To Keep Reading
The Heritage Auction recently auctioned a 1999 Pokémon First Edition Base Set Booster Box for US$78,000. The box contains 36 booster packs of the first ever released English Pokémon cards by Wizards of the Coast, and it’s the crown jewel of collectibles for the popular card and video game series. After auction fees, the seller netted US$55,250 for a box that sold for US$90 retail in 1999. That implies a whopping 37.8% annual compound return over the past 20 years. Let’s use this iconic sale to brush up on three key things to know before you invest in collectibles.
Spectacular potential returns
Even for the most iconic item in the Pokémon collectible category, 37.8% annual compound return over 20 years is a lot. It easily beats the 34% annual compound return of George Soros’s Quantum Fund over 31 years – still a record in the hedge fund industry – and also the 27% annual compound return over the past 20 years of Apple, the world’s most valuable listed company.
And this particular sale isn’t a single extreme data point, either. Another iconic Pokémon item, the Pikachu Illustrator, warranted a US$54,970 price tag when it went to auction in 2016. Other more common items such as booster boxes from other sets are sold for several grand on eBay nowadays, compared to around US$100 at retail in 1999-2001.
This illustrates how profitable collectible investment can be – if you catch the right categories and items to collect.
Collectors beware, however: Collectibles are a highly illiquid market. Because they involve the shipping of physical items, and the potential buyer pool is restricted to a niche audience, trading collectible items can be costly. Even in the sale mentioned above, the auction house reaped a 30% commission (buyer premium plus seller fee), collecting US$22,750 of the total selling price.
Investors in Hong Kong need to be particularly aware that Hong Kong has a small collector base for many collectibles. Indeed, Pokémon trading cards are a popular collectible item mostly in the U.S. (and, to a much lesser extent, Japan and Europe). Other collectibles such as old coins and currency bills may have a large collector base only in Mainland China. Since collectible trading requires physical exchanges of the items, the lack of a domestic collector population further drags on liquidity and adds to transaction costs.
High demand for maintenance
Collectible trading depends entirely on the item’s condition. Many collectibles, including vintage Pokémon cards, were once mass-produced items; they’re rare now because few people maintained them back then. Many Pokémon cards have been heavily played, making it rare to find cards in good condition.
Authenticators exist for various collectible categories; they assess and give the collectible item some kinds of a “grade.” For Pokémon cards, the usual authenticator is the Professional Sports Authenticator (PSA). In particular, one vintage Pokémon card can trade for over US$40,000 if it gets a rating of “gem mint” (rated “10”), whereas that same Pokémon card may only trade for US$1,000 if it gets a rating of “near mint” (rated “7”), despite only subtle differences in the conditions of the card. This demonstrates how critical good maintenance is to the value of collectibles.
Gotta catch … at least some of them
When seeking stellar returns, don’t stop at equities and bonds; seek out the right collectibles as well. But be prepared to hold those assets for a long time to compensate for the high transaction costs, and choose a collectible that has sufficient enthusiasm in your local market. Also, before you begin collecting, know the proper ways to store your collectibles in order to maintain their high values. You may not know when you buy them how valuable they can be in the future. With preparation and a little luck, they might become another Pokémon story.
Want to know more about the Hong Kong market?
There are lots of myths that could stop us from being successful investors. In Hong Kong, we might have the impression that people generally get rich by buying property. But is real estate the best-performing asset class?
We’ve recently published a Special FREE Report on the Hong Kong Market: The 4 Rules for Winning in the Stock Market: A Foolish Guide for Hong Kong Investors.
We highly encourage you to download a free copy right now—click here now!
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.