Highlights in this issue:

*** How to spot the next South African masterpiece…
*** Don’t underestimate the power of the “big picture” when it comes to collectibles...
*** You probably wouldn’t want to live my life...

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From the pen of Karin Iten…

Dear Investment Academy Reader,

At first glance, the alternative investment world appears daunting.

What makes one piece of art more valuable than the next? Does the antique shop around the corner have any “unrecognised” masterpieces that it’s selling at a giveaway price? How would you even recognise these undiscovered treasures?

Quite frankly, when it comes to art, antiques and collectibles, the knowledge gap is the single biggest problem.

So this week, let’s remove the mystery behind what makes a piece truly valuable.

There are a number of factors you must consider when determining the value of an alternative investment. Your starting point is a price guide (you can get one at any auction house or online sites for the area of your choice). It’ll enable you to look up the price of a comparable item to discover what “fair value” is.

But, to really get an idea of what an item should really sell for you’ll need to consider the following:

Your seven-point checklist for a successful evaluation

1. Condition:
Don’t kid yourself into thinking that the more rare an item is, the more it’s worth. In truth, the most important factor is the condition of an item. The value of something that’s in mint condition is worth far more than an item of below average condition.

So how do you determine if your dream collectible is a good buy? Well, depending on the area of expertise you’re interested in (be it stamps, antique furniture, art or anything else you can collect), use these simple guidelines.

Look for:
*** Cracks, fractures, chips, tears, rips, stains and marks
*** Defects and manufacturing flaws
*** Finish condition (this includes things like varnish, etc.)
*** The material an item is made of (for example, teak furniture has a far higher value than something made from pine)
*** Missing pieces or parts
*** Visible repairs and touch ups
*** Excessive wear

2. Market trends:
Collectibles are extremely vulnerable to fluctuations in public tastes. Like anything fashionable, trends can change in a blink of an eye. For this reason, market trends can affect the price of your collectible in a positive way – by driving the price up – or in a negative way – bringing the price down. So don’t rely on price guides too heavily when it comes to determining your piece’s worth. Depending on the trend at the time of printing, you may be over looking the current fad.

Monitoring global political and economic shifts are a great way to spotting the next BIG trend. You read that right! For example, in the early 80s, when OPEC’s oil pricing power declined, the price of oriental rugs also took a hit. (Since both originate from the same area, it was only natural that oil issues would affect other produce from the region like these rugs.) The lesson: Just like investing in the stock market, don’t underestimate the power of the “big picture” when it comes to collectibles.

So how do you avoid getting carried away with today’s “must-have” fashion? Appraisers, such as those that work at major auction houses like Sotheby’s and Christie’s in London, suggest you keep a close eye on your favourite collectible market. By doing so, you’ll be able to establish what the trend towards your passion currently is.

3. Age doesn’t always equal value:
Any dealer will tell you that the most common thing they hear when doing an appraisal is: “This is old so it must be worth something”. That’s not always true. To be a real collectible, the item needs to be rare. If, for example, everyone can get their hands on a similar piece, then supply outstrips demand and you won’t get much for your item. So remember this: Only use an item’s age to help you determine the authenticity of the piece. And that brings us to my next point…

4. Rarity:
Remember, the collectible market is driven by supply and demand dynamics. And that means an extremely rare item (like a Tiffany lamp) will fetch a high price – even if it has a hairline crack. A common glass lamp, on the other hand, with the same type of crack won’t be worth much at all.

5. Check for marks:
Have you ever watched the Antiques Roadshow on BBC? If you have, you’ll know that one of the first things an appraiser does when he or she first comes across an item is pick it up, turn it over and check for marks. No, I’m not talking about scratches, tears and stains. I’m talking about the maker’s mark or signature.

A mark can tell you three vital things:
*** If an item is real or fake.
*** When the piece was made – for example a coin will have a mint date on it.
*** Who made it – we’ve all seen signatures in the corners of a painting, but did you know that Persian carpets carry the names of their makers on them too? Yes, that’s right, somewhere within every carpets design you’ll be able to find the weaver signature. It may be small, but next time you walk past a Persian carpet store, go in and ask the dealer about this fascinating feature.

6. Ask the experts:
Appraisers have a network of friends and colleagues they’ll consult when they need information on an item outside their speciality. And you’d be wise to follow suit. Don’t be afraid to ask for help. It’ll save you valuable time and money.

Chat to dealers and find out as much about an item as you possibly can before you decide to buy it. Chances are, you won’t be able to return it.

7. Take the middle road:
Sometimes an item will sell for more than it’s worth, sometimes it’ll sell for less. And that’s why when appraisers evaluate an item they always use the median price. That way, they give the buyer the most accurate value.

Here’s to your financial freedom,

Karin Iten
for the Investment Academy