The year was 2003 and I couldn’t believe what I was seeing on eBay. I had just completed a search for Japanese one yen coins. These are large, silver dollar-sized coins that Japan minted from the 1870s until World War I.
I was shocked by the results that were returned. There were dozens of slabbed (3rd party certified) mint-state (mostly MS-63) silver Japanese one yen coins available for a buy-it-now price of only $60.
These were impressive coins in the highest possible condition with implicit authenticity guarantees due to their certification. But only $60 a coin? Really? Why were they so cheap? And why were so many available?
In the end, I never bought any of them, although in retrospect I desperately wish I had. Today, the same coin – certified and in the same condition – would cost you about four times as much – $240 give or take. That translates into a compound annualized return of slightly over 12% before commissions and fees.
So what went wrong? Why didn’t I grab the great deal that was staring me in the face when I had the chance, especially considering I had no doubt that it was a great bargain at the time?
Unfortunately (or maybe fortunately), certified Japanese silver 1 yen coins weren’t the only asset trading cheaply at the time. I was also making frequent purchases of pre World War I European fractional gold coins at the time. In the stock market I was into oil and gas royalty trusts.
My attention was being pulled in many different directions and in the end I didn’t feel I had the time or energy to strike out into yet another area. I also wasn’t making great money at the time and a couple hundred dollars was a lot of money to me. These reasons all amounted to excuses on my part.
In retrospect I could have easily bought a few Japanese one yen coins, simply thrown them into a safe-deposit box and happily ignored them for the next decade or two. I could have earned returns that would have made most stock market participants sick with envy.
I think the primary reason I didn’t acquire any silver Japanese one yen coins was due to a concept I call “opportunity fatigue”. Even when we are presented with great bargains, opportunity fatigue causes us to second-guess ourselves in two ways.
First, how can a quality asset trade so cheaply? This is a variation on the efficient market hypothesis which states that all pertinent information concerning an asset is already embedded in its price. Therefore, if an asset is available cheaply, it must be because it isn’t very good.
Otherwise all other market participants would have already recognized its value and bid it up. Of course, in the real world efficient markets don’t really exist; they are a theoretical construct of academics who don’t understand just how irrational and trend-following investors actually are.
Second, even if you do buy an undervalued antique it is unlikely that prices will begin moving up immediately. Instead you will still see a dozen or more very similar antiques just sitting on the market for the same price. It usually requires several years of an asset wallowing in low-price obscurity before enough buying pressure accumulates to definitively and permanently raise prices.
In the meantime, opportunity fatigue wears us down. We are left with the nagging feeling that we’ve sunk our hard-earned money into a loser, an illiquid asset that – on a good day – is worth no more than what we paid for it.
It is very important not to succumb to opportunity fatigue. It can be one of the costliest dangers that you will face in the field of alternative investments. One way to mitigate this risk is to systematically make purchases in your chosen asset category on a regular basis – basically dollar-cost averaging. The other way is to keep in mind that by investing in art and antiques – the cutting edge of alternative investments – you will undoubtedly be, temporally speaking, far ahead of more average investors.
In these circumstances it shouldn’t be surprising that the rest of the crowd doesn’t catch on for a few years. In fact, that is the primary advantage of investing in art and antiques. It gives you ample time to accumulate both greater market knowledge and a significant position, in stark contrast to all the momentum chasers that will surely come later.
