, he says, first-time investors should develop their passion and grow their interest in the field of numismatics by doing research and communicating with long-standing numismatic collectors and reputable numismatic associations. “Knowledge is power! Start your investment with a small conservative amount, until you become more experienced in numismatics,” he adds. Old and historical coins, as well as coins with a true rarity, will be a better investment than following the fad on modern coins.

“The wonderful thing for the novice numismatic collector is that they can start collecting on a very limited budget, be it investing in a silver five-shilling piece from 1952 or a 1923 farthing (the first South African coinage) for R200,” says McLean.

Collecting coins that are already in circulation may also be a good way to start, as the risk of keeping these coins is insignificant – you can always spend your coins.

A decline in the market provides the opportunity for the novice collector to enter the numismatic field with good potential for future growth. Their knowledge and interest for numismatics can grow with their investment portfolio.

No substitute for homework

While collectables are attractive and provide alternative investment opportunities, experts caution against impulsive decisions. “Art, classic cars, watches are popular categories. Cars have shown the greatest return on investment, but as with anything, investors need to do their homework before committing to a purchase,” says Anton Welz of Stephan Welz & Co.

According to Welz, many people in South Africa collect, but few people invest in high-value items. “Collections start small, perhaps with works on paper when it comes to art, and grow as the collector becomes more knowledgeable and begins to define their collection.

“Collections do not necessarily need to contain high-value items to have value,” says Welz, adding that the market is still healthy, although trends have changed. “Artists who were collectable 10 years ago are not necessarily fashionable any longer; the same goes for furniture. Nineteenth-century furniture has fallen out of favour, but mid-century modern contemporary design has exploded in value over the last few years.”

He also laments the most devalued collectables and the product that appreciated the most over time. “I think Victorian furniture has devalued over the last few years; it’s probably the category that has shown the least growth. Certain models of collectable cars have increased more than anything else – a 1958 Mercedes 190SL we sold in 2015 for R2m would now be worth in the region of R3m. As with any investment (stocks and shares or fine art and collectables), do your homework, ask people in the industry who are able to give good unbiased advice, and buy what you like rather than what you think may be a good investment. That way, if it turns out to be something that does not increase hugely in value, at least you have something that’s a pleasure to look at,” he adds.

Welz says a good place to start for an entry-level investor would be works on paper by artists such as Deborah Bell, Sam Nhlengethwa, Bambo Sibiya, Norman Catherine, Walter Battiss and Pat Mautloa.

Speak to a professional

In the same way that you trust a professional dentist to diagnose your toothache, an attorney to help you with a legal matter or a financial advisor for your investments, you should speak to a coin shop dealer, an art gallery or a numismatic dealer to assist you with your next collection. The South African Mint’s website is a good source to find reputable coin dealers, while the South African Association of Numismatics Dealers also has information to start your journey towards collectables.