Collectibles - Collect for pleasure, invest with care

Art, antiques, books, cars, carpets, coins, paintings, stamps, wine and similar items which people collect are known as “collectibles”.  This article discusses collectibles and what to consider if you decide to make collectibles part of your investment portfolio.
Building a collection is a fun hobby; it is a pastime that can be occasional or all-consuming.  From cars to old paintings, a large part of the pleasure is in becoming an expert in your area of interest.  It can also be a highly sociable pastime where one can meet fellow collectors and share experiences and knowledge.
When collecting as an investment, you need to proceed with care.  Firstly, anybody you meet who is involved with valuable collectible items is likely to have a commercial interest in what you do with your collection and the cash you might spend on a collection.  All valuable collectable items have dealers.  A dealer aims to match buyer with seller and take a commission for his services.  A successful dealer is always looking to expand his network of relationships to expand his business.  Therefore good dealers have good social skills; they are naturally affable, amiable, charming, genial and likeable.  So if you meet a dealer, remember you are the punter, he is a dealer and not your friend.  The dealer may be hoping that you invest in collectibles because he can make money based on your investments.
As a rule of thumb, it is best to buy a collectible from established auction rooms, where many buyers and sellers meet, where the prices struck reflect the collective wisdom of the experts in the room, and the buyer’s premium – the auction house fee – is a fixed percentage on top of the purchase price.
The Jersey Financial Services Commission does not regulate collectibles or dealers in collectibles; therefore there is limited statutory protection for collectors from unscrupulous dealers.
However the following check list of factors to consider may assist you if you wish to build a collection for investment purposes:
1.  Learn about the items you would like to collect.  You should have a natural interest in the subject.  This is gained through visiting galleries, museums, and reading books – written by acknowledged experts.  Beware of spontaneous behaviour; don’t decide you want to collect stamps, because someone puts a flyer through your letterbox.  Flyers are a dealer’s advertising material.
 
2.  Collectibles are scarce items.  Ask yourself, “Are they still making the item you are collecting?”  The work of dead artists and discontinued items is finite and has scarcity value.
 
3.  Can you spot a fake?  If not, how do you know the item is genuine?
 
4.  Is your collection going through a fashionable phase?  When in fashion, such as around major anniversaries, related collectibles are more expensive than when out of fashion.  You do not want to buy at the top of the market, nor sell at the bottom.
 
5.  Valuable collectibles have to be protected, often conserved and insured against damage or theft.  This may mean that you have to create a protective environment for your collection.  You may also need to pay substantial insurance premiums and significantly upgrade your home’s security.  For example, small children and large dogs tend not to mix well with collectibles.
 
6.  Beware of guarantees or promises to buy back at a later date and at a better price.  When a dealer makes you a guarantee, it is as good as an I.O.U.  Unless you have access to your dealer’s accounts and are able to interpret the information, leave loan making to the experts.
 
7.  Lastly, promises to pay you back at a later date at a higher price are remarkably similar to Ponzi schemes.  They depend on finding successive cohorts of new investors to buy from the old and Jersey is a very small Island.  Beware of promoters asking you to join an exclusive group of savvy investors.
Example of a scam
In the world of paintings a dealer can sway and impress a naïve client with his knowledge of the official attribution hierarchy, the all important factor in determining a picture’s value.  The National Gallery’s definitions, set out below, demonstrate how a dealer could frame a scam.
Attribution
It is not always known who painted a picture.  An attribution is an assessment of who was responsible for creating a particular work.
Attributions are made with different degrees of certainty, depending on factors such as style and documentary and scientific evidence:
'by Raphael' shows reasonable certainty about the attribution
'attributed to Raphael' intimates a degree of doubt about the authorship of the picture
'by the Studio of Raphael' means painted by a pupil of the named artist, probably under his direction
'a Follower of Raphael' is someone who admired the artist's style, but was not necessarily a pupil of his
'an Imitator of Raphael' is one who slavishly admired the artist, but may have worked at a much later date
By considering these definitions carefully, it becomes clear that a dealer has an interest in telling the seller that his picture is ‘by the studio of Raphael’ and the buyer that the item is ‘attributed to Raphael’.  The change in attribution leads to a significant increase in the value of the picture, which the dealer hopes to capture.  As the buyer and seller are very unlikely ever to meet, the dealer’s ruse has every chance of remaining undiscovered. 
This example serves to re-iterate our comment above that investors in collectibles should always consider using the services of an established auction house when they consider acquiring or disposing of collectibles.
Disclaimer
Please note that this article is only intended to provide a very general overview of the matters to which it relates.  It is not intended to be comprehensive and it should not be relied on as financial or legal advice.  The Commission cannot recommend any specific financial products and always recommends that you seek appropriate professional advice before taking financial decisions.
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