Collecting for fun and profit

By DIANA CLEMENT

Button collecting may not sound like a viable alternative to buying shares, but a friend of mine has scoured op shops, online auctions and garage sales for buttons of note.

In hard cash terms, her investment returns outstrip what she could have earned if she'd ploughed her money into shares.

Making money from something you love, be it buttons, bottles or Beatrix Potter figures, can help your financial future. Many an entrepreneur has started this way.

It doesn't really matter what you collect, providing you buy well, choose a sector that has liquidity, and time your entry and exit into the market. If you treat your hobby as an investment, it should provide portfolio diversification.

The trick is to learn the ropes and then ratchet up your returns.

There are plenty of books available about collecting.

The Millers series, which you can buy at Whitcoulls, are excellent price guides. Superhobby Investing by UK writer Peter Temple concentrates on hardhearted money-making from your passion. The book is available in New Zealand from the Good Returns Bookshop

Temple says most investors start buying willy-nilly and learn by their mistakes.

In theory, your collections should rise in value by at least the rate of inflation. But the reality is that market sectors rise and fall according to fashions, following the boom, slump and recovery cycle.

Earlier this year in New Zealand, the contemporary art market took a sharp dive, but it now appears to have recovered its composure.

Despite programmes such as Antiques Roadshow, antique furniture prices around the world have been in relative decline in recent years, because people want minimalist homes.

"You can get away with one really classic piece of antique furniture in your house," said Carol Merrell, owner of Mayfayre Auctions.

She said that in the case of Royal Winton porcelain, the market peaked about two years ago and then went into sharp decline.

"People bought when these items were extremely expensive and thought they would make a killing."

But items such as a Royal Winton breakfast set that sold for $2000 at the peak are now worth about $700 to $800.

The price you get often depends on the buoyancy of the international market.

Merrell said the state of the American economy and the exchange rate had a huge impact on prices at auction because Americans were snapping up collectables from New Zealand via the internet.

When the local dollar rises against the US dollar demand drops off and that knocks on into the local market.

Nor are investments in hobbies totally divorced from the equity markets. When money is tight in the US because of share or property market fluctuations the buyers keep their hands in their pockets.

Likewise, a boom in a hobby-collecting market can be fuelled by foreign interest, a low dollar, the publishing of a new book or an exhibition.

Increased or decreased supply also affects the price of items.

Where you're likely to beat the benchmark is by spotting a market before it takes off and buying low.

I once interviewed UK antiques expert Mark Franks, who is collecting cigarette cases and Edwardian desks to pay for his retirement.

The items are deeply out of vogue and can be snapped up for far less than their true value.

He believes the desks will come back into fashion as computers get smaller and the dislike of anything to do with smoking will pass.

Whatever you buy needs to be of investment grade - meaning in pristine condition, preferably boxed, and the market needs to be liquid. This is the same for everything from antique toys to jewellery.

For liquidity, you need other collectors to exist and a method of trading. For the more obscure collections, you might need to find specialised websites or use online auctions such as eBay or TradeMe.

And the more time you spend on the chase, the more bargain buys you're likely to find.

Hobby investors can and do find real gems at jumble sales, local junk auctions and, sometimes, even out of the small ads in newspapers.

Dunbar Sloane's manager of decorative arts, Hamish Walsh, regularly sees items at auction that have been bought at garage sales for a song.

He knows one collector who bought a black and white Sputnik television at a garage sale for $20. The item will fetch up to $700 at auction in New Zealand and could be worth as much as $2000 on the British market.

Asked what he would collect if hard-hearted investing was his only motivation, Walsh says 1980s technology.

Already items such as early Amstrad word processors sell for more than $100 and Walsh believes there will be a good market in the future for Motorola "brick" and other early mobile telephones that are in pristine condition.

Earlier technology, such as the Ericsson 332 phone, sells well in auctions. A regular green or red-coloured 332 can fetch $600. Now huge, a few years ago they were just junked. Walsh points out that huge numbers of them were used as landfill for the breakwater at Westport.

Those with an eye for profit will be buying new packaged items likely to appreciate in value.

Franks buys shrink-wrapped board games and stores them to sell on retirement.

Walsh says the collectible book market is in the ascendancy at the same time as the popularity of New Zealand books is climbing. Signed copies of the right books will appreciate in value.

There are costs associated with keeping hobby collections that should be factored into any return on investment. They include storage, maintenance or restoration, and insurance. There are also auction charges.

However, these costs can be equated to dealing charges and annual management charges on shares and funds.

As your collection grows, you should inform your insurance company. It is worth keeping an inventory in a safe place against the risk of burglary or fire.

Lastly, anyone who turns his or her hobby into an investment needs to be wary of the Inland Revenue.

Brendan Catchpole, tax partner at PricewaterhouseCoopers, notes that under the Income Tax Act items bought for the purpose of resale can be taxed, as can anyone deemed to be running a business.

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