An original copy of the United States Constitution just sold for $43,000,000. Only 11 of the original 500 prints ever made have survived. The last time this exact document was purchased was in 1988 for $165,000. That is a huge return on investment right there. Now lets be honest, spending $43 million dollars on the constitution isn’t realistic for most people. But what is more realistic is purchasing other alternative investments.
I had a conversation with a couple a few weeks ago who just finished filing their taxes and were telling me that their accountant had a roll of gold dollars. They told me they went home and did a lot of research on purchasing gold coins and really wanted to invest in gold. This is a form of Alternative Investments.
An alternative investment is anything that is not stocks or bonds. Alternative investments have many forms, from cars to coins to art to video games, etc. All of these are considered alternative investments or collectables. Alternative investments have been around for a long time and can be used as a good form of investment if you know what you’re doing. Recently thanks to several youtubers Pokémon cards have gone through the roof in price. With influencers purchasing thousands of dollars worth of cards, these are really hot items.
Markets:
Getting into the collectables can done properly if you know the markets well. The problem is there is no way to really track an individual market. For example: you can track tech stocks by using the NASDAQ however if you try to track the Pokémon cards it wont be as easy. Like anything research is always the best way to find out what is going on in that individual market. The problem that many people face is jumping all in and purchasing items at random. As you learn certain products can be more profitable than others. These items may hold their value better and appreciate faster. Other factors in the markets include Graded items, manipulation, and counterfeits.
Graded Items
For smaller items such as cards, coins, videogames etc. These items may be graded. Items that are graded are sent off to a grading company. These items are then examined by several professionals who rate the item usually on a numerical scale. The numerical value of the item specifies the quality of the item. In most cases a high graded item is worth much more because typically there are very few in an almost perfect or perfect condition. Some collectors choose to only purchase graded items because they have been verified and typically hold their value. Most grading companies guarantee the grade of the item. What does this mean? That means that if you were to get that item graded by a different company and they thought that the grade was not accurate the former grading company would guarantee the grade and give make up the difference in price. Why is this important? When you get into rare items, a miss graded item can mean thousands of dollars lost. If the item comes back less than what was expected the investor may have lost on his investment.
Manipulation
All markets can be manipulated one way or another. Same goes for alternative investments. The trouble is that unlike the stock market these collectibles can easily be manipulated. The stock market has tons of regulations on stock manipulation which helps balance out the market and keep things as fair as possible. That is not true when it comes to collectibles. There are no regulators on what prices are set and how items can be sold. A collectibles market can be manipulated in two different ways. First being hype. Going back to Pokémon trading cards, these have become a huge hit in the past few years. Thanks to several famous youtubers and TikTok users buying old packs and searching for rare cards. By publicizing this on such a massive scale so fast, the market for Pokémon cards went through the roof. Almost anyone who had Pokémon’s cards as kids were then looking to buy and sell their cards for tons of money. The term for this is FOMO, fear of missing out. When a boom like this happens so fast everyone wants to jump on board. However when you look at the big picture the only ones who really profit from this are those who are pumping up the market. This causes the market to be flooded with tons of buyers in short term. However when the markets adjust back to normal the prices will drop and many will have overpaid for these items. The second form of manipulation is a bit more devious. This can be done as an eBay price run up and can inflate the prices of certain markets. The way this works is a user may list an item for auction. Then he will have a friend drive up the bid and eventually create a bidding war. The friend who drove up the price eventually stops bidding causing the other bidder to over pay for a single item. What happens next is now the next person who decides to sell that similar item view eBay’s recently sold history. He will then see that the last item sold for said amount. He then price his item close to the recently sold item that was manipulated. Now we have two items that are being sold at an inflated price. The process then repeats itself from here on out, driving up the price.
Counterfeits
If you have an item that his highly desirable typically there will be someone who will find a way to counterfeit it. This is especially true when you get to rare items. Sometimes these items can be perfected so good that it is almost identical to the original. In most cases counterfeits can be easily detected and in others not so much. If you are looking to get into a limited item you may want to consider getting it looked at by an expert before making a purchase. On the other hand some counterfeits can be worth more than the original item. For example: Confederate currency was issued for only 4 years during the civil war. Some of the counterfeit notes are worth more than the original note because there are so few that remain. However this is just one example that counterfeits can be good, most of the time they are not.
If you are thinking about using alternative investments as form of investment, it is important to realize that these markets don’t appreciate as much as equities markets do. If you are strictly looking to make money then the equities market is the way to go. It has grown much faster year after year. However if you are passionate about collecting certain items as an investment, expect to hold onto them for a much longer period of time.
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