Investing in Collectibles: What Makes a Collectible Valuable?

My husband started buying Lord of the Rings action figures after the first movie came out, purchasing them a little at a time. He also has a box full of sports trading cards. A few of them are even worth something. We don’t think of the action figures and sports cards as investments, but if we were in a pinch and needed the cash, we could sell them and even possibly profit.

Of course, the chance you take when investing in collectibles is that they may not be worth as much as you think they will be. In some cases, a collectible might decrease in value, depending on a number of factors.

If you are interested in collectibles, here are some things to think about in terms of what makes them valuable (this is also important to remember when investing in anything):

1. What Someone is Willing to Pay and Demand

An item is worth only as much as what someone is willing to pay for it.

My husband had been following a particular Lord of the Rings gift set on eBay. It wasn’t selling. The seller kept re-listing it, only to have the auction expire without any bids.

My husband emailed him and offered to purchase it at a price $15 lower than his initial listing. He resisted — until he failed his fourth auction. He listed it with a “Buy It Now” at the price my husband wanted to pay.

Even though the seller thought his collectible was “worth” a certain amount of money, my husband disagreed, and the seller changed his perception of the value.

2. Condition of the Item

For collectibles to fetch maximum prices, or appreciate in value, they need to be kept in a mint condition.

A baseball card that has folds and tears is worth much less than one that is in a brand new condition. When you buy collectibles, you should keep them in their original packaging if you expect to sell them later — and that packaging should be cared for. A smashed-in box will significantly lower the value of a collectible.

3. Age of the Item

In some cases, the age of the item comes into play. An older item might be considered more valuable than a newer item.

A blunderbuss from the mid-18th century might be considered of higher value than one used during the Lewis and Clark expedition, a little more than 50 years later.

4. Authenticity

An “authentic” piece will be valued astronomically higher than a copy, or something from the same period made by someone who wasn’t as recognized.

This is especially important for collectibles related to arts, or craftsmanship.

5. The Rarity of the Item

And, of course, your item’s value will also depend on its rarity.

A rare bottle of wine, coveted by oenophiles everywhere, will be considered far more valuable than a more common vintage. The more difficult it is to find the item — especially to find it in good condition — the higher the value will be.

Problems With Collectibles as Investments

As an investment, collectibles have some significant issues:

1. The value is subjective. To some degree, all investments have subjective values, but a collectible item entirely relies on its perceived value and nothing else.
2. It cannot create value. Except for external influences, e.g., death of the artist, current trend, etc., your collectibles cannot generate value. When you invest in a stock, which you own a small share of a business, the business can generate revenue and profit, and the stock can pay a dividend. The underlying value of your share can grow beyond what you initially paid for, and it could also pay you dividends while you hold the investment.
3. Collectibles are not liquid. There is no easy way to convert your collection into cash quickly; especially with collectibles, you have to be very patient and only sell when someone is willing to pay for your items.
4. Storage and maintenance – The value of your collectibles is highly susceptible to the condition, and they can be easily damaged. As such, the extra effort cost of storage and maintenance is a real issue when it comes to collectibles.

Buying and Selling

No matter the collectible, it is possible to find places to buy and sell.

You can start on sites like eBay to get a feel for what’s out there, but if you are serious about high-end collectibles, you may need to frequent specific auctions and look for shops, experts and gatherings that specialize in the collectibles you are interested in.

You can also look at yard sales, pawnshops and consignment shops. If you know what you are looking for, you might be able to find a real bargain when you buy from someone who doesn’t know what he or she has. The key, of course, is knowing what to look for.

Warren Buffett famously suggested that you shouldn’t invest in anything you don’t understand. This goes for collectibles as well. You should understand exactly what you are getting and how it is likely to appreciate over time before you buy it.

Bottom Line

Collectibles can be fun to acquire. However, you should be careful. You need to understand what makes them valuable and accept that they could lose value if no one is willing to pay what you want.

Miranda Marquit

Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own blog at Miranda Marquit.