Investing

The British people have had a love affair with antiques for centuries.  No 18th century Georgian landowner’s holdings were complete without a fine house in London and a sprawling country estate, both of which were invariably decorated with the finest antiques available.  In the late 19th and early 20th century, wealthy British industrials took up the mantle from their aristocratic predecessors, stuffing their palatial mansions with hundreds, if not thousands, of antiques.  Today, antique investing is a more egalitarian affair, having been adopted wholesale by the British middle class.

This effortless social acceptance of antiques and art as a legitimate investment class in the British Isles has serious financial ramifications.  It means that British investors are, on average, more willing to sink serious money into these alternative assets and take the leap to becoming British antique investors.  Although stocks and bonds still constitute the majority of British investment portfolios, antiques are by no means ignored.

This situation contrasts sharply with U.S. investor preference, where anything outside of vanilla equities or fixed income instruments is often viewed with deep suspicion.  Even relatively staid investments like real estate are often eschewed by American investors unless they come neatly pre-packaged in an easily tradable, equity-like ETF (exchange traded fund) or REIT (real estate investment trust) version.

But why is this so?  Why are British antique investors drawn to the old and precious with such ardor?  I believe there are powerful cultural reasons why British investors gravitate towards antiques.

First, unlike most other Anglosphere countries, Great Britain has a long and storied history that stretches back to ancient times.  England has been ruled by people as varied as the Celts, Romans, Anglo-Saxons and Normans.  And that list excludes the island’s most recent 900 years of history!  In comparison, nearly all other Anglosphere nations – the U.S., Canada, Australia and New Zealand – have histories that span no more than a few hundred years at most.

Naturally, it shouldn’t come as a surprise that antiques have been omnipresent in British high society since time immemorial.  This familiarity has permeated British society to the point that the average British person intuitively understands the advantage and disadvantages of antiques.

Do you need your money back in 2 years?  Then a bank CD is a better place for your hard earned cash.  But if you want to stash that cash for a couple decades or longer, antiques, with their zero coupon bond characteristics, are an ideal investment vehicle.  These subtleties are lost on most U.S. investors due to their lack of experience with antiques.

Another big reason British investors love antiques is because of their once dominant global empire.  From the late 18th century to the mid 20th century, the British Empire, with London at its heart, spanned the globe.  During this period, goods and commodities of every description, including antiques, fine art and antiquities, flooded into the imperial capital from the farthest reaches of the Empire.

Over time, British citizens became familiar with antiques and art from a plethora of different cultures, including exotic Indian jewelry, sensuous Chinese jade sculptures and ancient Egyptian artifacts, just to name a few.  Although the British Empire is no more, its far reaching trade network has left an indelible footprint on the British aesthetic palate.

Today, London’s position as a global financial hub has helped the antiques trade retain its prominent place in British Society.  Trillions of dollars of global capital flow through London every year looking for safe and lucrative investments.  And this financial clout, coupled with Britain’s cultural history, prompts many international art and antique investors to make their acquisitions there.

In fact, in 2016 Great Britain’s market share of the world’s antique and art trade was an impressive 24%, second only to the U.S.  This is a remarkable feat considering that British GDP only represents 3.5% of global GDP.

Right now high quality antiques represent one of the greatest bargains in the investment world.  And British antique investors are better positioned than almost any other people to reap these rich rewards.  Because of their history and culture, more British citizens either already own antiques in their investment portfolio or will be inclined to buy when the right opportunity comes along.  Of course, the British antique investors’ cultural advantage can become your advantage too.  All you need is an open mind and a willingness to learn.

The year 2008 will forever stand as a stark dividing line in the history of antique collecting.  There was the time before 2008, when many categories of collectibles were still relatively vibrant and active.  And then there is the time after 2008, when many traditional collectibles markets – china, glass, furniture, etc. – collapsed in price.

What is the one key element that divides these two disparate time periods?  The answer is the Great Recession of 2008-2009.  This seminal event has reverberated throughout the antique collecting and investment market like an earthquake, right up to the present day.

The primary reason the Great Recession has had such a massive impact on antique collecting is pretty straightforward.  The economic fallout from the recession was absolutely massive.  In 2007, the real (inflation-adjusted) median household income in the U.S. was $58,149.  A full eight years later, in 2015, the same number stood $919 lower at $57,230.  A contraction in U.S. real household income was formerly unprecedented among post World War II recessions.

This declining discretionary income has had a direct impact on the ability of average people to collect antiques.  The marginal antique buyer has fled the marketplace and this is reflected in the pricing for most collectibles.  Prices for categories such as Depression glass, sports memorabilia, Waterford crystal, Victorian furniture and primitives, among others, have declined relentlessly since the Great Recession tore into the soft underbelly of the Western middle class.

I have a personal story that illustrates this fundamental change in the antique market.  In 2008, my beloved grandmother, aged 95, passed away.  She had been an avid collector of antiques and collectibles all her life, although she never paid much for any item.  After family members chose the antiques from her estate that they wanted, the remainder was put up for sale at a local auction house.

My family had always believed that her extensive antique collection was worth a significant sum of money – perhaps tens of thousands of dollars.  But reality, along with the concurrent Great Recession, shattered those misguided hopes.

Before I continue with the story, let’s review an important tidbit about the small auction scene.  Every small-time auctioneer is trying to reach a minimum bid of at least $100 for every lot he sells.  It simply isn’t worth the time to conduct bidding on lone items that end up selling for only $10, $25 or $40.  So nearly all auctioneers combine lower value, single items into larger, multiple item groupings in order to increase each lot price.

Many of my grandmother’s collectibles were of much lower monetary value than originally thought.  Consequently, most items from her estate were combined into multi-item lots by the auctioneer.  This phenomenon is actually a very important sign of a declining collectible market niche.  Many antiques that used to sell at auction as single items before 2008, now can only reach that magical $100 price point when they are sold in groups.

In the end, the collectibles portion of my grandmother’s estate realized less than $10,000 at auction.  This was partly due to the effects of the Great Recession.  Had her estate come to auction a couple years before, in 2006, the realized prices might have been 50% more, and perhaps even higher.  Once again, antique collecting clearly bifurcates into the time before the Great Recession and the period after it.

Now I don’t want to blame the decline of traditional antique collecting solely on the Great Recession.  There were other, powerful demographic and lifestyle trends gradually unfolding in the background at the same time.  But the financial damage caused by the Great Recession was the single largest contributor to the demise of antique collecting as it had existed since the mid 20th century.

And, so far, there are no signs that we are ever going back to the collectibles market that used to be.  So, if you are interested in collecting, stick to investment grade antiques that have a high probability of appreciating in the future.