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Worthless! Beware of Collecting Disguised as Investing

How to differentiate worthless collectibles from real investments

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My favorite historical anecdote — and one that every investor should be forced to acknowledge reading before opening a brokerage account — dates to the era of the South Sea Bubble. A charlatan whose name is lost to history, published a prospectus for “A company for carrying on an undertaking of great advantage, but nobody to know what it is.”

collectibles, how to invest
Source: Flickr

Yes, some 18th-century two-bit hustler launched an IPO for a company with a “top secret” business plan, and British investors actually gave him money. If contemporary accounts are true, he took the money and fled, never to be seen or heard from again.

As a student of market history, I’ve come away with one enduring observation: investors can be phenomenally stupid. Whether it is profitless social media stocks, Miami condos, or, if you want to go old school, decorative tulip bulbs, there seems to be no limit to the force with which otherwise sane people will suppress rational thought in order to throw away their hard-earned money.

But as crazy as stock market bubbles can be, they really don’t compare to collectibles crazes. A share of stock represents a claim of ownership in a business that, however implausibly, could someday generate real profits. A collectible’s value, on the other hand, rest entirely on your ability to someday sell it to a greater fool.

In some cases — think Renaissance paintings — collectibles have maintained their value over time and proven to be fantastic investments. Others … well, let’s just say that Star Wars Happy Meal toys might not be as good of investments as Old Masters.

Let’s take a look at two high-profile collectible bombs of recent decades, and then I’ll offer a little guidance on how not to fall victim to the next collectible fad.

Article printed from InvestorPlace Media,

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