Investing in your passion

In the modern world of wealth management, the art of diversifying an investment portfolio goes beyond the usual suspects to take in things like horses, sneakers and watches. But whether it’s a beach-side condo or a back-issue of Batman, investors are looking for the same thing: performance. So whether you want to speculate on sneaks or get into the old-books business, there are good investments to be made... and pitfalls to avoid.

Posted vendredi, août 25 2023
Investing in your passion

Ask yourself this. When you’ve worn your favorite pair of sneakers out and it’s time to buy new ones, how often do you wish you could buy the exact same kind again, only to find they are now out of stock? You might ruefully wish you’d bought two pairs the first time around. This is precisely the kind of sentiment that sneaker traders tap into. Longtime considered the pursuit of sports-nerds, the arrival of sneaker resale apps has changed all that.

With an increase in value of over 2,000% in less than five years, the sneaker-collector market is becoming big business. You want proof? In April, a pair of Air Jordan sneakers that Michael Jordan wore during the 1998 NBA Finals sold at auction for $2.2 million. Today the resale market for sneakers is worth a cool $2 billion – and that figure could triple by 2025.

Sneaker manufacturers and luxury brands have begun baking resale strategy into their creations, with the result that the prices of most desirable pairs of footwear have skyrocketed on the secondary market by 2,500% to $33,000.

A book that is not in mint condition is never a viable investment

Rarity and notoriety play a key role in inflating the resale price. The red and pink Salomon sneakers that Rihanna wore during this year’s Superbowl retail for around $350 dollars, yet in the aftermath of February’s vertigo-inducing Halftime Show, they were changing hands (or should that be feet) for almost double that.  

Switching sports, in 2021, a pair of limited-edition Nike Air Ships, which would have set you back 150 dollars when they were released in 1984 went for $1.5 million at auction. Of course, it helped that they were worn in an NBA game by Michael Jordan.

A word of warning: Some are comparing the sneaker investment craze to crypto, and should the market crash, many will be left with a closet full of $200 sneakers that nobody wants to buy.

Time is money
Unlike sneakers, investing in a watch requires an outlay of considerably more than a few hundred bucks, yet for those with the necessary financial muscle, profits are likely to follow. According to Bain & Company, the global luxury watch market was worth an estimated $39 billion in 2021. The market is being fueled by demand from Asia and the fact that a luxury wristwatch is a status symbol par excellence.

If you are investing in luxury watches, it’s important to consider the brand, model, rarity, condition and history of the timepiece. The most bankable brands include Rolex, Patek Philippe, Audemars Piguet, Vacheron Constantin and Omega. Certain models such as the Rolex Daytona, the Audemars Piguet Royal Oak or the Patek Philippe Nautilus are particularly highly prized. The Rolex nicknamed the “Paul Newman Daytona” was sold for $17.8 million at auction in 2017. 

With an increase in value of over 2,000% in less than five years, the sneaker-collector market is becoming big business

As with any type of investment, potential returns can vary. A mint-condition Rolex Daytona bought for €10,000 in 2000 is worth triple that today. The key word in the above sentence is “mint-condition”. To appreciate in value, watches need to be stored in an appropriate case and will require regular cleaning and maintenance. And there’s another factor. As with paintings or wine, watches are long-term investments, and so a buyer needs to be prepared to sit on their purchase for years – decades even – before being able to cash in.

Betting on horses
The price of a race- or show-jumping horse is determined by a number of factors, such as age, sex, physical ability, health and, above all, pedigree. And of course, unlike an inanimate object such as a comic book, which can be bagged, boarded, stored and forgotten about, horses need constant feeding, watering, training and monitoring.

The price of a showjumping foal is around $10,000, and that of a three-year-old (the age when the animals typically begin competing) is between $20,000 to $30,000. Before ponying up, you need to investigate the pedigree of your prospective purchase, examining the performance of the mother, father and, indeed previous generations and more distant ‘relations’.

If you do your homework, you might just hit the jackpot and that colt you bought for 20 grand aged three, could be sold four years later for ten times that amount.    

Luckily, you don’t need to have a king’s ransom to invest in the sport of kings ─ rather than buying a horse outright, you can acquire a share in a thoroughbred as part of a syndicate. The 2023 Kentucky derby was won by Mage, a horse with 391 owners, some of whom paid as little as $50.

Bookish pursuit
For decades, books were left on the shelf by investors, yet for the canny capitalist they can be a source of financial, as well as literary, riches.

The price of first editions has been skyrocketing recently. A signed first-edition of Harry Potter and the Philosopher’s Stone from 1997 is listed for sale by Raptis Rare Books at $850,000, while original runs of George Orwell’s Animal Farm have increased in value by 2,500% since the start of the 21st century, due to a renewed interest in the novel’s political subject matter.

Investors have Covid to thank for boosting the number of book lovers in the world, as with people confined to their homes for several months in the spring of 2020 and deprived of their usual leisure pursuits, book sales soared. Many bookdealers reported an increase in this alternative form of investment in the wake of the pandemic.

You don’t need to have a king’s ransom to invest in the sport of kings ─ you can acquire a share of a racehorse as part of a syndicate

An advantage of this type of investment is that, whether you are a bookworm or have never read a work of fiction in your life, the pool of potential buyers for the book you want to resell is vast. Yes, the risk of buying a fake copy is real, but can be avoided if the buyer takes the time to get the book authenticated by an expert. A more common pitfall for novice collectors is paying over the odds for a first edition that is not in great condition – aside from the rarest and oldest of works, a book that is not in mint condition is never a viable investment.

When investing in your passion even the most clairvoyant of collectors can come a cropper, if they don’t take the advice of a certain Warren Buffet: “It is a gross oversimplification to say that the key to investing is to buy low and sell high.” For the CEO of Berkshire Hathaway, you also need to have a profound understanding of the tax and legal implications of your investment.

You should get an accurate assessment of the amount of tax you are likely to have to pay upon resale, and if that extra couple of grand you squeezed out of the buyer bumps the purchase up into a higher tax bracket.

But don’t let these concerns put you off, after all, unlike investing in stocks, investing in your passion can be done for pleasure as well as profit. As the American collector and philanthropist Eli Broad put it, “The true value of a collection resides in the passion with which it was put together.”