Alternate Assets-II

I talked about why I don’t feel comfortable about buying alternate assets like Paintings, Wine Bottles, and Postage stamps etc. from an investment point of view in my previous post regarding alternate assets.

As promised below are some of the reasons:

1. There is no SIP or Systemic Investment Plan available for investment in alternate assets, mostly it is buy it now or leave it kind of a deal. If history has taught us anything it is that for a small investor SIP is the best long term investment option in any kind of assets for long term accumulation of wealth.
2. Since you are buying something from an investment point of view I would assume that one day you would like to sell it. Now since typically when you will buy it would be some thing you like, but when you want to sell it you need to find some body who also likes it and at the price you are quoting for the same.
3. There is no clear cut secondary market available for most of these so called assets, and you have to go through some specialized dealers. Some of these dealers are of dubious distinction.
4. A lot of dealings are in cash to avoid tax, which means you are being part of something illegal. Which I am sure you are not willing to be part of?
5. What if the asset that you are trying to sell is no longer in vogue and there is no market for the same.
6. What if the product you bought turned out to be a fake?
7. What if it is destroyed by vagaries of nature? Paintings destroyed by moisture, wine turning sour etc.
8. What if you fall in love with your acquisition forgetting that it was actually an asset ultimately to be sold at a higher price. If you fall in love with the painting that you bought to be sold you will have your capital blocked and the value of the painting will actually become Zero as you will never sell it.

As you can see that there are lot of ifs and buts associated with alternate assets due to there being non liquid in nature and susceptible to lot of frauds and other risks.

So are all the people who are buying art idiots? In fact most of them are very smart people who not only love art but also happen to be extremely rich. The key word here is extremely rich.

So if you are not extremely rich you should stay away from investing in alternate assets, or even if you are buying it you should buy it purely for the joy of it without any expectation of getting any return from it. It has Bhagwan Ganesh in it and was brought home as a matter of faith.

Remember art can be an indulgence for a small investor it can not be an investment.

I am attaching a picture of one of the painting I bought because both me and my wife liked it very much and bought if for the sheer joy of it. Not for any kind of investment.

Thanks for reading. Do leave a comment.

Alternate Assets

We all have at some point of time in our investing life invested in one or more than one of the following products:

All investments can actually be categorized to their simplest form in the following:

1. Equity ( Shares)
2. Debt ( Bonds, FD, NSC, PPF etc)
3. Precious Metals ( Jewelry, Gold coins and bars, Gold ETFs)
4. Real Estate ( Land, Flats )

But few of us have dabbled in

5. Commodities ( Tin, Soya bean, wheat, coal, copper….and every thing else under the sun created by god)
6. Currency markets ( $, yen, pounds, Euros, INR)
7. Alternate assets.

Let us talk a little bit about what I am calling here Alternate assets:

Typically alternate assets is anything that can not be classified as one of the first 6 things on the list.

Some common examples will be:

1. Antique coins and other antique objects
2. Art
3. Postage stamps
4. Wine bottles
5. Old posters, cards memorabilia etc, typically related to a theme e.g. movies, sports etc.

A lot of people have started dabbling in these assets, the logic one gets to hear is that these assets have a negative correlation with Equity and other markets so they provide a good hedge in volatile markets.

So should we go ahead and invest in one or more of these assets?

I am not sure. But given a choice I would like to stay away from most of the alternate assets.

If you are wondering why I can give many reasons and I plan to write about the same in the next blog I plan to write.

Thanks for reading keep watching this space.