Browsing Category

Editorial

Will the Original Apple iPhone become a Valuable Future Antique?

Will the Original Apple iPhone become a Valuable Future Antique?

I’m constantly challenging myself to think differently in my quest for the next great antique.  And one of the questions I’ve recently pondered is “What luxury item today will become tomorrow’s investment grade antique?”  In many ways, the original Apple iPhone, released in 2007, is an obvious answer to this query.  It fulfills most of the five requirements for an investment worthy tangible.  The original iPhone is portable, ruggedly constructed from quality materials, fairly durable, and certainly embodies the stylistic zeitgeist of the age.

I know you’re thinking I’m slightly crazy.  But the idea really isn’t as unreasonable as it might seem at first.  For instance, a working example of a vintage Apple I desktop computer sold at auction for a record $905,000 in 2014.  This computer originally retailed in 1976 for $666.66.  You could have purchased one of these machines in new condition for the full retail price in 1976 and then simply tossed it into a closet to gather dust.  Had you done so, you would have been rewarded with an annualized return of 20.90% per annum over the 38 year period from 1976 to 2014.  In contrast, the S&P 500 index, although performing admirably over the same time frame, only managed 11.31% per year.

Alas, I hate to dash your dreams of future iPhone riches, but those sweet returns will not repeat with Apple’s first smartphone.  One big reason is rarity.  The Apple I computer was the Apple corporation’s very first computing device.  It was designed and hand assembled by Steve Wozniak, co-founder of Apple, friend of the late Apple CEO Steve Jobs, and a technology titan in his own right.  This strong link to the origins and founders of the company absolutely boosts the desirability of that model.

Only about 200 of the Apple I computer were produced in total.  On the other hand, over 6.12 million units of the original Apple iPhone were manufactured via hapless Chinese sweatshop labor.  The iPhone is simply not desirable according to this metric.  The Apple I computer is truly rare, with only an estimated 15 specimens still functional.  There are undoubtedly hundreds of thousands of original iPhones still extant and that will probably still be the case several decades from now, as well.

Another problem for the investment prospects of the original Apple iPhone is that the device is already becoming a complete anachronism.  Now, I suppose most antiques are anachronisms to some extent.  But a late 19th century, Gorham sterling silver pitcher can still be used to serve lemonade, iced tea or any other cold beverage you wish.  A vintage Longines mechanical wristwatch from the 1950s will not only still tell the time, but also help you look stylish while doing so, too.

However, an original Apple iPhone will be a fancy paperweight in the future.  The model has already been declared obsolete by both Apple and all major cell service providers.  The original iPhone stopped receiving software updates years ago.  It is also questionable if you’ll even be able to power one on after a decade or two.  An iPhone’s battery is non-user serviceable and, like all lithium-ion batteries, tends to gradually lose its ability to retain a charge over time.

Despite an original Apple iPhone’s case and screen being reasonably durable, its silicon-based circuitry isn’t as robust.  This will prove problematic considering replacement parts are no longer being produced.  Not that it matters much anyway.  Ever since the original iPhone was declared obsolete by Apple in 2013, it can no longer be serviced at the Apple Genius Bar in retail locations.  And given how difficult it is to repair an original Apple iPhone today, you can guess that it will be almost impossible to do so in another 50 years.

Finally, I would like to point out that a big reason the Apple I computer can command such high prices is because of how popular Apple devices are at the current time.  Few people know this, but Apple was very close to bankruptcy in 1997.  If the company had liquidated then, instead of going on to pioneer the modern smartphone, we would not be talking about that record breaking auction for the Apple I computer.

Instead, the Apple I computer would have remained an oddity from the dawn of the personal computing age, primarily of interest to hardcore technology nerds.  So acquiring an original Apple iPhone now is actually a huge bet on Apple remaining a dominant technology company for the next half a century.  In a business sector as competitive and cutthroat as technology, I would not want to make that wager.

