Editorial

I’m constantly looking for exceptional values in the world of investment grade antiques.  Now that a new year is upon us, I feel it is a good time to release my list of the top three most undervalued antiques of 2017.  If you can spare the cash, these fine antiques will not only look great in your house (or on your wrist), but should also prove to be excellent long-term investments.

Vintage Mechanical Wristwatches from U.S. Makers

Vintage mechanical wristwatches are one of the hottest properties out there in the world of antiques right now.  They are stylish, functional and wonders of 20th century engineering in miniature.  But not all of them are equally in demand at the moment.

While the luxury European vintage wristwatch brands – Rolex, Omega, IWC and Jaeger-LeCoultre, to name just a few – are currently highly sought after, the American manufacturers have languished.  Some of the best known American watch companies were Hamilton, Elgin and Waltham.  Bulova, Benrus and Gruen were three more U.S. watch companies that sourced most of their movements from Europe, but are still usually considered American companies by collectors.

I think collectors often ignore U.S. vintage wristwatches because these manufacturers went bankrupt back in the 1950s and 1960s due to intense competitive pressure from their European counterparts.  To compound the problem, many of these American nameplates were sold off to low end, overseas watchmakers.  These foreign makers then exploited the remaining cachet of the American manufacturers by flooding the markets with cheap, nasty versions of these watch brands in the 1970s and 1980s.  Many people have accidentally conflated these later, inferior wristwatches with the original, high quality wristwatches produced by the pre-bankruptcy American watch companies before 1970.

Overlooked, vintage U.S. wristwatches represent exceptionally good value in today’s antique market, especially the higher end models in solid gold cases.  Investment-oriented buyers should look for models that still run and have fully jeweled movements, with a minimum of 15 or 17 jewels.  Once the vintage wristwatch market overcomes its irrational obsession with European models and discovers that a comparable watch from a U.S. maker can be purchased for between 1/5 and 1/10 of the price, that value gap is sure to narrow.

Japanese Antiques

Japanese antiques are, simply put, some of the finest handcrafted items known to man.  Made from the 17th century straight through the 20th century, investment-grade Japanese antiques span a vast range of objects, including tsuba (samurai sword guards), netsuke (miniature sculpture), gold and silver coins, lacquerware and woodblock prints, among others.

The Japanese national character strives for both harmony with nature and perfection of spirit.  These attributes combine to beautiful, often stunning, effect in Japanese antiques.  In addition, most Japanese antiques were painstakingly, laboriously handmade.  In today’s mass-produced, modern world, handmade antiques possess an allure and appeal that is almost magnetic.  And few cultures produced handmade items better than the Japanese.

Given the many positive characteristics of Japanese antiques, it is difficult to believe they could possibly be undervalued in today’s market.  But they are.  No more than a few hundred dollars will give you access to a broad range of choice, investment grade Japanese antiques.  And only the very finest Japanese antiques sell for more than $700 or $800 right now.

The reason the value of Japanese antiques have remained stubbornly low is the Japanese economy.  Japan experienced a massive twin stock market and property bubble in the late 1980s.  These bubbles burst right at the beginning of the 1990s.  Since that time, Japan’s nominal GDP has essentially flat-lined.  And because nominal GDP is the main driver of aggregate antique prices, the valuations of Japanese antiques have stagnated along with Japan’s economy.

However, I don’t believe this is a permanent state of affairs.  And not because I believe the Japanese economy will suddenly and miraculously improve.  Instead, I think Japanese antiques are steadily gaining a loyal following among art and antique connoisseurs overseas, especially in the U.S.  Eventually this increased demand will soak up any excess supply, driving prices skyward.

Antique Silverware

A classic of the antique market is fine, old silverware.  It has been a staple of wealthy, aristocratic households for centuries, providing a convenient way to store and transmit tangible wealth across generations.  As an added bonus, investment grade antique silver flatware and hollowware is not only elegantly crafted, but also simultaneously functional.

However, in spite of possessing considerable intrinsic value and tremendous aesthetic appeal, antique silverware is shockingly inexpensive today.  This development is even more puzzling given the fact that the price of silver bullion has tripled or quadrupled over the last 15 years.  In contrast, antique silver flatware and hollowware has only doubled in value, and sometimes not even quite that.

