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Thursday, May 17, 2012
Department: August 2008
Appreciating Collections
When does a hobby turn into an investment?
Story by Sharon Frederick
El Dorado Hills resident Richard Macaluso owns 100 catchers’ mitts — the oldest from 1890 — and all of them are in prime condition. Michael Kennedy’s East Sacramento home is filled with eye-catching graphic designs in the form of old advertisements and antique mechanical games. Richard Raisler surrounds himself with beautiful art objects: Scandinavian glass, Japanese wood blocks and antique Asian textiles.
All three men are avid collectors, among the breed whose leisure time activity is focused on the long-term acquisition and assembling of related objects. First and foremost, they do it because they have a deep appreciation for the objects they collect, an appreciation that has grown over decades of research and study. Perhaps secondarily, these collectors have invested a lot of money in their hobbies.
Certified financial planner Joel Larsen tends to weigh collectibles as a marginal part of most retirement portfolios, unless he has clear evidence of a collection’s assessed value and marketability. Larsen heads Larsen Financial Strategies Group in Davis, and advises clients across the U.S. and overseas.
“We have to remember who collectors are: They are passionate about what they collect, so they tend to overvalue their collections,” he says. “But a portfolio needs to have sufficiency, the ability to sustain you over your lifetime and perhaps sustain others as well.”
Generally, a few categories of collectibles have offered the most value: art, fine wines, dolls, rare books and pop culture memorabilia. Art has been particularly hot in past years. One reason is a new school of thought led by New York University Stern School of Business professors Jianping Mei and Michael Moses who developed an index to track art as an asset class. They and others suggest that long-term holdings of art can outperform such investments as bonds or gold — and offer valuable diversity because it is not correlated with other major asset classes. But nearly all research also sees art as a riskier investment than stocks, advisable for only the truly knowledgeable collector.
Raisler agrees that art is another element in a diversified portfolio. “First, art can be a hedge against a declining dollar,” he says. “For example, when I bought glass in Europe at an auction, the dollar was at .85 compared to the local currency. Today it’s at 1.54. Second, art does appreciate over time — assuming, of course, that you choose well and understand the value of what you buy.”
Recently retired from a career as a state Department of Transportation engineer, Macaluso is only beginning to calculate how his collection might help his retirement. “For me this is a passion.”
Macaluso says he carefully built an unusual collection of Giants memorabilia, so he’s confident it has gained significantly in value over his 25 years of collecting. Today he has 30 Giants uniforms, including examples of every one of the 16 different uniform styles worn by the team in San Francisco; 100 catchers’ mitts; and other Giants souvenirs including bats, balls and game programs. The uniforms alone, sold in a single lot, would definitely fetch a premium, Macaluso says.
Kennedy, in his 50s and owner of a graphic design firm, says he collects because: “I enjoy having these items around me. When I buy, I’m not thinking ‘Oh, this is a great investment.’ I’ll probably be more sensitive to those issues as I get older.”
However, Kennedy does keep track of prices in the area he collects — an eclectic mix not only of old advertisements and mechanical games, but historical newspapers and a range of antiques including a dentist chair from the early 1900s and a 1940s wooden phone booth. “I think my collection has been a good investment,” he says. “Prices were fairly reasonable in the 1970s and 1980s when I bought many of my pieces, and prices are much higher now.”
As different as these collections are, the three men are similar in their views of collecting. All are fascinated by the objects they collect, leading them to spend pleasurable hours studying, talking to other collectors, attending auctions and visiting dealers. Without such personal passion, the homework needed to make good purchasing decisions becomes a burden. With it, the research becomes an exciting part of the process and guides good decision making.
Raisler began collecting fine art prints during his graduate school years, based on his undergraduate training in the fine arts. Today he is president of
Sacramento-based real estate development firm Equipacific Inc. To be a successful art collector, says Raisler, you need to focus on “education, education and more education. You simply have to get your eye educated.” Do it by going to galleries and museums, attending auctions and art fairs, and meeting with dealers who are specialists in your area of interest.
Kennedy concurs: “As with any area of interest, the more homework you do, the better off you are. Read articles, talk with other collectors and view their collections. Every collector has a story, and every collector has another source for you to talk to.”
Larsen urges his clients to think about three key areas with regard to their collections: protection, valuation and intent. A collector should think about whether he or she intends to keep collectibles in the family or eventually liquidate them and gain proceeds. That decision feeds into estate planning, in terms of how the collection or the proceeds are held and distributed.
“If you are collecting for any reason other than for fun, then you want to be protected against loss, including damage, just as you would for any other property,” says Larsen. “Protection means both physical protection — appropriate security and storage — and insurance. Insurance means valuation of items: checking the provenance, getting an appraisal every two or three years and monitoring the market for price changes.”
