SmallCap Sentinel Analyst

Over my holiday travels I had plenty of airport time which allowed me to catch up on the plethora of reading material I am constantly sent from various financial institutions. In a REP magazine (I’m not sure which month) I came across an interesting article that I thought would be apropos following the Christmas holiday. The article dealt with the rapidly increasing and profitable collectible market. Everything from art to cars to stamps to sports memorabilia, fall in this trillion dollar industry. In fact, the article estimated that the total market is valued somewhere between four to six trillion dollars. That’s over a third of the total mutual fund industry. A number that staggering should be taken seriously.

In the past year, we have seen record prices for collectibles, especially in the art sector. On May 15th of 2007, at a Sotheby's auction in New York, a 1950 painting by Mark Rothko sold for $72.8 million, the highest price ever paid for a work at a contemporary art auction. The very next night at Christie's, a 1963 silkscreen on canvas by Andy Warhol went for $71.7 million.

So are these record prices a reflection of hedge fund managers showing off their ridiculous wealth as sort of a status symbol or measuring stick, or are other investments just not attractive anymore?

With the volatile stock market last year, historically low yield on bonds and cash and oil and gold flirting with all time highs, many investors have decided to pursue other avenues that give them a certain degree of “instant gratification”. In my opinion, here’s where the collectible market separates itself from traditional investments. How often do you hang a stock certificate over your mantel or have your 401(k) statement as the center piece of your dining room table?

In our impatient and entitled society, having an investment that brings you joy on a daily basis might pay better “relative dividends” than the measly rates currently on cash products.

Additionally, with the internet on practically every device with a battery, information is almost too available. If you can see the value of your stocks literally every second, you tend to check them and start to obsess and stress. With art, there isn’t an electronic market that updates the value of your investment every time you log on. In fact, it takes some serous effort to get an accurate appraisal, which you will never know if it’s correct until you sell it. You see, collectibles don’t have yields or earnings, they are largely valued on scarcity, age, condition and personal attachments and/or connections.

Therefore, these investments are typically considered long term. Investors rarely try to flip them like a condo in a hot real estate market or a stock that has seen a bump in its price. These seasoned collectors could teach us all a lesson about how to buy other investments; buy what you know, get a good deal and expect to have it for a long time.

Many collectibles, whether its stamps, art or buffalo nickels, can be purchased for relatively small sums of money, but in order to make it an “investment”, expect to shell out some serious coin (pun intended).

I looked into the 2007 inflation adjusted prices of the most expensive pieces of art ever sold. The winner, believe it or not, was a Jackson Pollock piece, titled No. 5 (see picture above) sold in 1948. The price in today’s dollars would be 142.7 million! I never knew that drizzling paint on a brown canvas could be so profitable.

Looks like most of us should start with the staples of investing; your 401(k) to the match then a Roth IRA (if you qualify), before we start becoming art aficionados.

However, I think I might look through my attic and see what I can get for my old stack of comic books.

Disclaimer: This report is for entertainment purposes only and is not intended as and should not be used to provide investment advice and does not address or account for individual investor circumstances. Investment decisions should always be made based on specific financial needs and objectives, goals, time horizon, and risk tolerance. Asset classes and/or investments described in this report may not be suitable for all investors. Past performance is no guarantee of future results. No forecast should be considered a guarantee either. The information, opinions and analysis contained herein are based on sources believed to be reliable but no representation, expressed or implied, is made as to its accuracy, completeness or correctness. Write or call MP for detailed disclosure as required by Rule 17b of the Securities Act of 1933/1934 - Market Pathways 17595 Harvard Ave., Suite C519 Irvine, CA 92614. MP is not an investment advisor and this report is not investment advice. This information is neither a solicitation to buy nor an offer to sell securities. Information contained herein contains forward-looking statements and is subject to significant risks and uncertainties, which will affect the results. The opinions contained herein reflect our current judgment and are subject to change without notice. Information contained herein may not be reproduced in whole or in part without the express written consent of Market Pathways Financial Relations Incorporated.