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Will passion investments ride out the Covid-19 storm?
Best buys can provide owners with substantial capital gain through deep economic troughs
26 Mar 2020 | Tom King

While global equity markets, and by association a myriad of financial products, are suffering from instability, are there investments that will survive relatively untouched by the turbulence?

As well as offering pleasure and a thrill to own, the best passion investments can also provide their owners with substantial capital gain on their initial investment even through deep economic troughs.

The most high-profile passion investments are generally the domain of the very wealthy – a Rembrandt, a Ferrari GT 250, or perhaps a collection of Hermes Birkin Bags like those the former Malaysian first lady Rosmah Mansor possessed, allegedly.  

First and foremost, passion investments are usually purchased because the prospective acquirer has “enthusiasm” for the desired object.

In 2018, a Ferrari 250 GTO was sold at auction by RM Sotheby’s for a record US$48.4 million. The seller, an early Microsoft employee and Ferrari enthusiast who actually raced the car reportedly purchased the classic in 2000 for one-tenth of its selling price.

At the time of purchase, it is unlikely that the first thing that goes through a buyer’s mind is selling the shiny classic car, painting or bottle of 1945 Domaine de la Romanée-Conti.

While some may have held their investment purely as an asset for a rainy day, then maybe, with the current economic volatility, that time has arrived.

About one year ago at Sotheby’s spring auction series in Hong Kong, an artwork by Chinese artist Wu Guanzhong sold for HK$130 million (US$16.6m).

It is highly unlikely, though not impossible, in these disruptive times, that you will see the purchaser of that work heading to a Hong Kong pawnshop to cash in anytime soon.

Although passion investments because of their rarity or unique historical probity can be worth anything up to hundreds of millions of dollars, they are not necessarily liquid investments.

While you can straightforwardly sell your shares in company XYZ – albeit into a volatile marketplace – with the push of a button, disposing of your Van Gogh is not so uncomplicated. Passion investments can also bring with them their own high-maintenance, possibly expensive baggage and risks.

The asset may require round-the-clock temperature control. It might be too delicate to be enjoyed in a tangible manner. And, of course, there is the probity issue – could that artwork or Ming vase be a fake?   

In a nod to the rising wealth of women entrepreneurs and investors, The Wealth Report 2020, recently published by Knight Frank, topped its Luxury Investment Index with collectable handbags. The category was led by the iconic Hermes Birkin bags, which rose in value by 13% over the 12 months to Q4 2019 and knocked rare whisky off its number-one position.

Luxury handbags are produced in tightly limited editions. The most expensive bag to date is a Himalaya Birkin 35 with white gold and diamond hardware – 172 ounces of white gold and 245 12-karat diamonds. It sold last year for US$500,000.

Andrew Shirley, editor of The Wealth Report and the Knight Frank Luxury Investment Index told The Asset, “The financial situation now is very different to the financial crash of 2008, so it remains to be seen if people flock to alternative investments.”

“If investors feel that the huge injection of cash into the global economy is likely to presage a period of inflation, they may well view such asset classes as an inflation hedge, but it is too early to tell,” he added.

Of course, selling into a depressed market is not the ideal scenario, but owning such tangibly valuable possessions at least gives investors something to sell, barter or securitize.

       

Luxury Asset

Annual % change

10-year change

 

Handbags

13%

108%

 

Stamps*

6%

64%

 

Rare Whisky

5%

564%

 

Art

5%

141%

 

Watches

2%

60%

 

Wine

1%

120%

 

Furniture

0%

-27%

 

KFLII

-1%

141%

 

Coloured Diamonds

-1%

86%

 

Cars

-7%

194%

 

Jewellery

-7%

90%

 

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