Articles

Alternate Investments in Light and in Spite of the Fiscal Cliff

Written by Dominique Feldman on . Posted in Staff Op-Eds

As the New Year looms before us, the entire nation, including those who spend a great deal of their time and money investing in one form of commodity or other, is doing a fair bit of nail biting over the menace of the Fiscal Cliff.  The prospect of those imminent tax increases and spending cuts has many an investor fearful of the possible recession that could result from them, and in response, markets have declined steadily for the last week.  The Dow closed Friday at 12938.11, down 1.21% for the day, even as the President and key members of Congress were working to find a solution to the impending problem.  Of course, the politicians more or less know where their paychecks are coming from for the next two years.  The rest of the country waits on tenterhooks to see if a deal can be struck and what it will be.

No matter what compromise, if any, is reached, some negative economic impact is likely to be felt.  In light of this, many interested persons, from large investors to small ones, are seeking safe alternate investments that are reliable and have durable value, even in uncertain economic times.

These alternate investments may seem only to be accessible and useful to those with a fairly large amount of capital on hand, but this is not the case.  Though some of the higher-end investments of ANY kind can be intimidating, with a little imagination, anyone can take advantage of remarkably durable opportunities.  These types of investments, and the people who take part in them, are good examples of thinking outside the ordinary markets and seeking reliable, strong sources of value in other places.

I. Vintage Cars

This is a very specialized but durable market for investors with the interest and knowledge who know where to look.  Along with well-known and not so well known classic makes and models of automobiles, like a 1956 Lancia Aurelia B24S Spider, expected to be worth about $400,000, there are a few truly special vehicles going up for auction, which gain a large part of their value from being literally unique.  Among such special cars is the 1955 Fleetwood Cadillac, specially modified to be a touring limousine for President Dwight D. Eisenhower.  With a top that could open and a rail to hold onto while waving to appreciative crowds, this car, one of only two made, owes as much of its value to who rode in it as to how well it’s made and how rare it is.  The anticipated starting price at auction is to be over $100,000.   Expected to bring even more than that amount of money, with bidding starting at $150,000, is a 1941 Cadillac Series 60 that belonged to Bette Davis. The association with legendary celebrities and famous political figures is a source of value that will not quickly fade away.

Investments in such exquisitely rare, collectible automobiles are not for everyone, but even an average citizen with the right knowledge and ingenuity, can find a way to make the most of the fact that classic cars hold a special place in the American heart.  There are many places where someone who knows what they’re looking for can get a surprisingly good deal on older cars that can be fixed up and resold for a significant gain.  If one is mechanically inclined and knows the market, or has a friend who is, it can be sensible to put the Christmas bonus into such a find as opposed to the currently troubled paper investments markets.  The right vehicle can have real, durable, and unique value not readily impacted by economic bubbles or politically influenced recessions.  For the knowledgeable investor they can help round out a truly unique portfolio.

II.  Wines and Spirits

It may at first seem counter-intuitive to make an investment of an item which can simply be drunk down and disappear.  Yet, for the savvy and interested connoisseur, wines and spirits can be enduring and reliable investments.  Take the example of Yevgeny Chichvarkin, who was a hugely successful mobile phone entrepreneur in Russia before politically-motivated kidnapping charges forced him to sell his company and flee to London.  The charges were subsequently dropped, and Chichvarkin made about $300 million on the sale of his company, but he’s not going into quiet British retirement.  Instead, he’s opened the very upscale shop “Hedonism,” from which he sells an incredibly rare collection of wines and liquors to the well-to-do who wish to invest in such commodities, or who just want to drink a truly rare cocktail or glass of wine.

Among the fare which Chichvarkin showed to a Bloomberg interviewer was a first of eleven bottle of 55 year old Glenfiddich, which is selling at 123,000 pounds.  In his vault the Russian expatriate also has such treasures as an 1811 ChateauD’Yquem, which is a comparative steal at only 98,000 pounds.  Though not all of his offerings are of this magnitude, Chichvarkin does boast 6500 rare wines and nearly 800 rare whiskeys.  These particular bottles aren’t exactly viable options for the typical part-time collector, but they have been seen to hold value for as long as 200 years, a very reassuring fact for a long-term investor. They are also a possible option for the truly wealthy purchaser who wants to calm his or her nerves in the face of political and economic uncertainty.   For those with a bit less cash than a Russian millionaire, there are plenty of more affordable vintages that can provide a safe and interesting place to put extra savings, after putting in a little research and exploration.  Some families even find that an older relative or grandparent might have kept an old bottle of wine or liquor that they didn’t even realize were worth anything.  Before drinking such a find, it might be a good idea to think of using it as a potential asset.

III.  Art

Far from the least impressive of the alternate investments, and probably the venue for the most reliable long-term durability, is the world of fine art collection. While only a rare few paintings, sculptures, and other works of art will ever achieve real world-class value, those that do can be one of the safest and most durable, not to mention aesthetically rewarding, of alternate investments.

As a case in point, earlier this year Leon Black, the founder and head of Apollo Global Management, bought one of the four original versions of Bunch’s “The Scream” from Sotheby's  auction, for $119.9 million.  To the casual observer this might seem like an incredible expenditure for pastel on board, but consider this:  Before the purchase, Black’s net worth was $3.5 billion; after the purchase, his net worth is still $3.5 billion and may be significantly more.  What’s more, he has the Museum of Modern art displaying the masterpiece for the enjoyment of the public, where it is cared for and watched over by world class professionals with high-level security.  So this is an investment which requires very little maintenance on Black’s part.  Stocks and bonds, gold and silver, and all other commodities can have their value blown about by financial winds that even the finest economic minds have trouble predicting or explaining.  Even real estate, though generally reliable, has been shown to be vulnerable to the catastrophic collapse of over inflated bubbles.  However, for art at the level of “The Scream,” one of the most well-known images in the world, there will always be a market.  It’s very likely that, if and when Leon Black decides to sell his acquisition, he will turn a significant profit.

The world of art is by no means limited to “fine arts,” but such commercially produced collectibles as comic books, fashions and fashion accessories, even collectible figurines have real and serious markets, and many stay strong when other markets falter.  Even the seemingly expensive items like vintage wines and cars and art are not necessarily any more expensive than real estate.  

This is an important point to be made about all of these alternate investments, and something that those considering them but feeling reluctant need to take into account.  When purchasing such assets, it may seem that one is simply making an expenditure, but that’s an illusion.  Just as with stocks, bonds, business acquisitions, or real estate, purchasing these collectible and memorable items actually adds to one’s assets, and if they are carefully chosen, they can be excellent additions to an individual’s portfolio.