Passion Investing

By Pranav Sathish, previously Ray Linetti

Often we are advised to take chances, make mistakes, be silly, be imperfect, trust yourself and follow your heart. 

Perhaps, if your heart had suggested investing 1000 in Rare Whiskey in 2009, by now you would have been 6400 richer (in terms of return and content). Or if your heart had a flair for Art, the same thousand euros would have brought home 2460 by the end of 2019. 

What has ‘investing’ got to do anything with “passion”? Well, for High Networth Individuals (aka HNIs) and Ultra High Networth Individuals (aka UHNIs), there is an alternative avenue – Passion Investments – for the esteem value and capital growth.

 

Passion investing refers to investing in luxurious items such as art, coins, classic cars, which holds sentimental value and at the same time, can accelerate returns on the investment. However, in this context, passion is synonymous with the term “Luxury”, as the capital required for these investments can range from anywhere from € 165 for a bottle of wine to € 500,000 for a classic art piece

There are quite a few offerings accruing to passion investments and the patrons of such investments invest –

For the Joy of ownership;

These Conspicuous investments have a tangibility and intimacy that no other asset can match.

 

For the Love of the craft;

Without true passion for the craft, the spark for attaining these exquisite investments wouldn’t have created the market in the first place.

 

For the Impressive and Countercyclical returns;

Just as doing what you are passionate about can ignite a spark and drive you through a thunderstorm, likewise these investments follow their rhythm – oblivious to the macroeconomic factors – making them a perfect investment for diversifying risks. 

 

And lastly, For the long term mature growth;

The investment needs time (anywhere from 5 to 10 years) to age well. It is evident that in cases of wine and even art, older ones definitely have more value than the newer ones. 

 

To analyse how each passion investments have performed, we will have to look for a “luxury index”, such as the Knight Frank’s Luxury Investment Index (KFLII). This index tracks the performance of a theoretical basket of selected collectable asset classes -such as art, classic cars and wine. Each asset class is weighted to reflect its relative importance and value within the basket. 

Let’s us focus on three passion investments which made it to the Top 10 list of Knight Frank’s Luxury Investment Index for the year ending 2019 were –

 1. Rare Whisky

Owing to the continuous interest in sherried Scotch, investors are after the oldest, rarest and coveted collections from the iconic distilleries such as Dalmore, Springbank, Ardbeg and Lagavulin. The Rare Whisky portfolio exhibited a whopping 564% jump in asset value since 2009, with an annual 5% rise (2018-2019). 

 

Notable singular example: Just as in October 2018, The Macallan distillery’s 1926 Fine & Rare fetched £1.5 million at Sotheby’s (auction house). 

 

2.     Handbags


The idea of paying six figures for a used handbag may sound somewhat a bit crikey, but handbags are seen as an investment asset, besides, being seen as a fashion statement. Believe it or not, recently the Art Market Research launched a suite of indexes to track the market performance of these luxury handbags. 

 

The Handbags portfolio has jumped about 108% in terms of asset value, with an annual 13% growth. 

 

Notable Singular example: In 2017, Christie’s set the world auction record for the most expensive handbag – when it sold a Himalaya Birkin, made of the skin of the Niloticus crocodile, studded with white gold and diamond hardware for nearly US$386,000. (Does this ring a bell?).

3.     Classic Cars


Back in the days, these investments were an all-time favourite for HNIs and UHNIs. And indeed the Classic Cars Portfolio has shown a 194% growth in value until Q4 2019.

 

Notable singular example: In 2019, an ultra-rare 1994 McLaren F1 with LM-specifications — a suite of upgrades based on McLaren’s racing cars — was sold for $19.8 million on Saturday at the Monterey Car Auctions with RM Sotheby’.

 

However, due to the environmental debate and the consumer’s conscious shift towards electric cars has caused an unwavering wave of uncertainty in the market, which has led to an annual negative slump of 7% (2018-2019). 

 

Everything is not as tantalising as it seems with every investment, especially with the case of Classic Cars. As every passion investment has its rhythm, any factor that interrupts its chassé will upset the market. 

 

The rarer the collectable, the higher chance of fraud and forgery. 

Caveat emptor! It has been seen in the past, such as the Rudy Kurniawan wine fraud case, investors have lost millions of dollars because of their ignorance and lack of adequate knowledge encompassing passion investing. 

 

The rarer the collectable, the higher insurance premiums

The ‘beauty’ of these rare items is because of its tangibility. Ironically, even the ‘beast’ of these items stems from its tangibility by inviting high insurance premiums to shield from the downside risk, in case of any damage to the collectable.

 

The rarer the collectable, the higher sensitivity to key factors

These investments are known to dance to their tunes and the tunes of their key defining factors. For instance, even though Coloured Diamonds, namely pink, yellow and blue, has risen by 77% over the last ten years, the recent CoVID-19 outbreak has forced the trade to cease – mainly due to the logistical halt. It will be interesting to see how the market performs in the coming years. 

In the end, if your heart is ready to take the plunge, then take a calculated plunge. Seek the advice of a specialist for each passion domain and utilise their database and financial models to fully enrich your life, literally!