List the costs and risks that make what you would get for a collectible lower than its quoted price.
The "worth" an owner quotes for a collectible is usually a recent sale price or listing price for a similar item. What you receive when you sell is the price a dealer or buyer offers, after costs. Only that number reaches your bank account.
Kumar's cousin bought a luxury watch three years ago and keeps telling the family it is now "worth" a third more than the purchase price. Kumar is tempted to buy a watch too, partly to wear and partly as an investment. Before buying, Kumar asks a dealer what it would pay for the cousin's watch today. The answer is a little below what the cousin paid. Both numbers are honest: the cousin is probably quoting a recent sale or listing price for a similar watch, and the dealer is quoting what it would actually pay for this one.
Collectibles include watches, art, wine, trading cards and similar items. Most are bought from dealers or at auction and sold back the same way, with someone taking a cut at each step.
A dealer sells at a retail price and buys back at a lower buy-back price so it can resell at a profit. This gap is called the spread. It is the same idea as a gold dealer's spread in Lesson 6.2, "Physical gold: bars, coins, storage and spreads", but it is usually much wider for collectibles because each item is unique, demand is less predictable, and the dealer may hold the item for months.
At auction, the hammer price is the winning bid. The auction house typically charges the buyer a premium on top of it and charges the seller a commission, so the buyer pays more than the hammer price and the seller receives less than it. The buyer's premium is a fee added to the hammer price of any lot you win. Before any auction you are considering, ask the auction house for its current buyer's premium and, if you are selling, the commission it would charge you.
Keeping a collectible in sellable condition costs money. Authentication matters most in markets with fakes. Buyers want proof an item is genuine, such as original papers, a certificate or an expert's opinion, and without it the price falls or the sale does not happen. Condition is a close second: a scratched watch, a faded print, a card with a bent corner or wine stored at the wrong temperature can lose a large part of its value. Storage, servicing and insurance also cost money, often every year. Together these costs are a hurdle every collectible must clear before it makes money.
If you wear or enjoy the item, part of the cost is the price of that pleasure. That is a valid reason to buy, but it is not an investment return.
Say Kumar buys a watch from a dealer for S$12,000 (an example figure) and insures it at S$150 a year. Over three years the insurance comes to S$450 (S$150 x 3). Before selling, Kumar pays S$600 for a service.
After three years, comparable watches still sell for S$12,000, and a dealer offers 80% of that, S$9,600. The loss on the sale is S$12,000 - S$9,600 = S$2,400. Adding the S$450 of insurance and the S$600 service gives a total cost of S$3,450, about 29% of the purchase price.
To break even, the market value has to reach a level where 80% of it, minus the S$1,050 of insurance and service, equals S$12,000. That level is about S$16,300, a rise of nearly 36% from S$12,000.
You can count the costs on any collectible in the same order. Start with the purchase price, including any dealer markup or auction buyer's premium. Add any authentication needed to prove the item is genuine, then the ownership costs over the holding period: storage, servicing and insurance. Allow for condition risk that could reduce the value. Estimate the sale price you would actually receive, which is the dealer's buy-back price or the hammer price minus the seller's commission. Then total the costs and work out the rise in market value needed to break even.
Treat published indices that claim a collectible category has risen strongly with care. Many are built from items that actually sold, often at auction. Items that failed to sell, or sold privately for less, may not appear. Owners also tend to sell when prices are good and hold when they are not, so the items that come up for sale may be the ones that did well. An index built only from successful sales can make a category look better than the average owner's experience, and most indices leave out ownership and transaction costs. For any price chart, ask what is included, what is left out, and whether the figures are before or after costs.
Fractional ownership platforms let you own a share of an expensive item, such as a painting or a rare watch, for a small sum. The entry price is lower, but the structure raises questions. What you own is often a share in a company or other legal vehicle that owns the item, which leaves you one step removed from the item. Some platforms run their own market for trading shares, and that market may be thin. Before investing, check:
what exactly you own: the item, or a share in a legal vehicle who stores and insures the item, and who pays how the platform decides when to sell whether you can sell your share before then, and how liquid any platform market is whether the platform is regulated by MAS (Monetary Authority of Singapore) for this activity, by finding its entity in the MAS Financial Institutions Directory which country the legal vehicle is set up in what the platform's documents say happens if the platform itself closes
A fractional share carries all the costs of the item, plus the platform's fees, plus the risk of the platform. It can still make sense if you want the exposure, but it has to clear the same checks.
Before buying any collectible, Kumar now asks what every step between buying and selling would cost. Choose one category you are drawn to, whether watches, art, wine, cards or something else, and trace that path for a typical item, from the first payment to the money landing back in your account.
Choose one type of collectible. List every cost from buying an item to selling it, with an estimate for each or a note to look it up.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).