Alternative Investments

Changing Your Investment Strategy Can Pay Enormous Dividends

Television tells of a man who amassed a hoard of fine art and collectibles while working as a waiter in a New York delicatessen. Over a couple of years he had paid minuscule amounts for items that were worth literally millions of dollars.

Such stories are not uncommon and show how anyone, of limited means, can acquire the kind of wealth most people only dream about.

Such tales show why investing in collectibles, vintage wine and paintings, offers a more exciting ‘alternative’ to speculating in unit trusts, shares and government bonds.

Alternative investment is a growing area, sometimes offering entertainment, as well as the chance to see your money grow in value. Collecting interest, leisure and green issues are a handful of reasons why people look for more enjoyable, more profitable places to keep their cash than boring old banks.

However, alternative investments can’t always be relied on for fast and easy profits. It can sometimes take years of rapidly fluctuating ups and downs in the value of your investment to make any real headway.

But it can be done. Any investment is simply a matter of buying today what someone else will pay significantly more for tomorrow. It takes intuition and luck, and enough guts to stand your ground when things don’t go according to plan. Yet over time gains can outweigh the losses – sometimes dramatically – but you must expect some sleepless nights on the way.

Alternative investments doesn’t necessarily mean old or inanimate, as evidenced by growing speculative interest in racehorses and bloodstock, economic forestry and buying into cinema and stage shows. Sometimes status value is the motivating force, and one of the riskiest, as Lloyd’s ‘Names’ will testify.

‘Alternative Investments’, once describing exclusively collectibles and other non-financial items which appreciate in value over the years, is a term since usurped by financial institutions to describe many financial ‘investments’ which, though oftentimes hugely profitable, generally require specialist advisors … I’m thinking of endowment plans, bonds, hedge funds, commodities, and so on.

I prefer the original definition, collectibles and other usually rare items that generally grow in value, higher than the rate of inflation, and rarely do they lose value. Things like classic cars and whisky, teddy bears and stamps, autographs and wine, postcards and property.

Specialist v General Alternative Investments?

I personally know millionaires whose wealth comes from one major collecting field, such as postcards and ephemera, even dolls and toys, stamps, American Indianware, and others who speculate in a wide range of alternative investments, from art to woodlands, bloodstock to West End stage shows.

Specialising in one or two areas lets you develop knowledge quickly about your chosen subject and makes it easier to establish a fast, efficient buying and selling strategy. For example, being a specialist in rare and unusual collectibles means quite often you’re the only buyer at local antiques and collecting events. Conversely, the astute investor would never risk selling at these places, preferring instead the highly-publicised confines of major auction houses and specialist mediators like Stanley Gibbons for stamps; Sotheby’s, Christie’s and Phillips for fine art.

Shrewd investors know there’s a right time to sell their goods, and it can take years. A good example is vintage postcards (pre-1914) which, until the mid-eighties, could be purchased for pennies and sold for pounds at collectors’ fairs and specialist auctions. Come the recession, spending on luxuries diminished, the bottom fell from the postcard market, and traders were hard-pushed to make ends meet. But, as the economy strengthens, luxury spending is back, and those who held onto their cards should soon see their patience rewarded.

So what qualifies as an alternative investment? Read the rest of the reports contained and you’ll soon learn what really distinguishes trash from treasure.

Collectibles 

While most savings accounts pay less than 4 per cent annually and stocks and shares rarely fare better, classic cars are rising on average 6.4 per cent a year and coins even higher at up to 12 per cent, sometimes more. Buying collectibles inexpensively on eBay, for example, keeping them a few years, then reselling them on eBay is a great way to plump up your pension pot. I know because I’ve been collecting vintage postcards for almost forty years, some I bought at 10p in the 1960s are fetching double figures now on eBay.

Many are fetching triple figures for myself and other lucky sellers. You don’t have to wait years for growth in most traditional alternative investments (sometimes called ‘tangible’ investments because you can see and touch them, admire and display them).

