Art and Antiques as Perpetual Assets

Art and Antiques as Perpetual Assets

Most of us are looking to invest our retirement funds in asset classes that stand the test of time.  When we access our money 10, 20 or 30 years in the future, we not only expect it to still be there, but to have also grown.  In other words, we want to buy perpetual assets.  This investment philosophy is best summed up by the famous Warren Buffett quote, “Our favorite holding period is forever.”

In order to achieve this end, Warren Buffett invested primarily in common stocks.  And an entire generation of investors eagerly followed his lead without really understanding the mechanics behind it.  Both Wall Street and the general public have completely embraced the idea of “stocks for the long run.” As a result, we are currently overrun with stock-oriented mutual funds, ETFs and hedge funds.  In fact, there is a very good chance that your workplace 401-k plan is dominated by equity funds, with only a single money market fund and maybe one or two bond funds as alternatives.

But the idea that you can robotically dump your retirement savings into stocks and expect eternal 10% returns as if it were a fundamental law of nature is hopelessly misguided.  The sad truth is that a great deal of the success of stock-based investing over the course of the 20th century is attributable to an accident of timing.  Simply put, the mid 20th century was a great time to buy the broad U.S. stock market.  Valuations were modest and the country had many decades of strong economic growth ahead of it.  This combination of variables essentially assured the stellar stock market returns we have seen over the last several decades.

But, unfortunately, stocks are not the perpetual assets that most of us were hoping for.  The Dow Jones Industrial Average lays bare this truth.  Founded in 1896 by Charles Dow, the DJIA is one of America’s oldest and most venerable stock indices.  Of its original 12 components, only one, GE, is still in the index today.  All the rest of the original DJIA companies have either been acquired as their business prospects declined or gone bankrupt.  In fact, the DJIA’s constituents have changed 51 times since the index’s inception.

The DJIA’s high turnover isn’t exceptional either.  Stocks in the S&P 500 index only have an average lifespan of around 15 years today, a massive decline from the 67 year average lifespan of a listed U.S. company in the 1920s.  And there have been a parade of bankruptcies over the past 30 years involving formerly iconic American companies, including Eastman Kodak, General Motors and Texaco.  And this list excludes the slew of storied financial firms that disappeared during the Great Recession of 2008-2009.  The idea of treating stocks as perpetual assets suddenly doesn’t look so smart anymore.

However, there is an asset class that doesn’t face the prospect of bankruptcy.  It has been treasured and coveted by the elite of society for hundreds of years.  This asset class has been a reliable store of value for the wealthy and powerful for century after century.  I am talking about real perpetual assets – fine art and antiques.

The famous Sancy Diamond illustrates this point superbly.  This faintly-yellow gem of just over 55 carats was most likely mined at the renowned Golconda diamond mines in medieval India, although its true origins are lost to the mists of time.  It’s first recorded historical appearance was in 1570, when the diamond came into the possession of its namesake, the French diplomat Nicolas de Harlay, seigneur de Sancy.

Over the centuries the glittering Sancy Diamond has passed through the hands of much of Europe’s royalty, while simultaneously escalating in value.  It sold for £25,000 in 1657, £80,000 in 1828 and £100,000 in 1865 before finally being sold to the Louvre Museum for $1,000,000 in 1978.

The gem’s long term performance is made all the more impressive by the fact that the British Pound suffered almost no inflation between the early 18th century and the 1930s.  In addition, I strongly suspect that the diamond’s final sale price of $1,000,000 might have been discounted as a gift to the most famous museum in the world!  In any case, as perpetual assets go, the Sancy Diamond has an impeccable 400 year long (and counting) investment track record!

Of course, less expensive antiques and fine art also enjoy all the benefits of perpetual assets.  Ultra-rare pattern coins, antique silver cigarette cases, and vintage fountain pens are just a sampling of the fine antiques that are accessible to savvy investors right now at reasonable prices.  Once purchased, these perpetual assets will continue to accrue value for decades and decades to come.

Although it is little recognized in the investment world, fine art and antiques behave a lot like zero coupon bonds.  A zero coupon bond makes no interest payments during its life, but is issued at a discount to its face value.  The difference between its discounted purchase price and the bond’s ultimate redemption at full face value is the investor’s profit.

