A beginner's guide to investing in collectibles

Vijay Valecha, The National News, Feb 8, 2024

When Emil McKenzie, a Dubai-based British collector of trainers, received his first pair of Air Jordans, he had no idea it would lead to a passion that could boost his income.

Today, he has a collection of about 40 pairs of high-end trainers and while he buys them mainly for personal use, he has also earned good returns after selling some of the more popular brands.

“Some of the classic pairs I owned were Reebok Pump Hexalite lows, Nike Air Huarache and the original Adidas Superstars as well as numerous Converse All Stars. However, I only ever owned one or two pairs at any given time well into my adulthood,” he says.

“It’s only since 2013 where things changed – I’d always wanted a pair of Jordans. My wife purchased my first pair of Air Jordans for my 30th birthday and I’ve not looked back since.”

However, Mr McKenzie, 41, believes it is hard to predict whether a collector is likely to make a positive return and, like an investment in any asset class, there is no guarantee that the value of a pair of trainers would increase in value over time.

The trainers he owned that appreciated in value were from collaborations with musicians or artists such as J Balvin and Bad Bunny, or streetwear brands such as Union LA, A Ma Maniere or Off White, he says.

Investing in collectibles involves buying and holding valuable items, such as art, antiques, coins, stamps, trading cards, sports memorabilia, vintage toys, comic books and vinyl records, says Vijay Valecha, chief investment officer at Dubai-based Century Financial.

High-value memorabilia includes original Star Wars items, vintage Disney merchandise and rare Topps trading cards, he says.

Investors may choose to invest in collectibles for reasons such as potential high returns, portfolio diversification, protection against inflation and a personal passion for a specific type of collectible, he adds.

To date, the most expensive collectible sold was a 1933 Double Eagle gold coin for $18.9 million at a Sotheby's auction in 2021. With a denomination of $20, it was the last gold coin struck for circulation in the US.

The coin – the only 1933 Double Eagle ever allowed to be privately owned – was sold by shoe designer and collector Stuart Weitzman, who acquired it in 2002 for what was then a world record price of $7.6 million, Reuters reported at the time.

UAE collector Dubsy made global headlines after selling a rare PSA Grade 10 Pikachu Illustrator Pokemon card to American YouTube media star Logan Paul for a record $5.27 million – a trade carried out at Burj Al Arab in 2021 and noted by the Guinness Book of Records.

Ultra-high-net worth individuals’ wealth associated with art and collectibles was estimated at $2.17 trillion in 2022.

This figure is expected to grow to $2.86 trillion in 2026, due to the increased number of wealthy people across the world and their higher allocation of money to art and collectibles, according to consultancy Deloitte’s 2023 Art and Finance report.

About nine in 10 – 89 per cent – of stakeholders polled said art and collectibles should be part of a wealth management service offering, up from 65 per cent in 2011, the report said.

Financial value also surpassed social value as the second most important motivation among collectors. However, emotional value remained the key driver for buying art, the findings showed.

Meanwhile, Mr McKenzie says he has owned a wide range of sneakers over the years, including Travis Scott Air Jordans and Yeezys, as well as lesser-known brands such as Clae and Mallet.

“Nike have cornered the market when it comes to sneaker hype, particularly by way of their association with the Jordan brand,” he says.

“Yeezy [prior to their separation from Kanye West] also benefitted from limited availability and rarity, as well as their connection to one of the most famous and controversial artists in the world.”

The two most expensive pairs Mr McKenzie sold were Jordans – including a Travis Scott collaboration, for which a buyer paid Dh3,000 ($816).

He purchased the pair of Travis Scott Jordan Low Black Phantom trainers for £150 ($188) and sold them for £650 the day after.

A small difference in colour or detail between two otherwise identical trainers can result in one pair being much more expensive than the other, he explains.

This is because a small badge, artist association or unusual colour combination can change a sneaker from being the norm to being sought after.

There still isn’t enough accurate data to assess the typical return on trainers as an asset class, says Mr McKenzie.

