Insider Look at Fine Art, Wine & Trading Cards
Whether you are building a wine, art or trading card collection, or determining the best way to sell your tangible assets, there are fundamental steps to follow.
ACQUISITION STRATEGY
Wine is a traditionally popular place to build assets, but trading cards are growing as viable alternative investments. While each must be approached differently, there are similarities in how best to establish your collection.
Charles Curtis is a Master of Wine and founder of WineAlpha, a fine wine advisory serving private, trade and institutional clients with an interest in the market for fine and rare wine.
He advises following these steps:
- Break it into sub-genres: Since what is true for Bordeaux is not necessarily true of Burgundy, you must understand the multi-year trends for each wine type. Slavishly following trends can result in strategic errors.
- Avoid the bubble: Right now, for example, Burgundy is trading at historic highs so finding value is tricky. To do so, know which producers are popular (Domaine de la Romanée Conti), where prices are rising (La Tâche) and where they are stagnant (the bottling from the Romanée Conti itself).
- Protect value: Pay attention to provenance, condition and rarity, factors essential to driving asset value in any category. For instance, there will be tens of thousands of cases of your typical first-growth Bordeaux produced and hundreds of cases of magnums, but only a few dozen to a few score of larger bottles such as double magnums (3 liters), jeroboams (5 liters) or imperials (6 liters).
- Avoid the “unicorn”: While rarity is important, maintain common sense. Certain wines such as Lafleur ’47 and magnums of Petrus ’29 are so rare that they are almost invariably counterfeit. To steer clear of problems, stick with wines that have a solid provenance and trading history.
- Play the arbitrage: Wine is a global category, so to get in at the right price don’t overlook sourcing in London or Hong Kong. Typically, London sales have the lowest prices, while the best property often comes up in Hong Kong (albeit at a premium).
- Pay attention to expenses, but don’t cut corners either: It is essential to use temperature-controlled shipping and storage and to insure wine end-to-end, but it is important not to overpay for these services, or to pay too much tax. As with everything, the devil is in the details.
While wine has long been popular in collecting for investment purposes, building a trading card portfolio is emerging as a very profitable undertaking. Growing interest was stoked by the sale in February 2018 of a 2000 Tom Brady Rookie Card for nearly $110,000 at auction, reflecting an almost 300% return on investment in just two years
Brent Huigens, CEO of PWCC, the largest trading card venue, lays out six essential rules for investing in trading cards:
- Establish a goal: Determine how long investments will be held and the return desired. Consider whether this will be an actively managed portfolio, which may require more time for tracking demand and pricing trends, or one that can be left alone to appreciate.
- Specialize in a sector: A trading card portfolio should revolve around a type of card – new or old, sports or non‐sports, mainstream or esoteric card productions, or from a specific era within vintage or modern cards. Investors can still diversify within a narrowly defined “sector,” and advanced investors might maintain several portfolios, each with a unique focus.
- Personalize to your interests: Consider gravitating toward a sector that resonates with you because the in-depth research and analysis essential to portfolio construction may be more enjoyable. A passion for the investment could separate the most successful investors from the pack; they are often more willing to dig into the industry’s detail.
- Pick a portfolio size: Whether available funds for this venture are $10,000 or $1 million, it is possible to create a well‐diversified portfolio. Clearly, a smaller budget may mean targeting lower-valued cards, but the ROI is as bright on both low and high value cards. Use historical sales tools to study the market, assess historical sales patterns and build future portfolio goals.
- Understand eye appeal: Evaluate the quality. Card values can be complex, relying on a combination of the card, its professional grade and the quality of a card within that grade, which can significantly impact market value.
- Seek professional guidance: Real‐time analytical tools and investment guidance that help develop an investors strategy and help pinpoint the right cards for a portfolio are available from professionals.
