Any regular reader of our posts will know that I have long advised collectors to buy a classic car because they want it, and to “leave the investing to the investors.” The classic car market has long been a realm inhabited by collectors, with a few car investor thrown in whose interest just happened to be classic cars rather than stocks, or art, or gold.
But over the past ten years, all of that has changed. Sophisticated investors noticed that the trajectory in the value of certain classic cars only went one way…up. They watched this trend continue for a few years, and they came to the realization that some of these trajectories far outperformed most of the conventional markets in which they were invested.
The key word in the preceding paragraph is “certain,” as in “certain classic cars.”
The investors, using tools that investors use, were able to identify some of these cars. But not all of them. As evidenced by auction sales prices, others are being discovered regularly. Not all classic cars have gone up in value during this time. In fact, some of the most iconic classic cars of all time, such as the ’57 Thunderbird, or ’57 Bel Air have come down in value.
Classic car investments and car collections are different in terms of their primary purpose and approach. Here are the key distinctions between the two:
Car Investor Purpose
Classic Car Investments are primarily made with the intention of generating financial returns. Investors carefully select and acquire classic cars based on their potential appreciation in value over time. The focus is on acquiring vehicles that are expected to increase in value and can be sold for a profit in the future.
Car Collections, on the other hand, are driven by a personal passion for cars. Collectors build their collections based on personal preferences, historical significance, rarity, or emotional attachment to specific models. The primary purpose of car collections is the enjoyment and preservation of the vehicles, rather than a primary focus on financial gain.
Car Investor Selection Criteria
Classic Car Investments typically involve extensive research and analysis to identify vehicles with the highest potential for appreciation. Factors such as rarity, historical significance, demand, condition, and market trends play a significant role in the selection process.
Car Collections, on the other hand, are more subjective in nature. Collectors acquire vehicles based on personal taste, sentimental value, or the desire to have a comprehensive representation of a particular brand, model, or era. The selection criteria for car collections are often guided by the collector’s individual preferences and interests.
Car Investor Strategy
Classic Car Investments require a strategic approach to maximize potential returns. Investors consider factors such as market trends, historical sales data, expert advice, and potential future demand. They may buy and sell cars strategically, timing their transactions to take advantage of market fluctuations.
Car Collections are typically built over time, and the focus is on acquiring and preserving cars for the long term. Collectors may invest in restoration and maintenance to ensure the vehicles remain in pristine condition. They often have a long-term outlook and are less concerned about short-term fluctuations in market value.
Financial Considerations
Classic Car Investments involve financial considerations such as capital allocation, budgeting, and risk management. Investors may allocate a specific portion of their investment portfolio to classic cars and evaluate the potential returns and risks associated with the investment.
Car Collections are often self-funded by collectors who are willing to allocate their personal resources to acquire, maintain, and display the vehicles. While some collectors may consider the value of their collection, the financial aspect is usually secondary to the enjoyment and passion for the cars.
Financial Considerations
Classic Car Investments involve financial considerations such as capital allocation, budgeting, and risk management. Investors may allocate a specific portion of their investment portfolio to classic cars and evaluate the potential returns and risks associated with the investment.
Car Collections are often self-funded by collectors who are willing to allocate their personal resources to acquire, maintain, and display the vehicles. While some collectors may consider the value of their collection, the financial aspect is usually secondary to the enjoyment and passion for the cars.
Car Investment and Collections Intersect
It is important to note that classic car investments and car collections can intersect to some extent. Some collectors may acquire cars they believe have investment potential, while investors may develop a personal attachment to the vehicles they acquire. However, the primary focus and intention behind each activity generally differentiate classic car investments from car collections.
Finally
So, if you intend to mortgage your house to start investing in collector cars, you had better learn the strategies that investors use; the two most important things are to “diversify” and to know the true cost of your investment on an annual basis.
As any investor will tell you, you must diversify. If you buy only one car as an investment, and you are wrong, you have lost everything. Knowing the true cost of ownership is not as simple as it seems.
Investing is different from collecting. If you, as a collector, bought your 1969 Firebird 400 Convertible for $20,000 five years ago, and just sold it for $30,000, you would have made $10,000. If you as an investor did the same thing you probably lost money. You must factor in the cost of storage, insurance, maintenance and repairs, marketing (at sales time), and transportation (if you plan to bring it to a major auction). Do not forget to factor in the cost of the money itself. Tying up $20,000 for five years has a real cost.
Classic car investment opportunities still exist. It is up to you to ferret them out. Just remember to take off your “collector hat” and put on your “investor hat.”
