How to Survive a Recession

LESSON 33: Buy and Sell Collectibles

One area that should be considered for investment during a recession is collectibles.

As an economic recession takes hold, stock markets drop significantly. This liquidation creates a large pool of cash that investors place in assets that are more likely to hold or increase in value.

Collectibles encompass unique, authentic, non-reproducible, physical items that have little functional use but reflect certain periods of history, technology, or human interest. Collectibles include anything from original artworks to historic automobiles, postage stamps, coins, dolls, letters, posters, etc. The broad range of collectibles spans all wealth segments – you can buy and sell them whether you have $100 million or $5 to invest. There are also a multitude of avenues to buy and sell them including traditional on-site auctions, Internet auctions, swap meets, trade shows, flea markets, and specialty magazine and newsletter ads.

There are two keys to making money in collectibles:

First, you need to choose collectibles that will hold or increase their value. Collectibles must be unique, authentic, in limited or fixed supply, non-reproducible, and tangible objects. They also must have a reasonable market with adequate numbers of buyers and sellers. Good examples are works by well-known artists, baseball cards, sports paraphernalia, stamps, coins, cars, comic books, historic letters, and the like. Bad examples include items that are easy to forge or falsify, items with no history, or consumer products that were once a “hot” item but which will be probably be forgotten by investors for another 30 years (think Pet Rocks or action movie figures less than 15 years old).

Second, recognize that the collectible market gets hot going into recessions, but can drop as the economy recovers. Why does this occur? Because other assets like stocks and real estate become better investments with greater profit potential when the economy recovers. The upside of collectibles is set by supply and demand. When the demand goes away, supply increases, and prices naturally drop. So you should consider collectibles solely as temporary 1 to 3-year investments.