The art of investing in alternative assets

Lego, instruments, classic cars and baseball cards are among the alternative investments University of Auckland finance lecturer, Gertjan Verdickt, discusses in his new book The Passion Portfolio: Investing in Style.

Co-authored with Jürgen Hanssens (senior manager at KPMG Belgium and an avid Lego collector) the book details the mechanics behind the world of 'passion' investing.

It offers readers an understanding of how the prices of passion investments evolve, along with the factors that drive these changes.

"We want to help people navigate these often opaque markets, where transactions are infrequent, and where in some instances, exclusivity, rather than transparency, is both the norm and the value driver,” says Verdickt, whose investment portfolio includes wine.

“About five years ago I was in a supermarket looking to buy a bottle of wine, but I didn’t really have anything to go off other than the price and label. I decided to enrol in a wine expert course, and the experience opened up a new world,” he says.

During the course, he noticed striking similarities between wine and traditional financial assets. This prompted a shift in his research focus - from studying why stock prices move during his doctoral work, to exploring the factors driving wine prices.

Verdickt, who’s a member of the American Association of Wine Economists, began to view collectibles as a unique form of investment, characterised by less available information and an infrequency of trades (or ‘illiquidity’). 

Verdickt and Hanssens discuss the pros and cons of various investments: wine, Lego, whisky, watches, bags, jewellery, art, stamps, instruments, vintage cars, precious metals and baseball cards.

They provide average historical annual returns by examining at least twenty years of data for each object.

Of all the investment options, whisky comes out on top with an average annual return of 17.52 percent. In second place is baseball cards, which posted an average annual return of nearly 13 percent compared to the stock market's 10 percent.

Research suggests that adding collectibles like whisky, baseball cards, or Lego to an existing stock portfolio can reduce overall portfolio risk, says Verdickt.

Each chapter of his book follows a structured approach, examining the advantages and risks of different asset classes, their historical returns and key factors that influence their value. Readers can learn about the authentication process, assess long-term investment potential, and gain insights into platforms that track pricing.

While passion investing can be lucrative, it's also less regulated than traditional markets, increasing the risk of fraud. As such, Verdickt and Hanssens discuss how to spot counterfeit goods. They also explore arbitrage - where investors can take advantage of pricing discrepancies across different markets.

The authors highlight the value of storytelling and pedigree - the historical or cultural significance that can enhance an item's value, for example, a violin played by a famous musician or a designer bag linked to a notable historical event.

A well-documented provenance and pedigree, says Verdickt, can significantly increase the value of an alternative investment and, in turn, boost its likelihood of being sold.

The finance expert says passion investments require patience and expertise.

"Unlike stocks, which can be sold at the click of a button, luxury assets are illiquid. A work of art is resold only once every nine years on average. Wine appreciates over decades. These are long-term investments that demand both knowledge and time.

“Lego, on the other hand, is accessible to everyone, with relatively low initial capital required compared to many other collectibles.”

Because demand for Lego sets remains high, while supply is relatively limited, it’s a more liquid investment than most other alternative assets, he says.

"The book is for investors looking to diversify beyond traditional securities," says Verdickt. "It's also for people who are keen to put their money into something they love, something that's tangible."