Are you a collector? Almost everyone is. Most of the time, people collect certain items because they enjoy them. But some people collect because they hope the things they collect – called collectibles – will increase in value in the future. They hope to profit from their investment. This profit is called the investor’s return on their investments.
When people collect things with the intention of selling them for more than they paid for them, they are called speculators. To speculate means to buy something at a low price hoping that it can be sold for a higher price in the future.
You will explore how supply and demand influence the price of the things that people collect. You will also evaluate collectibles as an investment option.
Activity 1: What is a Collectible?
Read these articles to learn more about investing in collectibles,
THINK ABOUT IT
A. Why do people collect things? Give at least 2 reasons.
B. What collectibles were in demand at the time these articles were written? Give 2 examples.
C. What factors help increase the value of a collectible? Identify at least 3 factors.
D. Some collectibles are in demand by more than one group of collectors, which can help increase the item’s price. Give an example of this phenomena.
Activity 2: Collecting for Profit?
When compared to other popular investment options, collectibles don’t fare well. The type of return available to people who invest in collectibles is limited. Also, collectibles are often considered an extremely risky investment.
- No Income. Investment return comes in two forms: income and growth. Income is paid while an investor owns an investment. The interest paid on bonds, the dividends paid on stocks, and rent paid on real estate are all examples of income paid an investor. Growth is the profit paid to an investor when an investment is sold. The return on collectibles is realized when the collectible is sold. Collectibles are not a good choice for people who want income without selling.
- Market Price Risk. Collectible prices can go up as well as down. The risk that the price of an investment will go down is called market price risk.
- Limited liquidity. There is also no guarantee that there will be a buyer in the marketplace willing to purchase a collectible at the price an investor wants when he or she decides to sell. The ability of an investor to sell an investment is referred to as the investment’s liquidity.
- Have you ever heard of a Cabbage Patch Doll? This doll was one of the biggest collectibles of the Twentieth century. The dolls are also an example of the market price risk associated with collectibles. Read: Whatever Happened to Cabbage Patch Dolls? Source: About.com.
For more information on how collectibles are sold, read How to Sell Collectibles.
THINK ABOUT IT
What was the price of Cabbage Patch Dolls in the 1980s?
How much are most of the Cabbage Patch Dolls worth today?
What dolls are likely to bring the highest prices?
What reason is given for the low prices on other Cabbage Patch Dolls?
Have Cabbage Patch Dolls been a good investment so far?
Could this change in the future? Explain your answer.
Where can you get information on the value of collectibles?
- What advice would you give someone who is interested in collecting for a profit?
If you want to own collectibles because you enjoy collecting certain things, go ahead and collect them. But remember that, as investments, collectibles aren’t so hot. If you collect things as an investor, you are gambling that your collectibles will increase in value in the future. Past history tells us it is very difficult to predict which collectibles will actually increase in value. To profit from your investment you will also have to sell it. There is no guarantee that anyone will be willing to buy your collectibles at the price you are asking for them.
Using this worksheet , identify five items you predict will increase in value in the future. For each item you identify, give a reason in terms of supply and demand why you think the value will increase. Your teacher may also evaluate your answers to questions in the THINK ABOUT IT sections.
1. Research current prices on Cabbage Patch Dolls or another collectible at an online auction site. Use supply and demand to analyze the reasons for the differences in bid prices.
2. Survey a parent, grandparent, or elderly acquaintance. Ask questions a-c below. Discuss your findings in a presentation in class.
a. Do you own anything – for instance, a baseball card, coin, book, piece of furniture — that has increased significantly in value during your lifetime?
b. Did you think when you got the item that it would become so valuable?
c. Is there anything you have gotten rid of that you now wished you had kept?
3. Read The Trading Game by Alfred Slote (Harper Trophy, 1990). Why is Andy willing to trade his $2,500 Mickey Mantle card for a card valued at just $.25?