Identifying niche investments: Art, wine and coins

PERSPECTIVES: Those with an interest in collecting works of art, wine, or coins may find that their investments, apart from giving pleasure, may yield higher profits than the stock market.

QFINANCE, 30 November, 2009 | 1:44PM
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When it comes to investing, alternative investments have risen in popularity. If hedge or other funds, real estate, and bonds don't fill you with enthusiasm, there are plenty of other places to invest. And those with an interest in collecting works of art, wine, or coins may find that their investments, apart from giving pleasure, yield higher profits than the stock market.

Art may be a matter of personal taste, but the markets treat it like any other commodity, and the business of investing in it is based on a very simple principle--you buy something and hope its value increases.

Success in the art marketplace is not easy: The proliferation of artists and the sheer quantity of works, media, periods, and styles can make collecting an intimidating prospect, and values can rise and fall terrifyingly. Nevertheless, for those who are prepared to do their homework, investing in art can be lucrative.

As the laws of supply and demand are on its side, good wine offers first-rate opportunities for the investor, making for a solid protective asset in times of uncertainty and market turbulence. High-quality wines are one-offs that can never be replaced. Therefore, it is often better to spend on a small number of good wines than to spread your investment too thinly; any wine of a good vintage offers a lower risk.

Coins can also be considered a form of investment. Their value will depend on a number of factors, including the age and availability of the coin, its condition (for example, whether it is dented, scratched, or stained), and trends in the market for precious metals. There are also bullion coins, such as the Krugerrand, which are composed mainly of precious metals and have little value beyond that of the metal itself.

Advantages
Art: High-quality pieces with good provenance make for good long-term investments.

Wine: A strong, defensive asset in times of uncertainty, and, if all else fails, you can drink your assets!

Coins: Have always been valued for their rarity and portability.

Disadvantages
Art: Making a speedy profit on a piece of art is a comparative rarity, if only because transaction costs--dealers' margins and auction house fees--tend to eat up margins.

Wine: It is vital that the wine is correctly stored, as it is not always simple to realise wine investments rapidly.

Coins: Well-established dealers, who have a key role in determining the value of coins, control the market.

Action checklist
Only enter a specialty area if you have a genuine interest in the subject and will get real satisfaction from the process of collecting, buying, and selling.

To maximise your chances of success, you will have to do a lot of research in your field of interest.

Join associations or investment clubs and consider seeking professional help before taking the plunge.

Dos and don'ts
Do

Go into your primary area of interest with the aim of enjoying yourself rather than making money.

Research your area of interest and then specialise in a specific area, region, or time period.

Don't

Believe that you are going to make your fortune; there are plenty of other, safer places to invest your hard-earned cash.

Overreach: Success in the marketplace is not easy for the amateur, and enthusiasm often takes over from common sense.

More info

Books:

Rush, R. H. Art as an Investment. New York: Prentice-Hall, 1961.

Sokolin, D., and A. Bruce. Investing in Liquid Assets: Uncorking Profits in Today's Global Wine Market. New York: Simon & Schuster, 2008.

Temple, P. Superhobby Investing: Making Money from Antiques, Coins, Stamps, Wine, Woodland and Other Alternative Assets. Petersfield, UK: Harriman House, 2004.

Articles:

Bolitho, N. "Noble coining it in." Investors Chronicle (November 5, 2007).

Malaviya, N. S. "Investing in art." Economic Times of India (January 11, 2009).

Websites:

Christie's

Sotheby's

Footer quotes:

"Anyone who attempts anything original in the world must expect a bit of ridicule." Alberto Juantorena

Disclaimer: All views expressed in this third party article are those of the author(s) alone and not necessarily those of Morningstar. Morningstar is not responsible for the comments nor will it be liable in any way for any information provided by the author.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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