A Good Hardwood Box Is Hard to Find

A Good Hardwood Box Is Hard to Find

I have a bit of an obsession with fine hardwood boxes.  I think this infatuation might be an extension of my interest in all things small, beautiful and precious.  After all, if you own a magnificent piece of antique jewelry, a fine vintage wristwatch or a stunning ancient coin, it is only natural to want to store such a treasure in a container worthy of its grandeur.  And the most laudable boxes I have found are those expertly crafted from temperate or exotic hardwoods.

There are a lot of very fine hardwoods out there in the world, and most of them have been made into wonderful boxes at one time or another.  Walnut, cherry, hard maple and oak are the premier North American hardwoods.  These species produce exceptionally beautiful timber that resonates with both traditional elegance and a rich history.

But my heart is reserved for the alluring grain patterns and sheer otherworldly beauty of exotic hardwoods.  The word “exotic” is a catchall term that usually refers to tropical hardwoods, but in reality can mean any hardwood not originating from a temperate climate.  Mahogany, ebony, rosewood, teak and purple heart are just a few of the nearly countless varieties of fine exotic hardwoods.  As a general rule, exotic hardwoods are more expensive than temperate hardwoods, although there can be exceptions to this precept.

There is something incredibly special about holding a fine, handmade hardwood box in your hands.  The way the flawless joinery seamlessly welds disparate pieces of the most precious woods on the planet into a single functional object is magical.  The swirling, irregular grain and subtle, natural tones of exotic hardwoods are unparalleled among natural or synthetic substances.

I have relentlessly stalked antique shops, flea markets, church bazaars and online sales venues alike searching for the perfect wooden box.  And do you know what I’ve discovered?  There are a lot of wooden boxes out there, but very few are really, truly fine.  In fact, the very best hardwood boxes are incredibly scarce.

On the other hand, poor quality, cheap wooden boxes are everywhere.  They are exported in quantity from sweatshops in China, Vietnam, Thailand, the Philippines and many other third world nations.  These miserable boxes are invariably made with veneers, plywoods and other inferior materials in order to keep costs down.  And because they are mass produced, close examination will always reveal the shortcomings of their careless, shoddy construction.

A truly fine hardwood box is simply a world apart from these base imitations.  A high quality wooden box is lovingly hand-fabricated with the greatest care.  The edges always match up perfectly, with no misalignment.  The solid brass hinges are usually partially hidden, sunken flush with the surrounding wood.  And the best of the best are often signed by the artist who created them.  And make no mistake, like any work of art, exceptional hardwood boxes are created by artists.

But the wood is the star of the show.  A skilled woodworker showcases the figured grain and intriguing tones of a fine hardwood, letting the natural attributes of the wood accentuate the design.  In fact, the best hardwood boxes almost never use stained wood; they don’t need to.  Instead they rely on stunning natural burl, spalted or figured woods to engage the observer visually.  Nature dons its own exquisite raiment.

The very finest hardwood boxes are true works of art.  In fact, they even rise to the level of an objet d’art – a precious, expertly crafted receptacle to store and protect the physical objects you treasure most.  Regardless of whether they are created from true Cuban mahogany, river red gum burl or honey mesquite with a live edge, a finely crafted hardwood box is worth every penny of its cost.

A Short History of Pawn Shops, Mass Production and Scarcity

A Short History of Pawn Shops, Mass Production and Scarcity

We live in an age of unparalleled material abundance.  Indeed, we are so desensitized to it that we often overlook this amazing feature of the modern age.  But the world wasn’t always this way.  Before the industrial revolution changed the world, stuff, any kind of stuff really – clothing, furniture, glassware, books, porcelain, etc. – was rare and valuable.  This may come as a shock to many people, but our current physical plenitude is a relatively recent affair.