I’m reminded of something the legendary Mark Twain said more than one hundred years ago: ‘Buy land: they’re not making it any more’. Because, unlike hedge funds, unit trusts, company shares, most older collectibles by their very nature are limited.

Land and Property

Property and land offer similar growth potential due to limited availability, as do classic cars, fine wines, vintage dolls and toys. The moral is, buy now, save for your future, but remember you have to sell eventually to fund your retirement and that can be harder than you think for items you bought in your youth and cherished over the decades.

Classic Cars

More for people with five-figure bank accounts, classic cars can rise rapidly in value and fall just as fast. In boom periods, cars are a worthwhile investment, unlike in recession when value can drop overnight.

In one case, a 1962 Ferrari 250 GTO, sold to a Japanese collector in 1989 for £8.5 million, fetched £2.5 million in 1994. However, experts predict an upward trend for investors in classic cars, pointing to a 20 to 25 per cent increase in value over the last two or three years.

Watch and learn. Visit rallies of vintage and classic cars, read good books on the subject, talk to the experts, go to auctions and practice bidding before you buy.

Advice

•   Look for a specialist to value your finds.

•   Beware of incorrect chassis numbers, indicating a fake.

•   Buy a car you like for its own sake, and don’t be afraid to use it.

Entertainment

There was a time, in the seventies and eighties, when investment in theatre and the cinema was the last thing on most people’s minds. Most homes have television, after all, and cinemas were closing en masse. The theatre fared little better, needing huge grants to simply keep going.

Profits for investors? Never! Today things are different, with recent figures suggesting that cinema is currently the UK’s most popular cultural interest outside of the home. Now it’s ‘cool’ to invest in the entertaining arts and rub shoulders with stars and celebrities at opening nights.

Financing a full-length feature film, theatre production or musical is costly, and most film and theatre companies turn to outside backers, known as ‘angels’. If the show goes well, you could strike it lucky, as happened to those who backed ‘Cats’ and saw their investment grow by 2,000 per cent.

Yet those in the know suggest the golden days of the film industry are over, pointing to a decade or so passing since any real classics have been produced in Britain.

Whether the curtain falls on Britain’s role as Cinderella of the film world under Labour’s new initiative remains to be seen. Whatever happens it will still be more risky to invest in single films, the reason most investors choose a portfolio approach. As always spreading the risk makes sound economic sense.

Memorabilia

Memorabilia describes souvenirs from most areas of high public interest, such as pop music, spectator sports, show business, fashion and war.

There are collectors of sports and theatre programmes, badges and signs, autographs and posters, even suicide notes and execution posters.

Pop and show business memorabilia is a particular growth area, where fans clamour for signed photos and clothing, posters and props from classic films, even snippets of hair and funeral paraphernalia.

But youth, like most pop idols, is a short-lived thing and, as interests change the avid collector can cash in on fripperies gained in his youth. But it doesn’t have to be leisure orientated or sign of a frivolous youth to generate high profits. Some war-related souvenirs also reach four-figure sums, such as a signed photograph of Winston Churchill given as a gift to his nurse in the 1960s which grossed £1,000, with an earlier counterpart falling short at £800.

Even more astonishing prices are reaped for promotional posters for classic films such as ‘Wizard of Oz’ (1939) – £5,830, and ‘The Birth of a Nation’ (1915) – £15,730. Which of today’s films will achieve similar prices tomorrow?

Yet even the experts make mistakes. Rejecting them in 1962 – “We don’t like their sound, and guitar music is on the way out” – Decca Recording must surely acknowledge the Beatles still reign supreme, at auction, at least, where a signed photo of the Fab Four has just topped £600.

Ever more stunning prices are realised for relics and stage props from the group’s heyday in music and films, such as a gold disc for the LP ‘Sgt. Peppers Lonely Hearts Club Band’, which went at Sotheby’s for £14,300.

