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The Importance of Patina When Investing in Antiques

The Importance of Patina When Investing in Antiques

It is impossible to talk about investing in antiques without mentioning patina.  Patina is defined as a toned or darkened surface layer that naturally forms on an item over very long periods of time, typically decades or even centuries.  Almost all materials, including metal, wood, paper and stone, will acquire a patina eventually.  Therefore, almost anything genuinely old – effectively any antique – will possess a patina of one type or another.

The appearance of patina can vary widely from material to material, but those that develop on metals are some of the most distinctive.  For example, the velvety, almost powder green verdigris of copper is perhaps one of the most widely recognized looks in the world.  But bronze, with its deep, glistening metallic brown and brass with its soft, golden aura, are also renowned by artists and connoisseurs alike.

Precious metals, surprisingly, also have their own enchanting patinas.  For instance, sterling silver forms a pleasingly mellow, tarnish resistant coating after decades of polishing and handling.  Even karat gold, which is typically highly oxidation resistant, will acquire a very subtle, softly glowing bloom over time.

Although metals have some of the most unmistakable patinas, they are not the only materials to form them.  Wood also tends to develop wonderfully rich and inviting patinas over long periods of time.  This is best exemplified by fine antique furniture, where mahogany, walnut, rosewood and other fine hardwoods gradually darken and take on a richer, deeper tone over time.  But smaller art and antiques, like Japanese netsuke carvings, objet d’art and picture frames often incorporate beautifully patinaed wood too.

Antique prints, manuscripts and paintings will often develop a unique look, called foxing.  Foxing is the formation of brown, reddish-brown or yellowish spots that occurs on old paper.  Although the reason behind foxing is not well understood, it might be caused by either fungal growths or the oxidation of certain elements in the paper pulp, ink or paints.  Unlike other patinas, foxing on old documents or art is undesirable, but also often unavoidable.  Therefore, as long as it isn’t too severe, the price impact is usually very limited.

Why should antique collectors and investors care about any of this?  The answer is fairly straightforward; patina is a primary indicator of genuineness.  An even, natural patina indicates that an item’s surface has been undisturbed for many decades, if not a century or more.  It means that an item is completely original – without repairs, modifications or alteration.

Any repair or alteration made to an antique will, by necessity, disturb any pre-existing patina, rendering it obvious to the careful observer.  And patina is notoriously difficult to create artificially, although forgers do try their best.  This makes an original, undisturbed surface an unofficial, but incredibly important, seal of authenticity for antiques.  In the world of antiques, original items are always the most desirable and, hence, the most valuable.

Regardless of whether you are interested in ancient Roman denarii coins, medieval illuminated manuscript leaves or mid 20th century mechanical chronograph wristwatches, patina is important.  Choosing an antique that has an even, attractive patina helps ensure you are buying a beautiful and original work of art that has the best future investment potential possible.

How Much Knowledge Does It Take to Successfully Invest in Antiques?

How Much Knowledge Does It Take to Successfully Invest in Antiques?

Many of us believe the myth that in order to successfully invest in antiques you must be an expert, preferably with decades of experience and a PhD or two under the belt.  And while I think it is clear that more knowledge is better than less knowledge, it isn’t a requirement to be a good antique investor.  With only a little basic knowledge, beginners can do just fine investing in art and antiques.

Why is this the case?  After all, if you don’t want to be eaten alive in the stock and bond markets, you’d better have extensive, specialized technical knowledge.  Even then, as the famous 20th century British economist John Maynard Keynes once said, “The market can stay irrational longer than you can stay solvent.”  No wonder so many people just throw their savings into a vanilla S&P 500 index fund and forget about it!

But investment quality art and antiques is a different animal.  First, it is very much an alternative asset class.  This means there are relatively few investors looking for opportunities there at any given point in time.  So there is a lot less competition than in the traditional paper asset markets.  As a consequence, the good buys are often sitting in plain sight, just waiting for someone, anyone, to come along and scoop them up.

