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Financial Planning: A Midyear Guide 1987 : part two: The Stock Market : Collectibles: Heady Profits, Big Pitfalls

June 21, 1987|Bill Sing | Times Staff Writer

When Vincent Van Gogh's famous "Sunflowers" fetched $39.9 million at Christie's London auction house in March, collectors worldwide were astounded. The price for the painting was more than triple the previous record for a single work of art at auction.

But high prices are not unusual in today's heady world of collectibles. Nearly everywhere you look, prices for the rarest coins, stamps, antiques, art, cars, toys, baseball cards, old books, rugs and other collectibles are setting records.

Collecting has become respectable--and indeed profitable--for thousands of people spending their higher incomes or stock market profits.

Some types of marketable collectibles, such as fine art, are gaining such wide popularity that lenders are increasingly accepting them as collateral for loans. And along with the burgeoning ranks of collectors, the number of auctions, exhibitions and dealers of collectibles also continues to grow.

Several classes of collectibles underperformed stocks but still performed respectably in the past year. U.S. coins rose 11%; Old Master paintings gained 9%, and Chinese ceramics increased 7% in the year ended June 1, compared to a 20.6% gain for stocks, according to the New York investment house of Salomon Bros. An index of auction prices for fine paintings,

ceramics, silver and furniture tracked by the auction firm Sotheby's rose even more impressively, jumping 21.7% in the past year.

But high prices are sparking fears among some experts that the

market in some collectibles may be topping out.

"The art market is overheated," said Marvin H. Newman, head of the Los Angeles office of Butterfield & Butterfield, a San Francisco-based auction house. He is concerned about a slump similar to that of 1981-82, when prices in some art categories dropped 25% to 40%.

Even without a downturn, investing in collectibles is riddled with risks and pitfalls.

Collectibles offer no current income or dividends. Investors must pay high charges to buy and sell, including dealer profits, sales taxes, appraisal fees, storage, maintenance and, of course, insurance.

There is no uniformity within classes of collectibles as there is with stocks and bonds, so prices for similar objects may vary widely. And unlike securities, there is no regular marketplace for collectibles or standard way of ranking their quality.

Moreover, the marketplace is full of forgery, fraud or misleading claims. More than $1 billion worth of bogus lithographs of the work of artist Salvador Dali have been sold in the past few years in the United States alone, estimated Michael Stout, Dali's New York attorney.

Accordingly, many experts recommend against buying collectibles with profit as the primary goal.

"Buy for enjoyment," said Martin S. Ackerman, a New York lawyer and author of "Smart Money in Art," a book on art collecting. "As a collector, it's going to take you a while to understand what you should buy."

Many people who bought stamps in the early 1980s strictly for investment lost tons of money, said Elaine R. Boughner, managing editor of Linn's Stamp News, a weekly stamp collecting newspaper. "People who didn't know anything came in and paid high prices" during 1980-81, she said, only to see prices plummet almost 50% by 1984.

Here are a few rules of thumb for successful investing in collectibles:

Know what you are doing. Try to become an expert in one category of collecting rather than a generalist. Visit museums, talk to reputable dealers and read books before you buy. "The fine collections have always been made by concentrating in one area," said Newman of Butterfield & Butterfield.

Stamp expert Boughner noted that successful philatelists specialize in a particular country or time period, or both. Many collectors join specialty stamp collecting clubs that concentrate on certain types of stamps, she said.

View collectibles as long-term investments. Making money in collectibles requires the patience of Job. Short-term gains are nearly impossible because of high commissions, premiums and other transaction costs.

Dealer markups, for example, often are between 50% and 100%, art expert Ackerman said. Accordingly, you will need to hold on to art for at least 12 to 20 years "to make any real money," he said.

But waiting can be well worth it. Butterfield's Newman, for example, noted that early 20th Century paintings by California artist Edgar Payne now sell for as much as $5,000. In the early 1970s, he said, they fetched only $300.

Buy for enjoyment. Since collectibles won't earn you any income while you own them--and hold no guarantee of profit when you sell--at least you should enjoy them on your wall or bookshelf.

Buy quality. The best item in any collectible category will rise in demand and price the most during good times, and will fall the least during bad times. Mediocre items won't rise as much and will plummet farther during a slump.

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