Not so lucky the vendor of a Yellow Submarine airship replica which auctioneers expected to fetch £2,000 at a sale of Beatles memorabilia in 1993. It went for just half that amount.

Or myself, for that matter, when an autograph book – sadly, no Beatles – I turned down for a fiver in a back-street auction – and thought was a forgery – sold two months later at a specialist collectors’ auction for £2,500. It wasn’t a fake!

Advice

•   Don’t assume inexpensive means fake. Scores of tales are told of car boot finds turning up trumps for lucky individuals. Like Laura Kieff who discovered her £1 job-lot of books from a car boot sale is worth a staggering £25,000. In the box Laura discovered a 1930s cartoon picture made out of celluloid which was identified as a Betty Boop ‘cel’ from the early days of animation.

•   Have your finds – however doubtful – valued before parting with them. Most larger auction houses offer free no-obligation valuation of items in their specialist field. So if I’d taken that collection of autographs to Neale’s of Nottingham or Phillips, for instance, I might now be several thousand pounds better of, instead of mourning my loss!

•   Never, ever, ever, ask local traders at flea markets and collectors’ fairs to value your finds. Many do not have the appropriate knowledge and most will quote the price they want to pay, well below market value.

Pictures, Paintings and Prints

Years ago a wedding guest gave the happy couple a sketch he had just bought for £10.

Today that scrap of paper is worth more than the family’s home, two cars and personal possessions combined. But then, it was an early David Hockney whose work now reaches five figure sums.

More recently, a picture restorer at Ireland’s National Gallery found a masterpiece by Caravaggio hanging in a priest’s dining room. Costing just a few pounds in 1921, today the masterpiece is valued at £20 million.

These are not isolated examples of truly magnificent profits reaped on paintings and prints. In fact, many more artists have discovered their work suddenly leaping in value in a short space of time. Good news for them as well as investors and collectors of paintings and prints.

In reality, however, only a handful of pictures appreciate in value so quickly, and it really is a question of astute selection that determines tomorrow’s potential.

Advice

•   Buy for aesthetic value, not growth potential.

•   Rely on your own gut feeling and intuition, which in time can develop into a reliable indicator of current versus future value. If you are unsure about a particular piece, learn what you can about the artist, whether he is currently in vogue with larger collectors, galleries and museums, and what major displays there have been of his work.

•   Work out an investment strategy and stick to it.

•   Visit galleries, talk to renowned collectors, quiz gallery staff.

•   Read as much as you can about prints and paintings, in particular those currently favoured by major institutions and large private collectors.

•   Visit auctions specialising in paintings and prints. Practice bidding and see how close you come to actual value.

Postcards

There was a time I could walk into any country auction, pick up a pile of early picture postcards for a couple of quid, then go home and price them at many thousands of pounds. And know I would sell them soon. Today it’s more difficult, but still very possible to profit fast from this particular collectors’ interest, called ‘deltiology’.

Despite its own grand name, postcards are just a tiny section of an overall collecting field called ‘ephemera’, describing transient items like theatre tickets and magazines, cigarette cards and advertising bookmarks. They weren’t expected to last beyond a few days, and most didn’t, explaining why any that have survived the centuries fetch spectacular sums at auction.

One of my greatest achievements, a photograph of a north village railway station dressed up for a Royal Visit, cost about £1 and sold for £250 at a national collectors’ auction. The even better news is I bought close to 100 similar cards, in pristine condition, every one of which topped £50.

An album of 200 early Bonzo dog cards (by Artist Studdy) cost me £200 at auction. Even then, ten years ago, Studdy’s work sold in pounds not pennies, and today you can expect to pay £4 minimum, more likely £6 per card, with £40, £50 or more for advertising specialities and rarer specimens.

Similar success can be had with some early greetings cards, postal stationery and cigarette cards, and more recently telephone cards and autographed photos.

