The antique market has undergone dramatic changes in the last 20 years. It has transformed from a closed industry where only insiders flourished into a market where anyone with some knowledge can achieve sensible investment returns. In 1995, before the commercial advent of the internet, the industry was dominated by dealers who purchased items from private individuals and auctions and then re-sold them in physical shops with a markup ranging from 100% to 300%. The spread between the bid and the ask price of most antiques was too large for a retail buyer to ever expect to make a reasonable – or even positive – investment return except by luck. This made antiques a problematic investment recommendation.
For example, let’s suppose you bought an investment grade antique for full retail price in the pre-internet days. It then appreciated by 7% per annum for 15 years straight at which point you decided to sell. But when you sold, you were forced to accept an antique dealer’s wholesale price, which was 50% of his retail pricing. The huge difference in the bid/ask spread (in this case a 100% markup) would mean your initial 7% annual return atrophied into just a 2.17% return. And as bad as that seems, your return would have been even worse if the dealer were to have offered you less than 50% of his retail pricing. In effect, buying antiques at a retail price and later selling them at a wholesale price destroyed your potential investment return.
The inception of the online auction house eBay in the late 1990s was a sea-change for the antique market. At a stroke, eBay allowed dealers to sell their goods to the highest bidder nationally or even internationally. By the same token, private individuals cleaning out their garages could list items on eBay and receive the same prices that dealers got on their auctions. The antique market bid/ask spread which used to be 100% to 300% suddenly shrunk to eBay’s listing fee – only 10% to 20%! This tremendous decline in the bid/ask spread made antiques and art far more accessible as an investment vehicle for the average person than ever before.
For instance, if you bought the same antique as in the example above and held it under the same conditions, you would be able to sell it for approximately 87% of retail today versus 50% of retail in the bad, old pre-internet days. This would leave you with an average annual return of 6.01% out of a theoretically possible 7% – an immanently reasonable return on your investment. And it is distinctly possible that spreads in the antiques/art market could tighten even further in the future as the online marketplace continues to mature. To sum it up, antiques and art were simply not a viable asset class for the average person before the arrival of the internet. But today they represent a unique opportunity for those astute investors bold enough to seize it.