A great example of this could be found in high end, vintage fountain pens.  After the development of cheap and effective ballpoint pens in the 1960s, antiquated fountain pens quickly fell out of favor.  So they languished, unused, in old desks, the back of dresser drawers and buried in closets.

By the 1990s and early 2000s, you could find vintage fountain pens at garage sales and flea markets for maybe $5 or $10 each.  Today, circa 2017, a common example of a problem-free vintage fountain pen might trade for anywhere from $50 to $100.  Absolutely anyone with even the most basic knowledge could have bought these overlooked investment gems by the dozen for a pittance only a decade or two earlier.

“Back to basics” is another theme to strongly consider when you invest in antiques.  You don’t have to conduct fancy analysis or complex market studies to find a solid investment grade antique.  Instead, you just have to follow five simple rules.  If your antique is portable, high quality, durable, scarce and exhibits the zeitgeist of its era, then congratulations, you have a winner!

But wouldn’t being an expert help you choose even better antiques?  The answer to this question is “yes”, but only a qualified yes.  Expertise has its limitations, even in the realm of art investments.

Numerous psychology studies have shown that having more facts about a topic makes a person more confident in his conclusions about that topic.  However, once a basic level of understanding has been achieved, any additional knowledge does not increase the accuracy of those conclusions, statistically speaking.  In other words, more knowledge, while generally good, can also lead to overconfidence, which is a deadly sin in the world of investing.

In the end, it is most important is to invest in antiques that personally appeal to you.  It could be vintage mechanical wristwatches, or ancient Greek coins, or mid 20th century Japanese “Shin Hanga” woodcut prints.  Almost any antique will do, provided it meets the five criteria of investment grade antiques mentioned above.

Then, search online auction sites and antique dealers, like eBay, Etsy or Ruby Lane for items in that category that look good to you.  Chances are that if you find an item aesthetically attractive, other people will as well.  This, ultimately, is the basis of investment demand and, by extension, good returns in art.

Of course, you absolutely need to learn the basics before you invest in antiques.  Purchase a book or two on the topic first.  Or, better yet, get up to speed on a collecting topic in about 15 minutes via the Guides section of the Antique Sage website.  If you are really interested, you will gradually develop expert level knowledge over time.  And while that is good, you don’t need it in order to successfully invest in art and antiques.

My Investing Mistakes – Antiques That Got Away

My Investing Mistakes - Antiques That Got Away

This is a rather painful article for me to write.  I’m going to detail some of my biggest tangible investing mistakes.  These were really great antiques I passed on that, in retrospect, I should have purchased.

My investing mistakes usually had one thing in common: they seemed expensive at the time.  Of course, these lost opportunities would all be hideously more expensive today, assuming I could even find items of equal quality.  So, without further regret, let’s examine some of my greatest failures as an antique investor.

In 2005, a long-time jeweler in downtown Boston was liquidating his shop and going out of business.  So one Saturday, I confidently strode in armed with a loop and an untapped credit card.  I looked through tray after tray of jewelry, but didn’t find anything appealing.  Then I saw it.  A gigantic, unmounted, old mine cut diamond sparkled seductively from a display case.  I asked the salesman to pull the diamond for me so I could examine it more closely.

It was truly a gem.  The stone was huge – approximately 4.5 carats.  And with the exception of its somewhat yellowish tone, which is the norm for old mine and old European cut diamonds, the stone was otherwise excellent.  The cut was well executed and the gem was only moderately included (flawed).

The allure and sparkle of a fine old mine cut diamond is difficult to convey unless you’ve seen one in person.  In these Victorian era cuts, brilliance – pinpricks of white light – are minimized.  Instead, fire – rainbow colored flashes of light – are emphasized above all else.  And the slight yellow tint of old mine cut diamonds lends them a charming, warm character that is unmistakably alluring.

The stone in front of me was a monster, not only in terms of size, also in the intensity of its dazzling fire.  The salesman was determined to sell the gem.  I was lukewarm.  He wanted $3,500 for it.  I told him no.  He offered it for $3,000.  I said I didn’t want to spend that much.  Clearly desperate, he finally said he would let it go for only $2,700 and swallow the sales tax too!  I vacillated.  I really hadn’t intended to spend so much money that particular day.