For example, as late as the mid 19th century it was still possible to walk into a pawnbroker’s shop and receive a hard money loan against just about anything as collateral.  As proof, a New York City pawnbroker named John Simpson conveniently left us a record of the items he accepted as collateral on August 21, 1838.  On that nondescript day he loaned $2 against an accordion, $2.375 against three books, $0.75 against a cloak, $4 against a fur and $3 against a quilt.

This list requires a couple footnotes in order to be fully appreciated.  First, the $2.375 amount for the books isn’t a typo.  Half cents circulated in the U.S. before the Civil War and transactions were often tallied to half a penny.  And don’t be underwhelmed by the small dollar sums either.  Inflation has perniciously eroded the value of the dollar considerably since the 1830s.  Multiply the listed values by anywhere from 100 to 200 times to get a more accurate picture of their modern day purchasing power equivalents.

In any case, it should be pretty obvious from the above list that an average pawnbroker was willing to take just about any physical item as collateral back then.  But these hard-nosed businessmen weren’t stupid or incompetent.  They only loaned the money they did because nearly every physical good had a very real, tangible liquidation value at the time.  This is the antithesis of how we typically value run-of-the-mill stuff today though.  And to understand why this is the case, we have to understand a bit about the history of goods production.

Before the Industrial Revolution, every single object had to be fashioned by hand.  This was not only incredibly time consuming but also required the attention of an artisan who possessed both considerable skill and experience.  And let us not overlook the fact that any raw material used had to first be mined, logged, hunted or harvested by hand as well.  So it should be no surprise that all types of goods – including things we consider commonplace today – were expensive before the early 19th century.

The advent of the Industrial Revolution and all the productivity improvements it brought with it – steam power, interchangeable parts and factories – helped alleviate this near universal dearth of physical goods.  But even this was a painfully slow process as is evidenced by the pawnbroker’s collateral list above.  Stuff may have been cheaper and more available than it was before the Industrial Revolution, but even as late as the mid 19th century it still wasn’t common.

It wasn’t until Henry Ford introduced the moving assembly line in 1913 that the 20th century finally, slowly transitioned into an age of plenty.  This innovation was then followed in the 1960s and 1970s by just-in-time manufacturing, an inventory management technique pioneered by the Japanese.  These two manufacturing innovations have helped propelled us into an era of prosperity that would have been inconceivable to our ancestors only a couple centuries ago.

Today our city’s ports are choked with gigantic cargo ships offloading massive quantities of consumer goods like LCD televisions, appliances, clothing and vehicles to name just a few.  Now it is possible to peruse a local yard sale and buy a used DVD player, stainless steel silverware set and baseball glove with a single $20 bill and still have change left over.  However, this is very much a recent development, historically speaking.

Mankind is often slow to pick up on glacial societal changes of monumental importance.  I have a personal story that underscores this point.  Once in the mid 1990s when I was still in high school, I helped a friend’s dad with a project.  His name was Mr. Tonito and he owned a multi-unit apartment complex in a college town that he rented to students.

His tenants would often leave without cleaning out their apartments.  So I, along with a couple other friends, helped clean out Mr. Tonito’s building.  We stacked up piles of poor quality furniture, stuffed animals, clothing and even an obsolete Commodore 64 computer in the parking lot.  Then Mr. Tonito had an all day yard sale and, much to my amazement, grossed over $700 from this junk.  Whatever he didn’t sell went straight into the dumpster.

Although counterintuitive, I think the real lesson from my story is that the 1990s was the last time turning trash into cash like this was feasible.  It simply isn’t possible to convince most people to break out the credit card to buy more useless stuff these days, especially since the Great Financial Crisis of 2008-2009.  At this point, savvy observers are starting to realize that most average quality household items are in perpetual oversupply.  Simply stated, society is swimming in an ocean of disposable junk.

From this point forward, it is only the truly rare and desirable that will retain or appreciate in value.  And that is one of the reasons I advocate accumulating fine art and antiques.  These coveted luxury objects are constructed from the rarest of materials by artisans of unsurpassed skill.  Investment grade art and antiques are the antithesis of average in every way; they are the best the world has to offer.