This means the premium on most antique silverware, the monetary amount in excess of the bullion value of the piece due to its artistic merit, has actually decreased in percentage terms in recent years.  But this situation is a boon to savvy antique collectors and investors.  A variety of beautiful, versatile and eminently valuable solid silver flatware and hollowware sets are available for just a few hundred dollars, or even less.  And unlike some antiques, historically important antique silver from as long ago as the late 18th century – almost 250 years old – can still be readily found in the marketplace for modest prices.

I believe this trend in the antique silver market is largely driven by secular changes in living arrangements among the younger generation.  More young people are now living in apartments, condos and townhouses that do not have separate, formal dining rooms.  This lack of a formal dining space, coupled with the modern tendency toward very informal meals and gatherings, means that antique silverware is often perceived as superfluous.

However, this thinking is in error.  Antique silver is a very versatile and practical luxury item.  It is just at home in a small, intimate gathering with wine and tapas as it is in a formal banquet for royalty.  So I don’t believe today’s low prices for fine antique silverware will persist forever.

I recently read an article on Bloomberg provocatively titled “That $100,000 Painting Bought to Flip Is Now Worth About $20,000“.  It talks about how an insane bubble in the contemporary art market that peaked in 2014 has now irretrievably burst, sending prices for the works of young, up-and-coming contemporary artists plummeting.  According to the article, prices of many pieces have dropped by anywhere from 50% to 95% over the two year stretch since their price peak in 2014.  The cynics among us might take this as proof that art is a terrible investment.

But I think that would be a poor conclusion.  For one thing, most of the works profiled in the Bloomberg article are not what I would consider art.  In my opinion, art must be beautiful.  Unfortunately, most contemporary “art” lies somewhere between competent color study at best and ugly as sin at worst.  So it shouldn’t be surprising that I avoid paintings (and large sculptures too, but that is another story) in my investment recommendations.

As an example, the Bloomberg article profiled a mixed media work by contemporary artist Lucy Dodd titled “Unwound Rope Wall Piece”.  It stated that the piece was only estimated to bring between $10,000 and $15,000 at auction, a far cry from her previous auction record of $37,500.  Unfortunately for Lucy Dodd, and anyone unlucky enough to buy her work, this piece of “art” looks like a very dirty window blind made out of dozens of loosely hanging strands of rope from an old mop.  If you think something like that is art, then I am sorry, but AntiqueSage.com is not the website for you.

However, most of the works profiled in the Bloomberg article were paintings.  While paintings can be wonderful works of art, I am not particularly enthused about them as investments for a few reasons.  First, paintings are the most widely recognized form of art.  Ask the average person what art is and 9 times out of 10 the answer will be paintings.  A side effect of this prominence in the public imagination is that paintings have been scoured relentlessly by professionals looking to invest in contemporary art.  Hence, there are few bargains to be found.

Second, the world of contemporary art – most of it paintings – is, more or less, a cesspool of insufferable, pseudo-intellectual junk.  Most contemporary artists don’t actually create works in hopes of producing beautiful, alluring pieces.  Instead, they have fetishized contemporary art into a morass of inaccessible, unapproachable and sometimes bizarre representational ideas.  If that doesn’t make any sense to you, then welcome to the club.  Most contemporary art strives to be performance art applied to a canvas.  And no, that isn’t a compliment.

And the people who actually invest in high-priced contemporary art are often no better than the artists who have created it.   These contemporary art consumers are usually just trying to impress their acquaintances at the local country club.  They don’t see the works as aesthetically pleasing or even really understand them.  Instead, they are just tools to project social status and power.  By this measure, the more money you spend on a contemporary painting and the fewer people who understand it, the better.

Lastly, the Antique Sage’s five rules of investing in art can be much more easily be applied to mediums other than paintings.  The investment desirability of any work of art is determined by five general attributes: size/portability, quality of materials and construction, durability, scarcity and stylistic zeitgeist.  But these qualities are far more easily defined and measured in the minor arts: jewelry, coins, miniature sculpture and objets d’art, among others.

In other words, while I can tell you how desirable many antiques and other minor arts are, I can render no valid, objective opinion on the investment merits of paintings – particularly contemporary paintings.  But, I do know that if you set a typical, non-representational, contemporary painting in front of 100 people, only 2 or 3 will find it to be attractive.  And, if anything, I’m being a little too kind with that assessment.  In reality, probably something closer to 1 in 100 people finds contemporary paintings to be visually appealing. That doesn’t sound like an asset with great investment potential to me.

So I’m not surprised that a bunch of self-important, avant-garde speculators lost a lot of money gambling in contemporary art.  And I also don’t have much sympathy for them.  As they say, those who sow the wind, reap the whirlwind – even in the art world.