I pushed for $2,500, but the salesman held firm.  In the end I passed, mostly because I felt the stone’s color was a little too poor.  I feared it would turn into a white elephant – a showy, expensive item that can’t be easily resold because of one, major flaw.  It was one of the stupidest investing mistakes I ever made in my life.

Demand for quality old cut diamonds has skyrocketed over the past decade.  The stone that the salesman practically begged me to buy for $2,700 in 2005 would probably sell for at least $10,000 in 2017, if not more.  That works out to an annualized return of about 11.53% over the last 12 years.  And that is assuming a conservative wholesale price.  If you wanted to buy it from a jeweler or other retailer it would probably be $25,000 or more.  I still have nightmares about passing up that diamond.

And yet that was only one of many stupid investing mistakes I’ve made with antiques over the years.  Another incident occurred in 2003 when I was perusing the inventory of a Boston area antiques dealer that specialized in estate jewelry.  This gentleman had a platinum, sapphire and diamond Art Deco brooch for sale that instantly piqued my interest.

This beautiful piece was clearly all original, without any modifications or repairs.  The finely wrought platinum setting was indicative of a very high quality piece of jewelry.  The mounted stones did not disappoint either.  Although liberally sprinkled with small, single-cut diamonds, the real star of the show was the gigantic, deep blue sapphire set in the middle of the brooch.

This was simply one of the finest sapphires I had ever seen.  And it was completely natural as well.  Under the loupe you could faintly see distinctive, hexagonal color banding, a sure sign of a natural stone in the context of a 1920s piece.  This was no synthetic, but a completely natural, untreated sapphire.  And the color was phenomenal – an intense, vivid royal blue that only occurs in the very finest sapphires.  Of course the stone was large.  By my estimate it was at least 1.8 carats and may very well have tipped the scales at over 2 carats.

The dealer wanted $1,200 for the piece.  I countered with an offer of $1,100 in cash.  He knew exactly how nice the item he had was and promptly turned down my offer.  I walked away, ensuring this experience took a hallowed position in my pantheon of antique investing mistakes.  I shouldn’t have walked away.  I should have just paid him the extra $100 and exited the shop with my new treasure while thanking God for my good fortune.

But the economy was bad at the time and I was doing contract work.  I didn’t feel comfortable paying full price.  I really, really should have though.  Years later in 2010, the price of good quality blue sapphires jumped by about 50% practically overnight.  The central sapphire from that brooch would be worth around $5,000 in 2017 by itself.  That $1,200 investment grade brooch would probably wholesale for maybe $7,000 or $8,000 today.  That represents a 13.42% annualized rate of return!

I hope that my investing mistakes can be a learning experience for you.  I knew that the superlative pieces I passed over were incredibly high quality.  I simply couldn’t bring myself to pay the extra $100, $200 or $300 that the seller wanted for them.  That tiny, additional premium simply seemed exorbitant at the time.

I could not have been more wrong.  The very best investment grade art and antiques often trade at premium prices.  Take my word for it.  Save yourself some heartache and pay the nice dealer his extra $100.  It will be well worth it in the long run.

Investing in Gold? Mind the Stairs

Investing in Gold - Mind the Stairs

Gold generates a lot of interest from the investment community lately – and with good reason.  It is the world’s premier tangible asset and hard currency.  It does not rust, corrode or oxidize.  Its beauty is immutable, having been treasured by nearly every civilization on earth for the last 5,000 years.  But there is one little known fact about investing in gold that must be understood in order to generate the best possible returns from this precious metal.

Gold is often seen as a hedge against inflation and the depreciation of fiat currencies.  And while these things are absolutely true, they omit some important details.  Specifically, gold does not tend to steadily appreciate, little by little over time.  Instead, its price gains usually occur in a distinct, stairstep pattern.