Art and Antiques in Your Retirement Account

Art and Antiques in Your Retirement Account

So you’ve been considering investing in art and antiques when you suddenly have a brilliant idea.  Can you purchase these alternative assets in one of your retirement accounts – either a 401-k or IRA?  After all, many of us have significant amounts of money sitting in these accounts – sums ranging anywhere from just a few thousand dollars to upwards of several hundred thousand dollars.  Certainly diverting a small portion of your IRA from some hideously overvalued technology stock or near zero yield sovereign bond into investment grade art and antiques would be prudent?

Unfortunately, I have some bad news for you.  The U.S. government, in its infinite wisdom, has specifically declared most tangible assets to be off limits in retirement accounts.  The list is maddeningly comprehensive too.  Artwork, rugs, antiques, gems, stamps, coins and wine, as well as other tangibles are excluded.  To add insult to injury the IRS broadly labels these assets as “collectibles” – a term which I believe is both inaccurate and denigrating.

The sole exception to these draconian restrictions is certain bullion coins and bars.  In order to be IRA or 401-k approved, these bullion items must be struck in gold, silver, platinum or palladium in a minimum fineness of 0.995.  This sole precious metal carve out does little for the art or antiques enthusiast, however, as most of these bullion pieces (with a few important exceptions) have no collector’s value.

The ostensible reasoning behind the ban on art and antiques in U.S. retirement accounts is that they are considered too high risk.  This does the disservice of conflating worthless collectibles like Beanie Babies together with art masterpieces like Vincent van Gogh paintings.  Sure, some art and antiques are high risk.  But others are the bluest of blue chips.

In many ways it is no different from the stock market.  There are stable, respected, competently run companies like Apple, General Electric and Procter & Gamble that trade on the NASDAQ or NYSE.  There are also many shady companies with ethically challenged management that trade over-the-counter on the Pink Sheets.  Our illustrious politicians don’t seem particularly concerned that you can plow your retirement savings into unlisted, over-the-counter securities – the stock market equivalent of Beanie Babies.

The cynic in me believes these restrictions on art and antiques in retirement accounts may not merely be a quirk of obscure tax law.  I’ve long suspected that Wall Street lobbyists dictated 401-k and IRA legislation in a ploy to steer people into buying traditional investments.  After all, Wall Street generates obscene commissions when average people are forced into today’s dysfunctional stock market casino via their retirement accounts.

Our foreign friends are mostly in the same boat as U.S. citizens when it comes to investing in art and antiques in retirement accounts.  British personal retirement accounts – Self-Invested Personal Pensions (SIPPs) – do not technically forbid art and antique investments.  However, there are certain tax disadvantages to these “chattels” that effectively disqualifies the asset class – unless you enjoy walking through a tax mine field.

Canadians are no better off than their British counterparts.  The Canadian RRSP (Registered Retirement Savings Plan) does not make any allowance for art or antique investments.  However, like its U.S. counterpart, there is an exemption for certain precious metal bars and coins.

Australians looking to stuff investment quality art into their SMSFs (Self Managed Superannuation Funds) are in luck – sort of.  They are allowed to buy and hold art, jewelry, antiques, antiquities, coins, stamps, wine, classic cars and rare manuscripts, among other items.  This enlightened approach to funding retirement through art investments isn’t without restrictions, however.  Any art owned in an SMSF is subject to strict rules related to storage, insurance and appraisal.

I believe the unreasonable restrictions on art investments in U.S. retirement accounts will eventually be lifted.  But it will not happen before the smart money has enjoyed many years – perhaps even decades – of outsized gains in this superior asset class.  This situation will undoubtedly be a major frustration for average people trying to generate higher returns in their 401-k and IRA accounts.  Only investors with liquid funds available outside of retirement accounts will be able to take advantage of the tremendous opportunities found in art and antiques.