Antiques replicate this zero coupon bond effect, albeit without any explicit face value.  Investment grade art and antiques have a tendency to gradually and steadily rise in value over long periods of time.  This means that an antique purchased today will most likely sell for a higher price tomorrow.  And the longer you hold an item, the higher its eventual sale price will probably be.  As an added bonus, fine art and antiques also possess implicit inflation protection – a vital attribute when looking for perpetual assets to invest in.

Whether we realize it or not, most of us are looking to place perpetual assets in our investment accounts.  Most people don’t want to be bothered with having to constantly check on their investments to make sure they haven’t spontaneously combusted.  And, unfortunately, spontaneous combustion, otherwise known as bankruptcy, is an unsettlingly common feature of the modern stock market.  The Sancy diamond might be forever, but publicly listed companies are decidedly not.  Fortunately, you can avoid the modern-day stock market casino by investing in fine art and antiques.

 

Read more thought-provoking Antique Sage investing articles here.

-or-

Read in-depth Antique Sage investment guides here.

The Importance of Premium Storage for Antiques and Valuables

The Importance of Premium Storage for Antiques and Valuables

One of the things I find most puzzling about valuables is how many people insist on storing them in the cheapest containers possible.  For example, my grandmother used to keep her old silver coins in leftover plastic pill bottles.  A lot of women store their best jewelry in the same cheap Wal-Mart jewelry box that they use for their nastiest costume jewelry.  Other people have no compunctions about tossing their treasured family heirlooms into cardboard shoeboxes.

Sure, I understand the reasoning behind the phenomenon.  A lot of people keep their valuables in non-premium storage because it is convenient (and cheap) to use whatever is on hand.  However, the Tupperware containers, plywood boxes and cardboard cartons most of us have lying around are rarely appropriate for the long-term storage of high value items.

As you can probably guess, I believe that valuables like antiques, jewelry and other precious items should be kept in premium storage.  Now, this very much reflects my personal opinion.  But it also makes a certain amount of sense.  After all, an item that costs hundreds or even thousands of dollars deserves to be housed in a container befitting its price tag.

Is it reasonable to bury your grandmother’s antique cameo brooch in your sock drawer?  Is it sensible to store your treasured Rolex watch in a cardboard box at the bottom of your closet?  Is it appropriate to dump your engagement ring into a plastic tray on top of your dresser at the end of a long day at work?

Sure, you can store valuables this way, but should you?  Is it logical to treat rare, high-value or sentimentally-important valuables as if they were common, everyday items that aren’t meaningful and can easily be replaced?

For many hundreds of years, the wealthiest members of society kept their very finest items in premium storage.  When European nobility became obsessed with collecting ancient Greek coins in the 16th and 17th centuries, they naturally gravitated towards a storage solution that was as regal as the coins themselves – mahogany coin cabinets.  Not only did cabinets made from mahogany look amazingly beautiful, but the wood was also chemically neutral.  This ensured that any coins stored in a mahogany coin case didn’t corrode or tarnish due to resins or oils exuded by the wood.

Of course, these days we have third-party certified coins, which are held in chemically inert, sonically-sealed, clear plastic holders.  And while these slabs are certainly practical from a handling and preservation standpoint, many collectors feel they are clinical and impersonal.

I tend to agree with these assessments, which is why I bought myself a real Honduran mahogany coin cabinet by a skilled British woodworker, Peter Nichols.  Peter Nichol’s mahogany coin cabinets might be expensive, but they really are the ultimate premium storage solution for uncertified rare coins.  I feel it was money well spent; so do most people who see it.

Of course, other valuables besides coins can benefit from the right premium storage too.  This is one of the reasons I’m obsessed with fine hardwood boxes.  The very best hardwood boxes are typically hand-crafted from the finest woods known to man.  They can be made from either deciduous or tropical hardwoods, including walnut, mahogany, cherry, rosewood and ebony.  These beautiful hardwood boxes are the perfect premium storage pieces for high-end jewelry, wristwatches or objets d’art.  The best of the best are even signed by their makers; they transcend being mere boxes and become works of art in their own right.

I’m also a fan of antiques that come with their original cases.  These can be tough to find, but they are a real treat when you do come across them.  Vintage fountain pens, cigarette holders and estate jewelry are among the most likely antiques to come with their original (sometimes fitted) cases.  Original cases not only provide stylish premium storage, but they also raise the value of the antiques in question, provided they are still in good condition.

