It’s a weird world, the one where love and money collide. Would you cough up £42 million for a depiction of a bunch of apples, as a lover of Cézanne recently did for the Impressionist’s ‘Les Pommes’? Or nearly $10 million for very old tableware, as a ceramics collector has for a ruby-red, lotus-decorated bowl from the time of the Chinese emperor Kangxi?
Recently a wealthy fan of classic cars put down $2 million for a dark blue 1967 Ferrari, while that distinguished intersection of humanity representing both auto- and Diana-philes are eagerly awaiting the auction of the late royal’s forest-green 1991 Audi Cabriolet (guide price: £25,000; price of a vehicle similiar in every sense, except it’s never been driven by the Princess of Wales: £2,000).
There is more interest in such sentimentally exorbitant buys than ever before. The interest comes not only from collectors, whose obsessions range from luxury watches — sorry, I mean ‘timepieces’ — to stamps, champagne, commemorative coins, Audrey Hepburn dresses, Beatles guitars. It also comes from banking circles, where such purchases are known as ‘investments of passion’.
Investments of passion are those made on objects whose value depends on reasons other than utility. Take, for example, the two bottles of undrinkable whisky that were sold for £12,050 in May — the UK buyer had to fight off rival bids from all over the world because the bottles were part of the cargo of the SS Politician which sank off the shores of the Outer Hebrides in 1941 and inspired the book Whisky Galore.
Bankers’ interest in such investments have been piqued because, with the economic rise of Asia and the Arab world, the collecting crowd has burgeoned. Financiers are also taking a closer look because, while many initially thought luxury items would be the first sector to suffer in a worldwide downturn, prices have been rising. As stock markets have slumped, investments of passion have climbed new heights.
The banking boffins, as is their wont, have been busy translating this trend into graphs and tables. They have been trying to calculate passion. Thus we now have things like the Knight Frank Luxury Investment Index, which draws from industry markers such as the Stanley Gibbons coin index and data from Art Market Research to measure the combined rise in the prices of coins, stamps, fine art, fine wine, classic cars, jewellery, Chinese ceramics, watches and furniture.
The composite index shows a surge of 175 per cent in the past decade, almost double that of the 100 per cent rise in prime residential prices in central London over the same period. Leading the passion pack are classic cars, the price of which has accelerated fivefold. Rolling in second are coins (up 250 per cent), followed by stamps and fine art (both higher by around 200 per cent). Watches, that primary symbol of affluence, only clocked in a gain of 76 per cent, proving that a luxury object’s popularity can only be a rough measure of its investment potential. ‘The actual number of watches that will increase in value is somewhat limited and largely restricted to vintage watches and some modern models by Rolex and Patek Philippe,’ Paul Maudsley of auctioneer Bonhams tells Knight Frank. Vintage Patek Philippes are now commanding about a million dollars each at auctions.
‘Passion’ investors are sometimes willing to spend on items whose monetary value are likely to depreciate — if such items give them access to greater opportunities and experiences. The value of most cars, for instance, starts deteriorating the moment you drive them out of the showroom. But a Porsche or a Ferrari will help gain you entrance to another world, parking you in another social circle, as it were.
It’s not so much that a global economic slowdown somehow triggers a rush for high-end goods, but that such goods, ever available to the very wealthy, are shielded from the vagaries of the markets. The super-rich are relatively unaffected by economic turmoil, while their passions stay unchanged. Their numbers are growing, and what would normally regarded as pie-in-the-sky purchases can turn out to be bulwarks against financial storms.
Still, before you rush out to place a $20 million bid on that Ming vase, you should know that investments of passion are subject to heavy risks. There are now funds that help you invest in luxury items, but these funds and their managers lack a track record. Transaction costs are high, the market is neither transparent nor liquid, and fakes and forgeries abound.
Because investments of passion have such an emotive factor, certain luxury items can suffer great fluctuations in price. Take for example the wine market which, while liquid, can be subject to bubbles. Two years ago the Liv-ex 100 Index of wines dropped as Chinese buyers, who’d been buying up crates of Château Lafite, suddenly lost interest in that label.
What would you do if caught in that situation? Well, even if your investment may have tanked, you’ve still got your asset. And that’s the biggest upside of investing with your heart as well as your head. After the party’s over, you can still drink up.
Photo: Courtesy of Sotheby’s