For example, Britain’s earliest Christmas card by J. C. Horlsey, R.A., made a recent record price of £2,000. Of only 1,000 known to have been issued in 1843, only a handful are thought to remain. A huge return on the original one shilling investment, and great potential, too, for anyone keeping a close eye open for the surviving remainder.

Racehorses/Bloodstock (Greyhounds, too?)

There’s a special thrill to owning a racehorse or having a share in a big winner. Not to mention the money you can make if your horse is first past the winning post, and hasn’t suffered the indignity of gelding!

Whether you invest for a share of the prize money or a handsome dividend each time your stallion ‘performs’, there’s a lot of money to make, and some risky moments to contemplate.

Racehorses are purchased for breeding or racing, sometimes both. But the going can be rough and mistakes are always costly, as for investors in ‘Classic Music’, at 2.4 million guineas the UK’s most expensive yearling ever, who retired to stud without ever having raced. Companies investing in yearlings can be seen advertising for backers from midsummer onwards, in places like ‘Racing Post’ and ‘Sporting Life’.

Greater profits might be expected from flat racing than National Hunt. Horses on the flat start their careers much earlier than National Hunt horses, and repay the investment sooner. Plus, many National Hunt horses are gelded, making stud fees impossible.

Most purchases are by syndicates formed to share ownership in a particular horse where members split the cost of buying and training the animal, entitling them to a share in any winnings.

Syndication of stallions – bloodstock – allows members to share in stud fees for the best winning colts when their racing career ends. Cost of ‘covering’ a mare depends on the history and potency of the stallion, averaging £1,000 a time, up to $1 million a go in the 1980s if your horse happened to be called ‘Northern Dancer’.

The average stallion covers 50 mares a season, some going to 100, meaning higher earnings and less risk than for investors in brood mares who rake in irregular profits, at most once a year.

Bloodstock investments are advertised in the sporting press or you could go direct to a reputable bloodstock agent whose role is to locate suitable opportunities for a commission on the purchase price. He might also bid for you at horse sales and make appropriate checks as to history and health of the animal. The Federation of Bloodstock Agents can put you in contact with a reliable professional.

Racehorses out of your league? Then how about greyhounds instead? They cost from £100 to £10,000 depending on past performance. Expect to pay £1,000 for a dog that has already bagged a few wins.

Keep and train the dog yourself, or send it to a professional trainer. Prizes are small – about £100 per race – but dogs race more often than horses, so the cumulative benefits are high.

For stud fees expect about £200 per litter for regular winners, with up to £500 going to winners of major races such as the Wimbledon Greyhound Derby.

Advice

For investing in yearlings, choose companies with prominent associates and advisers, often well-known jockeys and trainers with sound judgement and a reputation they want to keep.

Stamps (Including Postal History)

Writing in the ‘Express’, stamps and alternative investment expert Alistair Sampson recalls how a collection of stamps sent by his father during a long naval career was eventually sold for £14,000.

One item – a unique cover – fetched £1,000, and three decades later sold at auction in Switzerland for £1.3 million. Sampson divulges, too, how an envelope from Mauritius valued at more than £1 million cost about £5,000 some fifty years before.

However, the Philatelic Traders Society warns against viewing stamps as an investment, except for their own sake and possible long-term value. Investment in stamps rocketed in the late 1970s, only to plummet when the 80s’ recession hit hard and thousands of collectors and investors saw their nest egg expire.

Yet stamps can make fortunes as most people know. But you are unlikely to get rich by sticking to modern specimens, including First Day Issues. Most investors and dealers specialise in very old and rare types, often dealing in one country or focusing on a particular period or theme.

A stamp dealer colleague concentrates on Mulready Envelopes, being highly ornate documents with stamps imprinted for use prior to the advent of the Penny Post. My friend reckoned if he specialised in one area, he’d eventually strike it big, and he did.

One ‘Red Letter Day’ a man approached him at a low-profile (fewer experts) stamp fair, bringing with him a suitcase packed with perfectly preserved Mulready envelopes which my friend sorted with glee. And bought.