However, an item doesn’t have to be old to come with a great original case.  In 2008, the U.S. Mint decided to update the packaging for its 1 troy ounce proof American Buffalo gold coin.  These coins are the collector’s version of the popular American Buffalo gold bullion coin.  The mint ended up going with an aesthetically-striking, leatherette-trimmed hardwood display case that evokes images of the Old West.  It perfectly captured the rugged zeitgeist of the American Buffalo gold coin.

I have no doubt that in the future coin collectors will ardently seek out these proof gold coins in their original mint packaging.  And they may not be as easy to find as you think either.  Many of these coins are removed from their original cases and sent to third-party grading services shortly after leaving the U.S. Mint.  In 40 or 50 years, these masterpiece proof coins in their original issue packaging may be quite scarce.

I believe that plastic and cardboard are acceptable for some applications.  I expect my kitchen appliances to make liberal use of plastic, for instance.  I expect the items I order from Amazon to arrive entombed in (a multitude) of cardboard containers.  But I don’t think the most monetarily valuable objects that I own should be wrapped in cheap plastics, chipboard and cardboard.

Luckily, premium storage made from high end materials, like hardwoods, velvet and leather, offers a great solution.  Yes, buying a fine hardwood valet or jewelry box will cost more than a few dollars.  But I think it is worth it to avoid having yet another cheap, mass produced, “made in China” box floating around the house.

 

Read more thought-provoking Antique Sage editorial articles here.

-or-

Read in-depth Antique Sage investment guides here.

Vintage 5 Troy Ounce Jackson Precious Metals Silver Bar

Vintage 5 Troy Ounce Jackson Precious Metals Silver Bar
Photo Credit: GoodKarma-Collectibles

Vintage 5 Troy Ounce Jackson Precious Metals Silver Bar

Buy It Now Price: $147.42 (price as of 2018; item no longer available)

Pros:

-This vintage 5 troy ounce Jackson Precious Metals silver bar is a classic poured silver bullion bar from a recognized refinery that operated during the heyday of the mid 1970s to early 1980s precious metal boom.

-The bar weighs 5 troy ounces (155.5 grams) and is composed of .999 fine pure silver.  5 troy ounce silver bars are an ideal size for casual silver bar collectors.  They are weighty in the hand, but not so large as to be prohibitively expensive.

-This vintage poured silver bar was made by Jackson Precious Metals, otherwise known as JPM.  Jackson Precious Metals was a gold and silver refining company that was founded in 1974 by Walter Luhrman.

-In addition to employing the Jackson Precious Metals nameplate on its silver bars, the company also used Bajack, Bache and Prudential as alternative brands on some silver bars.  Bothe the JPM and Bache brand names are frequently encountered in the marketplace and are very popular with vintage silver bar collectors.

-Jackson Precious Metals was named after Jackson County, Ohio, where the firm operated between 1974 and 1985.  According to its founder Walter Luhrman, JPM was the predecessor company to Ohio Precious Metals, or OPM.  In 2012, OPM merged with NTR metals to create Elemetal LLC.  OPM still refines gold and silver bullion today as a subsidiary of Elemetal LLC.

-I really enjoy the classic loaf shape and beautifully frosted finish of this Jackson Precious Metals silver bar.  I actually own an example of this type of silver bar and it is one of my favorite vintage pieces.

-This Jackson Precious Metals silver bar has been hand-poured.  This process gives JPM silver bars a unique, individualistic appearance that can’t be replicated by newer struck or extruded silver bars.  No two poured silver bars are exactly alike – a fact that vintage silver bar collectors love.

-Because of their rugged good looks, high intrinsic value and rich history, vintage silver bullion bars are an intriguing choice for the hard asset investor.  Although prices have already risen strongly over the past decade for old poured silver bars, I strongly suspect that they will continue to appreciate in the future.

 

Cons:

-The price per troy ounce for this Jackson Precious Metals silver bar is a bit high at $29.48.  With spot silver trading at $17.00, this translates into a hefty 73.4% premium over bullion value.  Relatively high premiums are one of the downsides of buying smaller (10 troy ounces and under) vintage silver bars.  These 1 to 10 troy ounce sizes are in high demand among collectors, so the premiums usually end up being significantly more than on comparable vintage bar in larger sizes.

-While it is possible to find vintage silver bars with lower premiums, if you want a nice, classic 5 troy ounce Jackson Precious Metals silver bar, you will not be able to easily acquire one at a better price than $147.