Instead, this Bloomberg article underscores that real investment grade art – alluring ancient Greek coins, stunning Art Deco diamond jewelry and exquisite Japanese Edo era samurai tsuba, among others – is still a great investment.  This underrated asset class is not only remarkably accessible to the average person, with prices generally starting at only a couple hundred dollars, but has also suffered no significant price declines.  It simply isn’t subject to the whims of a few rich corporate executives or trust fund elites who enjoy dappling in the contemporary “art” market.

Long ago, when I was a child, there was a local mom and pop video rental store a couple miles from my parent’s house.  I used to rent movies there all the time, everything from horror to action to comedy and more.  It was my primary source for video rentals from my early childhood through my college years.  Shortly after I graduated college I left for Boston and for many years I didn’t think about the little video rental shop on the corner.

When I moved back near my hometown after nearly 14 years away, the topic of the local video rental store came up in casual conversation.  My parents were still using it as their primary source for renting movies.  But when the store’s ancient computer systems spontaneously crashed one day, the owners wisely decided it was time to finally close.  For the next few weeks they still rented movies to regular customers by handwriting their names and account numbers on slips of scrap paper!  This was not a sustainable way to operate however, and was only used to buy time to organize a liquidation sale.

A little more than a month later it was all over.  The small video rental store that had been a touchstone of my youth and young adulthood was gone.  The little shop had weathered the VHS-Betamax format wars.  It had survived the rapid expansion of Blockbuster Video, which had forced the closure of so many other small video stores.  And it had made it through two different physical media transitions – VHS to DVD and then DVD to Blu-ray.  In all, my local video store was in business for around 30 years, from the early 1980s until the early 2010s.

The more I thought about that small video shop, the more fascinated with it I became.  Here was a completely new kind of business model – physical video rental – that suddenly burst into being, thrived for a scant two decades and then flared out of existence just as rapidly as it had formed.  How could an entire industry come and go so quickly?  And yet here was a prime example.  If anything, my local video store did better than average, managing to stay open far longer than most of its peers.

The more I considered this imponderable the more I wondered if it applied to other industries as well.  My mind immediately focused on my time in Boston.  One of the asset management companies I had worked for there was a quantitative firm.  This simply meant that their investment model used computer algorithms to pick the best stocks to buy.  They would feed the computer a list of desirable attributes, have it search the stock market for companies with similar attributes and then buy the stocks that ranked highly on the resulting list.

The founders of this company conceived of their idea back in the 1980s.  But back then the immense computing power and massive data sets necessary to execute such a task did not exist.  And, ironically, it was probably this very inaccessibility that made their idea viable.  There was no competition for their investment model because no one, including my former employer’s founders, could easily assemble the tools necessary to implement it.

Fast forward to today, where massive computing power is plentiful and data flows like water.  The Boston quantitative asset manager in question has had great success.  Its founders persevered, painstakingly building the company client by client from the 1980s until the present.  And yet I can’t help but feel that the clock is ticking on the success of their investment model.  Other quantitative asset managers have sprung up like weeds over the last 20 years.  The investment landscape is very crowded and everyone is working with the same general evaluation criteria, i.e. dividend yield, price-to-sales ratio, net profit margins, etc.  I suspect that quantitatively driven stock investing, a darling of the investment world for many years now, is nearing the inevitable end of its period of outperformance.

And I think this concept – that a business or investment model has a finite shelf life – applies just as surely to investment management firms as it does to video rental shops.  A new idea comes into existence, but its implementation is difficult or limited in some way.  No one has ever heard of this new idea and few people are initially interested.  It is only after the innovative concept establishes a successful track record that it is slowly embraced.  Then competitors enter the space and the formerly original idea gradually becomes accepted as conventional wisdom.  Once this happens, the best days of the concept are assuredly past.

This is one of the reasons I love investing in fine art and antiques rather than traditional paper assets.  It’s an obscure investment model that is totally off the radar.  If you search the internet for investment tips related to antiques, you will find precious few with the exception of Antique Sage.  Art and antiques have been ignored and neglected for so long that no one is even aware they exist.  And yet they are an asset class unto themselves, an unexplored island of profound value sitting like jewels in an ocean of overvalued conventional assets.  And anywhere there is an underappreciated and forgotten asset there is a bargain waiting to be found.  The clock may eventually run out on every investing strategy, but fine art and antiques still have many good decades ahead.