The above chart shows the price of gold from 1900 through 2016 on a logarithmic scale.  A logarithmic format has two advantages over a traditional price-axis chart.  First, it allows the chart to clearly express very large changes in dollar value in a way that is easily comprehensible to the viewer.  Second, it normalizes price changes, so that any given change in value – a doubling or halving, for instance – will always have the same scale at any point in the chart.

The value of using logarithmic scale becomes apparent when we examine the chart closely.  It quickly becomes obvious just how closely the historical price of gold has followed the stairstep pattern during the 20th and early 21st centuries.  The flat parts of the “stairs” in the accompanying chart are highlighted with red horizontal lines that depict the average gold price over that period.  These flat areas are interspersed with step “risers”, which are the result of a sharply appreciating gold price, usually during a financial crisis.

From the late 19th century until 1933, the U.S. dollar was on a fixed gold standard.  During this period, the dollar was officially defined as 0.0484 troy ounces (1.50 grams) of pure gold.  This translated into a price of $20.67 per troy ounce of gold.  This gold standard was rigorously maintained for many decades until the Great Depression forced a devaluation.

In 1933, President Franklin Delano Roosevelt officially devalued the dollar by 41%.  Instead of each ounce of gold being exchangeable for $20.67, the government would now pay a full $35 for each troy ounce of the precious metal.  This new, $35 an ounce standard underpinned the prosperity of the post World War II global economic system.

In 1971, after many years of mounting budgetary and inflationary pressure, President Richard Nixon allowed gold to float freely.  This meant that the dollar was no longer exchangeable for gold at all.  Gold, now officially untethered from the monetary system, immediately began to rise in dollar terms.  This rapid appreciation persisted until 1980, when the gold bubble burst.

The yellow metal then spent the next 20 odd years experiencing a brutal bear market.  Investing in gold during this phase of its cycle was a poor idea.  But, in retrospect, this long period of persistently declining prices was really a two decade long price consolidation.  By the early 2000s, gold rocketed skyward again.

The price of gold most recently peaked at more than $1800 an ounce in 2011.  Since then, the price has gradually subsided to its current level of about $1,200 per troy ounce.  We are once again in a trading range – the “flat” part of the stairs.

Why does this stairstep pattern exist in the gold price?  The answer to that question in the first half of the 20th century is fairly easy.  At that time, the dollar was defined as a certain weight of gold.  As long as the U.S. Government was willing to exchange gold for dollars at a given weight, the price of gold was effectively fixed.  This policy naturally resulted in long periods of stable gold prices.

But once a financial crisis of sufficient magnitude occurred, the government was forced to devalue.  This created sudden spikes in the gold price that seemed to come out of nowhere.  But the reality is that economic pressures had already been building for many years before the official devaluation happened.

Since the advent of the 1970s with its free-floating currency regimes, the stairstep price appreciation of gold has become more irregular, but is still there.  I think that the stairstep pattern persists in the modern era because governments tend to use the gold price as an informal inflation barometer.  If the price of gold rises out of its trading range, central banks will usually raise interest rates, thus suppressing the gold price.

But this is ultimately an unstable state of affairs.  Even if the price of gold is contained, excessive debt and malinvestments still accumulate in the real economy.  These eventually lead to financial crises that central banks address by lowering interest rates and printing money.  This causes the price of gold to rise sharply and definitively break out of its trading range.  These are the times you want to be investing in gold.

However, it is obvious that gold’s price movements are more nuanced than they were before its demonetization in 1971.  Now gold tends to slightly overshoot in price at the end of its appreciation phase before settling back slightly.  This happened most recently in 2011.

The “flat” portion of the gold price step has also transformed into a fairly broad trading range.  This is where we are right now, with gold bouncing between about $1,000 and $1,400 per troy ounce.  This consolidation will continue until the next financial crisis drives widespread, safe haven interest in investing in gold.  The price will then spike violently upwards again, catching many investors off guard.

Gold is a great asset.  But if you want to get the most out of investing in gold, it is imperative that you understand the stairstep pattern.  Gold has been following this simple rule for the past century and now you can follow it too.