“I’d suggest it is most likely negative, bar the few rarer pieces or collaborations, particularly now that the market is not quite as heated as it was a couple of years ago,” he says.

Mr McKenzie says this was “in part due to the rising cost of living and inflation in most countries post Covid-19 reducing spending power”.

He usually buys and sells trainers on the StockX platform, but has also used Laced and Shopify.

StockX is an online marketplace with valuations on most sneakers, which was founded in 2015.

Rohit Shitole has been collecting sports cards and Pokemon cards since 2021 as an alternative form of investment.

The India-based senior business manager currently owns more than 100 cards and trades them on the PWCC marketplace.

“You have to be lucky to make good returns on the investment. You need to understand the ecosystem and how collectors buy and sell sports cards,” Mr Shitole, 38, says.

“I started buying these cards on the Whatnot app from India. There are fees associated to buying and selling on these platforms, which diminishes returns.” While his collection is worth about $22,000, the most he’s spent on a card is $12,000.

“I have a Pokemon card that I bought for around $115 and the current market value is about $300,” says Mr Shitole.

“The returns depend on when you buy the card and how long you are willing to hold it. Presently, I’m incurring losses.”

He uses websites such as PriceCharting and Sports Card Investor to keep track of the values of his cards.

The main driver behind the collectibles market is the scarcity and exclusivity of assets, the historical performance of certain collectibles – such as luxury watches, art or classic cars – and ever-growing demand, according to Paul Huelsmann, board member and chief executive of Finexity.

The blockchain-built diversity investment platform was founded in Germany and will launch in the UAE soon.

“Collectibles perform independently of the financial markets, rarely react to changes in interest rates and are largely financed with equity. The money invested is much safer and will outperform most other investment opportunities,” Mr Huelsmann says.

Fine art may be one of the more traditional collectible items, but the market is still booming.

Classic cars are one of the most popular passion investments and one of the few collectibles that can be enjoyed without losing value. They appreciate over time owing to factors such as rarity, performance and provenance, he says.

“The secret to being a successful investor is diversification. This increases the return on your investment and helps you to be more resilient to risk,” Mr Huelsmann shares.

“The best way to start with collectibles is to segment your investments in multiple asset categories.”

Investors considering collectibles for their portfolio should be aware of a number of factors, Mr Valecha advises.

First, not all collectibles have inherent value and their worth can be subjective, he says. Some gain value due to unique features, rarity or expert attributes, while others – like baseball cards or vintage toys – depend on current demand.

Factors, such as age, quality, condition, historical significance and popularity among collectors, also contribute to a collectible's value.

High demand, often linked to a figure's popularity, can drive prices up. The collectible's condition, which is typically graded from “mint” to “poor”, is also crucial for resale value, according to Mr Valecha.

“Keeping items in their original packaging, known as ‘mint in sealed box’ or ‘mint in box’, can enhance value,” he says.

When building a collection, investors should consider factors including the theme, their budget and storage space, he says.

Resources and forums are available for collectors to gain insights, appraisals and connect with others.

“To preserve the value of collector's items, store them in a controlled environment, and verify authenticity through research, certificates, or expert consultation,” he says.

Potential investors should be cautious about counterfeit items, as even experienced appraisers can be deceived, Mr Valecha warns.

Overpaying due to unnoticed imperfections is a risk. Additionally, returns on collectibles may not keep pace with inflation, and appreciation can be slow.

It’s crucial to recognise that the primary motivation for investing in collectibles should be a passion for a particular subject, not solely for expecting high returns, he says.

Investing in collectibles involves risk, and there is no guarantee of profit.

“Investors should be aware of potential downsides, including liquidity issues, price volatility, and the risk of theft or damage. Transactional costs, trade show fees and travel expenses can also be incurred,” Mr Valecha says.

“For collectors outside the UAE, tax implications vary based on factors like the classification of the activity [hobby or business] and changes brought by the Tax Cuts and Jobs Act in the US.”