 

Read more fascinating Antique Sage spotlight posts here.

-or-

Read in-depth Antique Sage investment guides here.

Why I’m a Financial Survivalist

Why I'm a Financial Survivalist

I think it is safe to say that my investment philosophy is not mainstream.  In fact, I’m sometimes accused of being a survivalist, which I find to be a rather amusing accusation.  After all, I don’t stockpile food, fuel or ammunition.  I also don’t believe that the next financial crisis will throw us backward to a pre-industrial standard of living due to the wholesale disintegration of global supply chains.

I would, however, describe myself as a financial survivalist.  Much like you, I have worked hard for every penny of savings I possess.  I don’t ever want to face a situation in the future where my investment portfolio is down 50% or more.  I don’t think you do either.

More importantly, if such an event were to occur, average people like you and I would have absolutely no financial recourse.  Writing a letter to your congressman would get you nowhere.  Appealing to the U.S. Treasury for restitution would be futile.  If you were to confront your financial advisor, he would look you right in the eye, shrug his shoulders and loudly state, “No one could have seen this coming!”

Of course, such a bold pronouncement would be a vicious lie, meant primarily to distract you from his incompetence.  All students of financial history know another major financial market dislocation is coming, although the when and how are certainly up for debate.  I think most of us can agree that there must eventually be unintended consequences to the Federal Reserve’s misguided policy of holding interest rates near zero for a full decade.  After all, if economies were really so easy to manipulate upward without negative side-effects, wouldn’t someone have figured it all out long ago?

As a financial survivalist, my main goal is to preserve my money.  Growing that money is a secondary concern, particularly in today’s global financial minefield.  This is because compounding your money aggressively and then losing most of it in a financial crisis is an unpleasant proposition, no matter how good it makes you feel on the way up.  This is also a big reason why bubbles are so seductive.

But for most investors, a bubble represents massive gains followed by even larger losses.  Almost nobody who makes money in a bubble actually keeps any of it.

Just ask the famous 17th century physicist, Sir Isaac Newton.  He might have been a mathematical genius, but it didn’t keep him from losing his entire fortune in London’s 1720 South Seas Bubble.  At first, he invested a little bit of money in South Sea Company stock before promptly exiting his position for a nice profit after its price moved up sharply.

However, the stock price kept on rising, this time without him.  As Sir Isaac Newton looked around and saw his friends and associates who still owned the stock getting rich, he felt compelled to dump his life savings back into the market.  This was a fatal mistake.  Within a few months the South Seas Bubble had burst, costing Newton almost everything.  As he famously lamented, “I can calculate the movement of stars, but not the madness of men.”

I think we could all benefit from listening to the father of Newtonian Physics.  If this makes me a financial survivalist, then so be it.  I’m not interested in fitting in with everybody else just so we can all commiserate about losing our life savings together later on.

Being a financial survivalist means that I’m a fairly conservative investor.  This is especially the case today, when so many investments are so overpriced.  I don’t like taking big risks with my money.  Ironically, though, the best investments at this juncture in history are also those with the lowest risk.

I’m talking primarily about tangible investments, including bullion, fine art and antiques.  The benefits of these assets are immediately apparent to any good financial survivalist.  Middle and upper class households have successfully used them as wealth preservation vehicles for centuries.  And they are completely independent of both the Wall Street menagerie and our syphilitic banking system.

But fine art and antiques have been largely left behind in today’s world of complex derivatives, high-frequency trading and inscrutable crypto-currencies.  That’s why it is still possible to pick up some very compelling values in the hard asset space for shockingly low prices.

For example, you can purchase a solid 14 karat gold Bulova Accutron wristwatch from 1973 for only $1,000 – less than the price of a single share of Amazon.  Or you can buy an avant-garde contemporary drypoint print by the New York artist Mariko Kuzumi for a scant $200 – less than the price of a single token of the Monero crypto-currency.  Or you can invest in a highly desirable, 1 kilo Johnson Matthey vintage silver bullion bar for about $800 – the cost of just over 3 shares of Netflix.

I don’t care if I’m “missing out” on the market bubble, because I understand how all bubbles eventually end.  All I care about is holding onto what I worked so hard to earn.  And if you also like holding onto your hard-earned money, you may be just like me – a financial survivalist.

 

Read more thought-provoking Antique Sage investing articles here.

-or-

Read in-depth Antique Sage investment guides here.