Finally! One of my terrible Twitter jokes can be used in context!
Hopefully Princess Leia died doing what she loved — charging nerds $100 a pop for an autograph.
— Nelson! (@financialuproar) December 27, 2016
Too soon? Oh come on, that was a whole week ago.
A few years ago I had a brief infatuation with autographed memorabilia. I acquired such items as a Jerome Iginla hockey stick, a nicely framed Mark Messier photo, and a Taylor Swift CD. All of these are signed and include the critical certificate of authenticity. You gotta have that.
The Taylor Swift autograph was probably my best buy. I can’t remember the exact cost, but it was well under $100 including shipping. This was back in 2012 or so when she wasn’t quite as big as today. I spent $25 on a nice frame for it for a grand total of $100 or so. A quick search on eBay shows similar items for sale for US$250 or US$300.
These days, my autograph collecting hobby is on an indefinite hiatus. I find the whole practice silly, paying $100 or $200 (or more) extra for a nice framed picture just because it has somebody’s autograph on it. Dealers can get away with charging a premium for them because we trust them far more than some random with an eBay account and 41 positive feedback rating.
How to invest in collectibles?
Often, somebody like me who thinks autographed crap is cool will try to justify their collection by saying they’re going to invest in collectibles.
The logic goes like this. They spend a lot of money on some iconic piece that the average person can barely afford. A lot of thought is put into the particular investment. It has to be somebody who’s a big deal, and usually somebody who doesn’t produce a lot of memorabilia. That’s the right kind of supply/demand equation.
Usually they tend to invest in a celebrity’s stuff who’s kind of old, since they can envision the guy kicking it sometime in their lifetime. That’s the money event for collectors. The value of merchandise shoots up when the guy kicks it.
It’s a little bit messed up, isn’t it? The guy who invests in collectibles is basically waiting for some of his favorite celebrities to die.
There are other ways to invest in collectibles. Another method is what I call the shotgun approach. That’s when you buy up memorabilia signed by someone who’s somewhat famous hoping they’ll turn out to be a big star.
I know a guy who used to do this with hockey players. He went to Red Deer when Dion Phaneuf played for the Rebels as a 17 year-old and spent $100 on an autographed stick. Phaneuf went on to be drafted by the Calgary Flames and was a very big deal for a few years before being traded to the Toronto Maple Leafs. His popularity peaked and now he’s playing in obscurity in Ottawa.
The value of this stick went from $100 to a max of $300 or $400 back down to $100. It would have been a good investment if sold at the top. He did not.
The easy way to invest in collectibles
Speculating into the future trends of athletes and actors is a dumb way to invest. I wouldn’t even try to invest in collectibles. There’s more speculation there than there is in penny stock land.
That’s not saying you should never buy this stuff. If you’re like me and think having a Taylor Swift autograph on your wall is cool, then by all means. Just remember that it’s a purchase, not an investment. You may get your money back, but that’s about it. Everything else is just a bonus.
While I think investing in individual pieces of memorabilia is dumb, there is a way you can invest in the whole sector. Think of it as the investing in collectibles ETF.
The stock is called Collectors Universe, Inc. (NASDAQ:CLCT), and it is the go-to source for authenticating autographs. The company also grades sports cards, rare coins, and stamps.
It’s not a tiny company. It has a market cap of US$180 million and is profitable enough to pay a 6.8% dividend.
Revenue and earnings have been pretty flat over the last few years. Earnings in the company’s fiscal 2014, 2015, and 2016 came to $0.90, $0.87, and $0.89 per share, respectively. Shares trade hands at $20.46 each, putting shares at about 23 times earnings. That’s not exactly cheap.
Dividends are $1.40 per share each year, which means the company isn’t earning enough to cover its dividend. It has enough cash to make up the shortfall in the short-term, but issues could arise in a few years.
The autograph business is growing while the coin grading part isn’t doing great, although the weakness in coins did correct in the second half of the year. And the company has opened an office in China that authenticates gold, which should hopefully be a decent growth driver.
And that’s it. That’s the whole business. It’s the kind of simple niche business I like to invest in, although at much less than 23 times earnings.
That’s all folks
Collectors Universe Inc. is the easy way to invest in collectibles, a market which is growing. The company’s autograph authentication service saw 7% growth last year. It’s a much better choice than trying to figure out which terrible Carrie Fisher autograph will be worth something some day.
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