Earlier this week I was sitting at a coffee shop doing a little writing. It was pouring buckets outside and I decided to wait it out for a good break in the storm. In doing so I started looking at different investment opportunities, outside of the traditional equity, bond, real estate, and commodities markets. I had my browser open to a page on ebay, contemplating whether I should enter a bid of $2,000 for something that had caught my attention months ago. It was the chance to own an original iPhone, still in the original box, and completely sealed. Surely this thing would appreciate over time. I could see this collectible fetching over $20,000 in about 20 years. It would continue to increase in value as inflation slowly crept up, lesser quantities of the original were in working condition throughout the world (let alone in an unopened box), and more people looked towards alternative investments to find returns.
Bummed that I didn’t have this idea 10 years ago when the product launched, I started thinking about how much I could have made. I could have just purchased dozens of the phones at retail cost, held onto them for a decade, and then unloaded them at a hefty profit. In doing my calculation I found that the cost at the time the phone went to market was around $500 (assuming the purchase was outright and without a contract), expensive at the time, but to think about all of the things that this phone could do it seemed cheap. To turn around and be able to sell them now at $2,500 a pop seemed remarkable, I could have recognized a 400% profit on every iPhone! Sure, the more I purchased and then tried to sell later the lower the price I could actually charge (laws of supply and demand) didn’t matter. I could have purchased ten phones for a total of $5,000 and then turned around ten years later and sold them for $25,000, this seemed too easy. Why not try to find other products that could be in high demand later on, such as sports memorabilia, original Starbucks mugs, or maybe those old oil containers that are always shown on bargain hunters television shows?
Before spending all of my entire life savings on beanie babies, candlestick telephones, and dated baseball cards I decided to do a little more research. How have “investments” in collectibles over time held up relative to other investments, mainly investments within the issuers stock?
In 1985, Nike, an American based athletic footwear and clothing company, released the first ever pair of Air Jordans to the public for $64.99. The shoes, worn by aspiring basketball star Michael Jordan, were an instant hit. Throughout the years as the brand developed new followers and Michael Jordan became the greatest basketball player to ever play the game the shoe values have skyrocketed. Although it’s difficult to get an accurate price check on the shoes because not many remain unworn and in their original box, it appears you can find them for roughly $5,000 a pair. A very steep price when compared to the original 65 bucks, to think that it’s been over 30 years since the initial release date means that the shoes have gained about 15% per year, not a bad return by any means. How would an investment in Nike’s stock back in 1985 performed over the years? At the end of December 1985, Nike’s stock price was 17 cents (when adjusted for dividends and splits). As of this writing the stock is up to $55, equating to an annual return of nearly 20%. In this scenario, simply owning the stock turned out to be a better investment than trying to buy and hold the Air Jordans.
During the 1920s and 1930s the Walt Disney Company was publishing one of the most iconic comic books of all time, Walt Disney’s Comics. These comics initially retailed for just ten cents each and featured legendary cartoon characters that are still popular today such as Mickey Mouse, Minnie Mouse, Donald Duck, Pluto, and several others. A quick internet search shows that these comics can fetch anywhere from a couple hundred dollars each all the way up to high four-figure territory, such as $8,000 or $9,000. A mint condition, first edition comic will most likely fetch much higher, however, those are so extremely rare that we’ll only analyze the ones that are a little more common. The fact that a ten-cent investment in 1930 could produce $9,000 today is nearly unfathomable. How wonderful would it be to have a few of those magazines laying around? Calculating the rate of return shows that a ten-cent investment in 1930 that produced $9,000 today would yield an annual growth rate of about 14.1%, a very solid return. Although the Walt Disney Company was not publicly traded in 1930, it was possible to acquire stock in the company as early as 1940 and much more accessible as of 1946. According to Investopedia, an initial investment in Disney would have yielded an annual return of roughly 18%, beating out the buy and hold comic strategy.
Coming back to my own reality and looking at my potential ebay bid I again wondered if it was really worth it to spend the $2,000+ on the phone. The iPhone was released on June 29, 2007. The price per share of Apple stock (adjusted for splits and dividends) closed at $15.68 on that day. Today the price of Apple stock is over $170, fueled by consumers interest in the flagship Apple product. This stock price equates to nearly a 1,000% increase in investment in just over ten years, a much better investment than the meager 400% returns the physical iPhone is producing. By purchasing and holding a physical product I'm also assuming that I could keep the product in good condition. To do this for several years by itself is a difficult feat, let alone several decades. What if something happened and the phone was damaged? What if my dog mistakenly bit the apple box thinking it was his own Bark Box that he receives monthly in the mail? I couldn’t help but weigh the risks versus the reward. As I hit cancel on my ebay bid and instead open up a browser to login to my Capital One Investing account I realize that sometimes the most basic form of investing is still the wisest (though maybe not quite as fun).
I do believe that collectibles can still be a wise purchase, but they shouldn’t be viewed as strictly investments. For someone that enjoys basketball and shoes for example, buying Air Jordans would be a phenomenal addition to someone’s collection. Likewise, if somebody is big into comics then there is no reason that they shouldn’t be able to add an original Mickey Mouse to their collection if they have the money for the purchase. The important thing to remember, however, is that the purchase shouldn’t be for investment purposes only, but for their own personal enjoyment instead.
It’s also important to point out that companies can and do go bankrupt from time to time and company stock can become worthless, whereas a physical collectible will still hold some value (I bet an Enron coffee mug is more valuable than a share of company stock).
What are your thoughts on the subject? Are you holding any collectibles that you hope to one day sell for a hefty profit?