By Roger Outing.

A question sometimes asked by new collectors is, “Is it a good investment?”  The “it” can be coins, banknotes, stamps, Ming vases, Picasso paintings, beer mats, or even cheques.  It is a question that the new collector should consider carefully.

Firstly, nothing on this site is sold as a financial investment.  We sell banknotes, cheques and banking memorabilia on the basis of their historical interest.  Collecting these items should be regarded as a leisure activity and should be pursued for the pleasure of that activity. There can be no reasonable expectation that these items will necessarily increase in value.  You can be reasonably certain that values will change over time – but they may go up or they may go down.

Glossy Brochures.  Some organisations do offer collectables on an investment basis.  They often produce some very professional glossy brochures that suggest the benefits of their products (usually coins or stamps) as an investment.  Colour graphs that illustrate average price increases for selected items are often prominently featured.  These graphs are accurate. They often point out that certain items went up in value by 50% or 70% or whatever in the last 12 months.   They imply, though are careful not to expressly state, that if you “invest” in these items you could enjoy a similar profit level over a similar future period.  You should be aware that the examples they quote, though absolutely true, are also very carefully selected.  They choose to quote the very best performance of the very best item over a specially selected period of time.  This are nothing more than the equivalent of saying how much you could have won if you had backed the winning horse in a race which ran yesterday.

Three Possibilities.  Ask yourself this, How likely is it that an item than increased in price by 50% in the last year will increase in price by 50% in the next year?  Or, will the price plateau at the new higher level?  Will it decrease?  Will it increase?  All three are a possibility but an increase in price is just one of these three possibilities and it may not be the most likely. 

Basic Weakness.  A weakness in the investment strategy is that you have no guaranteed future sales.  If there is a general economic slowdown at some future point then two things commonly happen.  Firstly, people stop buying collectables.  These hobby and leisure activities are the first thing that people cut back on when money gets tight and budgets get strained.  People pay the mortgage, the gas bill and the car servicing before they buy collectables.  Secondly, some collectors because they need funds will try to raise extra money by selling parts or the whole of their collections.  Taken together, this means that there will be DECREASE IN DEMAND at the same time as there is an INCREASE IN SUPPLY.  The inevitable result is that prices decrease.   For the investor this means that the time that you most need the money will also be the time that prices will be at their lowest. 

Being a collector does not mean you buy your material at any price.  You still make an assessment of value based on your knowledge of the significance of the piece and taking into account its rarity, condition and level of demand.  You most certainly do actively seek out a good buy.  It is just that a good buy is not defined by expectations of a future price increase.  It is defined by the development of a collection which will give you pleasure.  If you can enjoy your collection for a decade and then sell to recover your money, with a nominal increase to cover inflation, then you will have done well.  You will have had 10 years of pleasure that will have cost you nothing.  How many hobbies offer that?  (Note: the above is good enough to learn by rote and repeat to doubting spouses).   You will also then have money to pursue your next collecting adventure.  (This last bit is not for doubting spouses). 

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