But I never saw those envelopes again. In fact, I didn’t see my friend again until several years later when he confessed he’d made a fortune from selling the envelopes at carefully chosen auctions and specialist events throughout the world.

Advice

•   Although you are advised to beware of new stamps and highly publicised First Day Issues, this doesn’t mean you should avoid them altogether. Printing errors and other anomalies can inflate cover prices by hundreds of thousands of pounds, making it a good idea to keep an eye open on this specialist field.

•   Focus on quality items, not schoolboy stamps in approvals books or albums which experts and stamp dealers have already plundered.

•   Look for stamps that are in good condition and also quite scarce.

•   Collect stamps with a common theme, such as country, period or value. Keep a careful eye open for envelopes with stamps intact and clear, unusual postmarks.

•   Only let the experts value your finds. Stanley Gibbons has roadshows throughout the country where you can take your stamps for an impartial assessment of their worth. The same is not recommended at most other stamp fairs and collectors’ events where many dealers are interested in just one thing – buying cheap and selling fast!

Teddy Bears and Dolls

Most toys are meant to be played with, not cherished, explaining why any that have survived the passage of time – unscathed – are fetching considerable prices at auction.

Like a teddy bear survivor from the Titanic disaster, valued at around £50,000. The bear was found with its owner, sadly a victim of the tragedy, and is thought to be the work of early German toymaker, Bing.

Teddies bearing the Stieff insignia fetch even higher prices, as happened in 1993 when a Canadian couple bid £49,500 for Elliott, a blue mohair bear made by the German company for Harrods in 1908. The same year another Stieff went for £55,000, setting a new world record for a teddy bear at auction.

Recent record prices for dolls sold at auction include £14,300 at Sotheby’s for a 13-inch pressed bisque model made by Thuillier in 1875; £15,400 for a bisque-headed doll sold at Christie’s, and a magnificent £71,500 for a rare carved and painted specimen from Charles II’s reign also offered by Christie’s.

Wine and Whisky

Invest In Fine Wine

A bottle of Chateau Lafite wine belonging to Thomas Jefferson went at auction in 1985 for £105,000.  Certainly the bottle’s 200-year-old history mattered most to the successful bidder, rather than drink value.

Fine Wine and Age Value

But age is not always the deciding factor and even youthful wines can command high prices when liquidated!!  Some spectacular gains are reported, even for short-term wine acquisitions, such as a case of Chateau Clinet wine rising from £120 in 1989 to £750 or so today.

Wentworth’s ‘Wine Auction Report’ advises: “Even without historical significance, many a good bottle of well-regarded, coveted fine wine can return to its owner a considerable gain if selected carefully, stored favourably and then sold after a time when the market is right for fine wine.  Wine can be a fabulous investment and you don’t have to be a connoisseur to take advantage.”  Experts suggest Bordeaux wine offers greatest long-term investment potential, both for consistent good quality and perceived value.

The majority of older wines are purchased at auction with most younger wine vintages coming direct from the chateau.  The latter course is recommended to novice wine collectors and investors.

Though younger profit potential wines can be found at auction, competition is more fierce and ‘bargain’ finds unlikely.

Wine Strategy

First and foremost, concentrate on one or two wines, rather than select from a wide range of vintages.  A number of good books and magazines will help you learn more about wines for investment and drinking purposes.

It makes sense to study wine auction procedures first, before deciding to buy.  Gather as many catalogues as you can from wine auction specialists and study recent prices.

Visit a few wine auctions before deciding to bid.  Most auctions operate on similar lines and there is much to learn from seasoned bidders as well as from books such as ‘Government Auction Handbook’.

