Beauty, passion and value are often hard to combine but in this instance it is as enjoyable as it is profitable. (First written for our friends of the Simple Platform and published on andsimple.com)
The need to diversify investments is one of the first things we learn when we study finance. I’m sure can you still hear the infamous words of your parents, professors or mentors: “Never put all of your eggs in one basket.”. As our world evolves and revolves over time, we see new asset classes being created. The latest example was cryptocurrencies, but there are also other types of assets that have come more and more into view over the past years and those are luxury goods.
As lifestyle managers we are confronted daily, with the purchasing wishes of our clients and our experience has taught us that the highest category of luxury is recession-proof and doesn’t move with the market. However, there is a category of luxury that follows the market(s) simply because these items don’t get bought as investments or stores of value but more to display status by those who have recently come into some money.
To most people, buying luxury is not about how the item makes them feel, but rather how it makes others feel who see them wear it, use it or drive it.
There are a number of brands and products that have performed exceptionally well over the last decade as they doubled and tripled their market value over time. If we take a look at the current market (mid June 2022) we can see that investments haven corrected heavily over the last six months. The S&P 500 is down 22%, the price of Bitcoin is down 70% from its highs, but the price of an Hermes Birkin Bag remains unchanged at around twice the retail price. The value of many Patek Philippe models is still sky high, trading at multiples of 3-4x compared to the store price regardless of failing stock markets.
But let’s not stop there! Just last year we’ve seen the release of a limited edition Patek Philippe watch, the last iteration of the 5711 model as an homage to Tiffany & Co. The dial was created in their iconic turquoise colour, which makes it instantly recognisable. Only 175 pieces were made, to commemorate the 175th anniversary of Tiffany’s. Shortly after its release, a piece was auctioned, for charity mind you, at USD 6 million whilst the retail price was not even USD 50’000.-, so just by this example you can see it can be very exciting to invest in luxury products if you can get the right guidance and identify the pieces that are worth your while.
This particular release was fascinating to us because it instantly created a billions Dollars in assets but only for a certain type of clientele. Yes granted, that watch was a phenomenon but it’s interesting to highlight such products as they seem to occur on a regular basis in the world of luxury products and the frequency of appearance is increasing.
There are certain luxury brands and products that are absolutely timeless and therefore represent a store of value. Some are easier to store than others! For example you can build a watch collection that fits in the corner of a room or into a wall safe but you can also collect automobiles which requires considerable storage space and generates maintenance cost. That said, there are funds and investment companies that specialise in these types of assets and will provide turnkey solutions, especially in the automotive sector.
How to distinguish between a store of value and a hype piece?
At the time of writing, there is a pair of sneakers, created by Louis Vuitton’s late designer Virgil Abloh in cooperation with Nike, which is selling in the secondary market for nearly USD 200,000. It’s a limited edition, like most items that increase in value, but it is a hype piece nonetheless. Some people will pay that outlandish amount for these sneakers now and will even go out and wear them. Once you wear them, they lose the lion share of their value. But regardless if they are worn or not, this is the kind of item that will most likely not hold or increase in value over the years. They will always be worth more than what they once cost in the store but from a price point of USD 200,000, the only way is down. A hype largely relies on the greater fool theory, which is never a good long term investment strategy in any market.
In the world of luxury, you need to know the rarity and timelessness of the item in order to determine if it is a store of value. The item has to be relevant to the history of the brand or the overall market in which it exists, alternatively it has to be timeless with its design unchanged over many decades. Everything else is a hype product that will go up and then see its value dwindle of time as the interest dies down.
Products that are timeless are for example the Audemars Piguet Royal Oak wristwatch. The design was created in 1972 and remains largely unchanged since 50 years. Another example is the Patek Philippe Nautilus, created just four years later by the same, legendary watchmaker & designer Gerald Genta. In this regard, something to look out for will be the 50th anniversary pieces that will undoubtably be presented by Patek in 2026. Another example of timeless design is the Hermes Birkin Bag which was introduced in 1984 and has remained unchanged in its shape but cleverly the classic lineup of colours is completed by new fashionable colours with each fashion season so the piece remains highly relevant year over year but is still a classic.
All of these pieces are perfect examples of stores of value because they will never sell for less than the store price. They consistently sell over MSRP even once they were worn or used.
Investing in luxury assets requires expertise, not only in order to distinguish between hype pieces and store of value pieces but because there often are small details that can affect the value considerably. In the world of (vintage) watches for example it is primordial to buy a watch as a complete set with the original box and all the paperwork that was once delivery by the brand or the store. This includes that handbook and warranty card. Without those, you’re looking at severely reduced market value, often more than 30% compared to a full set. If you don’t get the box and original papers, you can never be sure if the watch was ever stolen during the course of its lifetime and that risk is factored into the value.
Another important aspect are slight changes in models or variants of luxury items. It is common that products that exist in different colour variations are not valued the same. The aspect of variations is most flagrant in vintage automobiles. A manufacturer like Porsche or Ferrari will have built different series of the same car like the Ferrari 250 from the 1950s and 60s. You’ll find that the 250 GTO, which was only built 36 times, was the world’s most valuable car, worth more than USD 40 million. Compare that to the 250 GT Lusso from the same era but its worth a fraction of the GTO at around USD 2 million.
Even though not as wildly priced as these Ferraris, the same nuances of production exist at Porsche with the famous 356 which was Porsche’s first production vehicle in the early 1950s. The car’s value can vary fourfold from the A series to the C series. If you don’t know what you’re looking for, you’ll easily miss important details.
Luxury is an appealing asset class because it combines value and passion and is thereby far from boring. If you can navigate the pitfalls with the help of an expert advisor like Veltracon Lifestyle, you can not only own the finest things the world has to offer but you can also grow the value of your portfolio, having fun whilst making money.