Exotic investments: are they for you?
With the current economic downturn dampening returns from traditional investments, more and more investors are turning to the exotic asset class to build wealth
Nyiko Mongwe, Financial Advisor at Liberty, understands the move to the exotic asset class very well. “Investors want greater returns and prefer investment vehicles that cut out the middle-man. As a result, exotic investments such as antiques, art, diamonds, jewellery, luxury watches and even game have become particularly popular in SA,” he says.
But how safe are these investments, really? And how should investors go about acquiring them?
HOW TO SPOT A GOOD INVESTMENT
It’s important to know which items are potential investments and which are simply expensive luxuries. One of the big draws in the exotic asset class is watches. Very high prices have recently been seen at international auction houses on top brands such as Vacheron Constantin, Rolex, Panerai, Eberhard & Co, Audemars Piguet and Graff.
In the jewellery and watch market, there are specific value criteria that an investor should look for. For one thing, the physical materials used in the piece must be of a very high quality. There’s no use investing in a piece of jewellery with poor-quality gold or diamonds. At the same time, the brand, age, historical significance and design play significant roles.
Vintage watches by top brands can fetch premium prices. However, buying a 1969 Rolex from Sotheby’s for R4 million might be above your budget. For this reason, it may be better to invest in a pre-owned watch from a well-established brand before it becomes vintage and is still affordable. However, it’s important to understand that this is a long-term investment and may not be predictable. Not all watches increase in value and if they do, it could take a long time before you see a return. Much like a motor car, a watch that’s either brand-new or pre-owned and still fairly new will probably depreciate in value after the initial purpose.
If you can afford it, consider a Rolex in the
R60 000-R120 000 bracket. Expert watch collector Adam Craniotes says they’re more likely to appreciate in value.
Navigating the world of jewellery investment can also be tricky. Edgy design trends come and go, while celebrated designers’ stars rise and fall, so if you’re not confident in your ability to find the diamond in the rough, it’s best to stick to highquality classic pieces. Choose simple, yet elegant gold chains rather than chunky or flashy designs. Go for high-quality gemstones such as diamonds, blue sapphires, rubies and emeralds in classic settings. If you choose pearls, choose carefully: they come in a variety of colours and sizes, but quality isn’t always guaranteed.
Finally, get the best advice. “Most consumers aren’t specialists in this kind of trade and can easily fall prey to unscrupulous investment options. For example, watches and jewellery are linked to a retail industry and while this mitigates these risks to a certain extent, it doesn’t completely eliminate them,” says Mongwe.
“With all investments, the investor is responsible for conducting sound due diligence before putting their money into an opportunity. Investors who don’t have the knowledge to conduct in-depth research should stick to traditional investment vehicles where the risk’s automatically mitigated by a third party, such as an investment broker.”
You might think the best way to claim your position among the elite of exotic investors is to show off your expensive new acquisition. Who wouldn’t want to wear a vintage Rolex to a business cocktail party? However, if you plan to wear the watches or jewellery you invested in, this will have an impact on your insurance cover and premiums.
Most insurers will cover items that are stored in a safe under household insurance, but wearable
items that can easily be stolen or lost usually involve higher premiums.
According to Mandy Barret, Marketing & Sales Manager at Aon SA, it’s important to have all items valued and to keep proof of ownership. This applies to both wearable items and those insured under household contents. However, Gari Dombo, MD of Alexander Forbes Insurance, warns that currency fluctuations could have an impact on valuations. This means that in order to insure your valuable assets adequately, you need to do regular value assessments and have your insurance adjusted, as needed.
Make sure you keep the original purchase receipt. In the case of inherited items, you may not have a proof of purchase. In such cases, the valuation certificate from a reputable valuation agent will suffice. It’s also a good idea to take photographs of each piece and keep them in a separate location. This will be useful in case of an insurance claim following a theft. Additionally, if you take your items with you on a trip, ensure they’re covered in your travel insurance.
Mongwe points out that novice investors are often attracted to exotics because they appear to offer greater control over the returns. “The ease of investing in a network with limited regulatory restrictions creates a compelling value proposition. However, the individual’s investment returns are often directly related to their level of investment knowledge. While this is exciting, it could also result in dampened returns,” he cautions.
It’s worthwhile building relationships with good dealers and auctioneers and investing in your own education. The more you know and the better trained your eye becomes, the more skill you’ll have in finding truly valuable pieces.
To become familiar with high-end collector’s pieces, look through items on auction at established auctioneers such as Sotheby’s, Strauss & Co or Stephan Welz & Co. If you’re feeling brave, you can bid on pieces online, but be sure to educate yourself first. Auction houses will be able to advise you, particularly if you’re interested in local designers.
“WITH ALL INVESTMENTS, THE INVESTOR IS RESPONSIBLE FOR CONDUCTING SOUND DUE DILIGENCE BEFORE PUTTING THEIR MONEY INTO AN OPPORTUNITY.”