You will be able to list the costs and risks that sit between a collectible's quoted price and what you would get.
Kumar's cousin bought a luxury watch three years ago and keeps telling the family it is now "worth" a third more than he paid. Kumar is tempted to buy one himself, partly to wear and partly as an investment. Before he does, he asks a dealer what they would pay for his cousin's watch today. The answer is a little below what his cousin paid. Both numbers were honest. The gap between them is what this lesson is about.
Collectibles, such as watches, art, wine, trading cards and similar items, are mostly 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 price, so that it can resell at a profit. The gap is the same idea as a gold dealer's spread in lesson 6.2, Physical gold: bars, coins, storage and spreads, but usually much wider, because each item is unique, demand is less predictable and the dealer may hold it for months. Auction houses typically charge the buyer a premium on top of the hammer price and charge the seller a commission, so the buyer pays more than the hammer price and the seller receives less. Those rates vary by auction house and by price band, and are published in each house's terms of sale, so look them up for any auction you are considering.
The "worth" that Kumar's cousin quotes is probably a recent sale price or a listing price for a similar watch. What he would actually receive is the price a dealer or buyer offers him, after costs. Those are different numbers, and only the second one goes into his bank account.
Between buying and selling, a collectible costs money to keep in a condition someone will pay for.
Authentication matters most in markets with fakes. A buyer will want proof the item is genuine, such as original papers, a certificate or an expert's opinion, and if you cannot provide it, the price falls or the sale does not happen. Condition comes 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 all cost money, often every year.
Here is a worked example with made-up figures. Kumar buys a watch from a dealer for S$12,000. He insures it for S$150 a year and pays S$600 for a service before selling. After three years, comparable watches still sell for S$12,000, but the dealer offers 80% of that, S$9,600. His costs add up to S$2,400 lost on the sale, S$450 in insurance and S$600 for the service, a total of S$3,450, or about 29% of what he paid. Just to break even, the market value of the watch would have to climb to about S$16,300, a rise of nearly 36%.
That is the hurdle every collectible has to clear before it makes money. If Kumar would wear the watch and enjoy it, some of that cost is the price of the pleasure, which is a perfectly good reason to buy. It just is not an investment return.
You will often see indices claiming that some category of collectible has risen strongly over a period. Treat them with care.
Many collectible price indices are built from items that actually sold, often at auction. Items that failed to sell, or that sold privately for less, may not appear. Owners 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 the whole category look better than the average owner's experience. Indices also usually leave out the costs you have just worked through.
So when someone shows you a chart of watch or wine prices, ask what is included, what is left out, and whether the figures are before or after costs.
Some platforms let you buy a share of an expensive item, such as a painting or a rare watch, for a small sum. That lowers the entry price, but it adds questions about structure.
What exactly do you own? Often it is a share in a company or another legal vehicle that owns the item, which leaves you one step removed from the item itself. Who stores and insures the item, and who pays for that? How does the platform decide when to sell, and can you sell your share before then? Some platforms run their own market for trading shares, which may be thin. Is the platform regulated by MAS for this activity, and in which country is the legal vehicle set up? Check the platform's entity in the MAS Financial Institutions Directory, and read its documents on what happens if the platform itself closes.
A fractional share carries all the costs of the item itself, plus the platform's fees, plus the risk of the platform. It can still make sense for someone who wants the exposure. It just needs to clear the same checks.
Before buying any collectible, Kumar now asks what every step between buying and selling would cost him. 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.
Pick one collectible category and list every cost between buying an item and selling it, with an estimate or a note to look it up.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).