SALES STRATEGY
Selling your tangible assets is a very tricky business, so whether it’s just one item or a collection that you hope to sell, professional guidance is absolutely necessary. It’s a big mistake to do it alone if you want the best results. An advisor will make your endeavor effortless and transparent, and most importantly, ensure you get the highest return.
Anita Heriot, President of Pall Mall Art Advisors, uses the term “tangible asset fiduciary” to describe our work on your behalf in the sale process. A tangible asset fiduciary is a “fire wall” between the client and the auction house, dealer or art advisor. We are your representatives, making certain that the sale process works, that the work of art is placed with the best venue, and that all the steps for a successful sale are met.
We start by determining the most appropriate method and market for sale. While some works can and should be sold privately, others benefit from a more competitive market by being sold at auction in a specialized sale.
Several steps are necessary to ensure a good result at auction, and it starts with finding the right auction house. Although most regional and national auction houses have Fine Art Departments, only a select few have specialized sales that target the right collectors for a particular work. These specialized sales include more thematic categories like the annual “Orientalist Sale” at Sotheby’s in London or Copley Fine Art’s bi‐annual “Sporting Sale,” or regional specializations such as Freeman’s bi‐annual Pennsylvania Impressionists sale or Leslie Hindman’s “Made in Chicago” sale.
Using specialized sales is strategic because the auction venue has dedicated marketing and a focused clientele for the specific work to be sold. Even with the full scope and reach of the internet and international bidding, choosing the right brick-and‐mortar venue still can be the difference between a work selling and a work selling well.
To find the right venue and specialized sale for your artwork, our team looks at how many works of art by the artist in question have been sold by each one of several key auction houses we identify.
We utilize this same thought process when assisting with all tangible assets, including furniture, decorative arts and collectibles.
Equally important is negotiating the terms of the sale. The auction business is expense heavy because auction houses must insure the works while in storage, produce expensive catalogues, pay for expensive real estate and pay their expert staff. As a result, they try to look to sellers to absorb some costs by charging fees for photography, insurance, storage, shipping and marketing, as well as a seller’s commission. However, all of these fees can be waived if the collection has value.
Other essential steps include:
- Marketing: Ensure that your work is featured in any press and placed in a predominant place in the catalogue and in the internal auction marketing campaigns. To get a high price at auction people must be aware of your work of art. High exposure is essential.
- Estimates: These are the “secret sauce” to a successful sale. Auctions need a minimum of two people who want your work. Better yet would be 10 or more people bidding online, in the auction room or on the phone. Therefore, it’s best to place estimates that appear to be below the value of the work, giving you a much better chance at a higher return. It may seem illogical, but auction psychology requires emotion.
- Guarantee: For a very significant work of art, you may benefit from establishing an auction guarantee. While not always in your financial interest, it provides a safety net.
- Reserve: Set a reserve, the lowest number at which you are willing to sell your work. While not known to the public, a reserve should be set as close to the sale date as possible because a lot of information comes into the auction house very close to the sale which will provide insight into buyer interest in the piece. Make sure your reserve is low enough that an auctioneer has the ability to start low to get people excited about bidding on the piece.
- Insurance: The biggest losses tend to occur when the artwork is in transit from your house to the auction house. Have a true insurance value on the piece so that in case of loss you are made whole. Don’t trust the shippers to have appropriate insurance.
- Placement: Make sure that when the exhibition is up for viewers of the sale your work is displayed in a dominant position in the sale room and has good light.
Finally, avoid having your work of art go unsold because that’s not good for its resale value. If you carefully follow the steps above, you should have a successful sale and not get the object back.
As you can see, regardless of the object of value, the selling process can be quite complex, which is why it is a mistake to do it alone. Allow a tangible asset fiduciary to bring expertise to the successful sale of your work of art or collection.
Contributors
FURTHER READINGS
- Is Art a Good Investment?
- Art & Collectibles: the Rise of Alternative Investments
- Protect Your Investments while Divesting Tangible Assets
