Collectibles: interest is high, but cash returns aren't

Every 10 years, the American Philatelic Society holds its biggest stamp show, the American International Philatelic Exhibition, or Ameripex. The once-a-decade affair was held this year in Chicago, notes Peter Rexford, president of the Stamp and Coin Exchange in St. Louis.

``They had over 150,000 people,'' Mr. Rexford says. ``That was more than half again what the show's coordinators expected. Every day, 30, 40, 50 busloads of people from all over the Midwest were unloaded.''

It isn't a boom in collectibles in general or stamps in particular that brought all these people to Chicago, Rexford believes. In fact, the market for collectibles has been positively bearish the past few years. Prices of coins, stamps, paintings, sculptures, and Chinese ceramics plunged after 1981-82, when rising inflation, the collector's best friend, stopped rising.

``Instead of paying $7,000 for a $5 Columbian [stamp], now you can get one for about $2,500,'' Rexford observes.

Despite or because of this, the seemingly moribund collectibles market is picking up again. With lower prices, ``true'' collectors, Rexford says, see a chance to finish a set of stamps or coins, or buy a painting by their favorite artist, at bargain prices compared with four or five years ago. At the same time, the drop in prices shook out many of the less-reputable dealers and auction houses, so collectors -- and even hobbyists -- don't need to be as worried about getting taken.

Does this mean it's a good time to resurrect the collecting urge -- the one you can trace back to your box of marbles, baseball cards, bottle caps, and rock-star autographs? Should you be setting aside part of your investment capital on a grown-up collection of Civil War-era coins, misprinted stamps, or early American furniture?

That depends on your interests, your patience, your knowledge of the subject, and the economy.

A recent report by Salomon Brothers Inc. shows that while the 1970s were a good decade for ``hard assets'' like stamps, coins, silver, and gold, the 1980s has so far been a decade for financial assets: stocks, bonds, and Treasury bills.

``The ascendancy of financial assets in the 1980s has been dramatic and unassailable,'' the report states. ``During this time, stocks and bonds have provided returns of 17.4 percent and 15.2 percent, respectively, against an inflation rate of 5 percent. In contrast, none of the tangible assets has provided real returns, and half have provided negative nominal returns'' (see tables, next page).

The Salomon report continues with a forecast of an ``economic environment that is ideally suited to the superior performance of financial assets over the next 12-18 months.''

So if you're thinking of investing in collectibles because you expect to make a quick killing on them, don't bother.

``I believe many of these things aren't investments at all,'' says Robert S. Salomon Jr., managing director of Salomon Brothers. ``They're really just a form of conspicuous consumption.'' That includes stamps, coins, and paintings, he contends.

``My wife has a great interest in art,'' he notes. ``But she does it for the enjoyment, the history, and the understanding of art. It certainly isn't an investment for us.''

Many people who invest in collectibles don't do it for quick profits; like the Salomons, they do it because they have an interest in whatever they're collecting, and they enjoy talking with other collectors, making deals and swapping stories, and they just get a kick out of owning something rare, old, or both.

``For me it's much more exciting to hold an envelope that went across the United States in a Pony Express pouch that I bought for $3,000 than it is to look up the price of one of my stocks in the Wall Street Journal every morning,'' says Mr. Rexford.

Many financial planners, however, are far more comfortable with the stock tables.

``I have never recommended them,'' says William Kovacic, a planner in Hickory Hills, Ill. ``Collectibles are such a funny market. They take in everything from comic books to stamps. It's a very specialized market. Then there's the liquidity problem'' [of finding ready buyers who will pay a fair price].

``If a client has very large investible assets, a good solid base in other areas, and is looking for more diversity, then I might mention collectibles,'' says Marilyn Capelli, a planner in Naperville, Ill., who has collected a few pieces of antique furniture, partly for investment and partly for her own enjoyment.

She also has some interest in old US gold pieces. ``These are very good for collectors,'' she says. ``There are only so many, and there won't be any more.''

``If someone has a million dollars in assets and they've covered all their other bases with estate planning, retirement, and investments, I have no problem with some collectibles,'' says Michael Bowers, a planner in Escondido, Calif. ``But they should not be more than 5 or 10 percent of the portfolio.''

``What I see are people who read about some kind of collectible in a magazine or newspaper and take this as a prescription for themselves,'' he adds.

It's at this stage that prospective collectors need to go to first grade, so to speak, and start from the beginning to learn as much as they can about what they want to collect.

Although most of the examples here are about coins and stamps, they apply to any item, whether it is paintings and sculpture or even some of the less well-known interests, such as spoons, hubcaps, barbed wire, old license plates, dolls, or cookie cutters.

There are, in fact, associations and societies that represent collectors of each of these items and hundreds more. Most of these groups are listed in the Encyclopedia of Associations, a large, three-volume compendium that should be available at most public libraries.

Once you find the address and perhaps the phone number of the group that collects what you collect, you can write or call for periodicals and other publications to help you understand the collectible, its history, and the best way to sell or trade it.

There are, for instance, several publications that cover stamps. One of the best known is Linn's Stamp News ($22 a year, 911 Vandermark Road, Sidney, Ohio, 45365). Prices for stamps are generally based on the Scott catalogs, an annual series of five books that lists and gives prices for all stamps. The catalogs ($20 a book) can be obtained through the same address.

In the coin world, there's Coin World, a newspaper that is published by the same people at the Sidney, Ohio, address, which must make it a fount of knowledge for collectibles, at least for stamps and coins.

You should also be able to get a copy of these publications at a well-stocked magazine or newsstand.

But if you aren't already somewhat interested in stamps or coins or other collectible in the first place, all this research won't help much.

``You should at least be interested in it as a hobby to begin with,'' Rexford believes. ``I wouldn't invest in options if I didn't know what an option was.

``If you don't have an interest in the investment, you'll be much more disappointed if the price goes down,'' he adds. ``And if you can't get the appreciation you expect, you'll also be disappointed.''

Even if the item does appreciate, a collector has to factor in markups and markdowns at both purchase and sale. Expect to pay about 10 percent at both ends, Rexford says, for a 20 percent total cut in whatever appreciation you may have made. This will be especially tough if your collectible rises very little in value, or actually declines.

``If you bought some gold coins in '78 and sold them in '81, you would have tripled your money, so the commissions wouldn't matter much,'' he says. ``But if you had bought in '81 and sold in '84, you would have lost 50 percent of your portfolio.''

Rexford also acts as a liquidator for large collections, which brings up another issue for both collectors and noncollectors. Collectors often begin without knowing where or how they're eventually going to sell items, while noncollectors occasionally inherit a collection and, having no interest in it, simply want it sold at the best price.

First you have to find a dealer. Start by interviewing at least two or three, Miss Capelli advises. ``You have to deal with somebody who's very reputable.''

She also recommends that heirs not rush into the market. ``Take some time to learn'' about what you're selling, she says. Collectibles may be at or near their bottom, but you might get a better price through doing research and exercising patience. Get some books and magazines on the subject. As an heir who has received a free starter set, so to speak, you might even decide to keep the collection and add to it yourself.