For selling, the first step is to have your investment valued.  Valuation is usually free, even if you decide not to sell.  Next, send full details about your wine to your chosen auction house, detailing name and maker, vintage, conditions, storage conditions and quantity.  Prior to the auction you will receive a list of entries with estimated prices which you may have to sign to acknowledge your agreement.  In some cases a reserve price can be set, namely one below which your wine will not be sold.

Larger auction houses will arrange for collection and storage of entries prior to the auction, if necessary.

Payments to vendors are made between two and six weeks after the sale.  If your lot remains unsold, the auctioneer may suggest your wine be carried over to a future auction.

Like most forms of investment, there’s no guarantee that your wine will increase in value.  But, unlike stocks and shares, this is one investment that never goes down the drain! Some wineries offer investment opportunities in other brews, notably whisky, of which ‘The Independent’ says: “Buying whisky in casks looks a safe investment.”

One such opportunity, from Marshall Wineries, offers an investment that might be “Made for the benefit of your grandchildren” to “pay for a university education or a deposit on a house; 21st birthday or maybe a wedding.”

Certainly, the opportunity looks good, with whisky remaining popular regardless of economic trends. Marshall Wineries offers a comprehensive brochure to buying and selling whisky and will store and care for the product on their investors’ behalf.

Advice

•   Buy for the taste, not investment potential. And don’t be afraid to put your money where your mouth is, and drink your investment if it doesn’t appreciate in value. In fact, this is one of few alternative investments with a built-in enjoyment factor, alongside racing and show business.

•   Keep your tipple in perfect condition, in your own cellar or someone else’s.

•   Wentworth’s ‘Wine Auction Report’ says: “Generally speaking, the wines which offer the best potential for investment are the first growth clarets. These, historically, are considered the bench-mark wines of the region, and fetch the best prices.”

•   At the time of going to press, concern predominates about whisky manufacturers portraying their goods as virtually instant profit-makers, while more reliable firms insist whisky and wine should only be viewed as offering long-term potential.

Woodlands/Forestry

This has been described as one of the longest investments of all, if not also among the least risky, and numerous tax incentives are offered, aiming to increase investment in forestry and woodland and to protect the future for our children’s sake.

Since 1988 any increase in value of growing timber is free from income tax and the sales of felled timber and growing trees are exempt from capital gains. Forestry offers long-term capital growth with substantial security.

But cashing in your investment doesn’t mean waiting decades, or longer in the case of oaks which are felled at about one hundred and sixty years. Instead the investment can be liquidated part-way through the commercial growing process, when tax breaks are still present. If you can’t afford your own forest, then opt for a share in a private trading company, including some listed later.

Rules to Abide By

•   Knowledge succeeds more than luck so never pass up an opportunity to learn. Read books about your chosen subject, talk to collectors, visit auctions, practice bidding to see how close your judgement really is.

•   Subject to lucky exceptions, alternative investments should be considered for long-term potential, not a fast way to raise cash when your budget is stretched.

•   Know that: if it’s worth having, it’s worth waiting for. Sudden gains are rare; long-term gains are possible.

•   Avoid status investments, such as becoming a Lloyd’s Name or an ‘angel’ for shows and films by unknown producers. Being a little fish in a big but profitable pool, is better than being a major player in a losing game. Look for security first, status last.

•   Don’t invest for possible tax relief on losses. Invest because you want to, for a profit, or for the pleasure surrounding your chosen investment.

A Wealth Warning

Of many weird and wonderful alternatives to consider, not all come highly recommended. Mistakes are inevitable, as the following stories reveal:

Author and journalist, Ray Connolly, told reporters his best investment was in property and his worst was putting money into a production of Sondhelm’s ‘Sweeney Todd’. Of the first night, he says: “I went with my wife Plum – who’d successfully invested in ‘Evita’- and it was so terrible I knew instantly I’d lost it all.”

My own greatest mistake: a print, signed Louis Wain, which I mistakenly sold as a copy for £10, fetched £200 at auction just a few weeks later. Another case of acting fast, repenting longer!

Good Luck and Happy Alternative Investing!

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