Saturday, June 16, 2012


Sometimes things rise in value over time, if they are rare or collectable.
Should you collect things to make money?  No, not really.

The plebes are all a-buzz about the recent auction of a rare Apple I computer the other day.

The original Apple I wholesaled for $500 in 1976 - 36 years ago.  Today, it sells at auction for $374,500, representing an annual rate of return over 36 years of 20%.

So collectables must be good investments, right?

Um, no.   You see there are two problems with this model.

First, there is no way to know in advance which things from the past will be worth a lot in the future, without that working time machine, which always seems to be out of order.

The old Apple is worth a lot because Apple is a successful company, and there is a Cult around Steve Jobs, who just died - and the computer came with a signed handwritten note from him.   This makes it collectable.

On the other hand, an original Altair 880 computer is, well, do you even know what I am talking about?  Because that was a similar primitive hobby computer of the era that is all but gone and forgotten.  No one is paying over a quarter-million dollars for one.

So predicting in advance what will be collectable and what won't be, is, well, nearly impossible to do.

The Second problem is time.   If you bought that computer in 1976 and then just stored is as a "collectable" it would be years and years before it was worth even what you paid for it.  Back in 1980, it would just be another old, obsolete and useless computer, and most people would have (and did) throw them out.

Maybe in the late 1990's, someone would give you a couple of grand for it.  Maybe in the 2000's, tens of thousands of dollars.   But it is not until today that anyone would dream of paying hundreds of thousands of dollars for such a thing.

It is like a fellow I met once who bought a twenty-fifth anniversary Mustang convertible, and then parked it in his garage, convinced it would go up in value over time.   After eight years, he tried to sell it, and could not get offers for even close to the original purchase price.   It was just another used car at that point, and not worth more than he paid for it - in fact, worth far less.

Even today, he would be hard pressed to sell it for more than he paid for it.   Maybe there is a Mustang collector out there who might give him something, but not very much.

Cars only increase in value after 30-40 years or so.   A 20-year-old used car is just that - a used car.

What becomes a collectable is hard to predict in advance.   The only sure thing you can bet is not collectable are things that people sell as being "collectable" - such as Elvis souvenir plates or commemorative coins and the like.

In most cases, you are far better off just investing your money, as it will increase in value right away, and you won't have to wait 30 years to get your money back.  Moreover, if you invest wisely, all of your investments will do fairly well, where as with collectables, only some will do well, others will be worthless.

The same can be said for Gold, which if you think about it, is just another collectable.  And if you look at the price of gold since the last peak in 1981, you can see it follows a similar curve.   You would have had to hold gold for over 25 years from 1981, just to get your money back, and if you had to sell in the interim, you would have lost your shirt.

And unlike collectables, they keep making more Gold.....

Walk away from collectables.    Chances are, you are more likely to lose your shirt than make money.