MARCONI DOES WORSE THAN MICKEY MOUSE
The bottom has fallen out of Michael Jackson, but diamonds may be an investor's best
friend, says Martin Vander Weyer
A LETTER arrives from the manager of a fund of which I am a trustee. Assuring us of his bank's global savvy and best intentions, he points out that our Marconi shareholding, once worth over £6,000, is now worth, ahem, £7.50. Would we like him to dispose of it?
If ever there was an argument for alternative forms of investment, however recherché, this must surely be it. Marconi may be an extreme comparator, but the fact is that even the hest-managed share portfolio would have been outperformed in recent times by a combination of the following tradable items: oriental rugs. old English provincial banknotes, Penny Black stamps, lock-up garages, fragments of natural meteorite, early ski-resort posters, Cartier Bresson photographs, cocoa futures contracts, tiaras, Dinky Toys and Disney memorabilia. Yes, even Mickey Mouse beats Marconi by a very wide margin.
The list suggests two possible ways of recouping our loss: wait a century for Marconi share certificates to acquire 'collectable' value, or take £7.50 to a car-boot sale this weekend in the hope of exchanging it for a vintage Mickey Mouse toy in pristine condition in its original box. Christie's sold one in 1997 for £51,000. But lucky finds and Antiques Roadshow moments apart, how best to embark on the quest for alternative winners?
There are a handful of collective funds investing in fine art and wine, but they take a fat margin for the manager while diluting the fun for the investor. Elsewhere, professional financial advisers are unlikely to be much help; few claim any knowledge beyond conventional horizons which extend as far as 'private equity', hedge funds and tax wheezes. When it comes to markets which require serious connoisseurship, 'most of them are complete philistines', one manager of millionaires' money told me. 'You might find a Swiss private bank that knows a bit about Old Masters, but otherwise you're on your own. You've really got to have a passion for what you want to invest in, or you're at the mercy of the sharks.'
But there are basic guidelines, reiterated by different experts across a variety of fields. First do your homework, then buy the best you can afford and take good care of it. If wine is your thing, buy the best years of the most famous Bordeaux châteaux, have your bottles stored in perfect conditions and, whatever you do, don't drink them. Second, remember the rules of supply and demand. Dead artists paint no more pictures, and, barring fakes, the Chippendale family will not make any more chairs. Third, buy for long-term growth rather than quick profit, because short-term margins between buying and selling prices can be startlingly wide, particularly in the shark-infested auction world. Shares may be depressed and depressing, but at least you can sell them for somewhere near the price listed in your morning paper; in Mickey Mouse markets, you may sometimes find no buyers at any price.
When you read about a colourful new investment idea in the 'money' supplement of a weekend newspaper, remember that smarter players will have bought in long before any of them started talking to journalists. If you are attracted by 'collectables', explore markets which are still dominated by genuine collectors — art photography and banknotes being two of the newer ones — rather than those already crawled over by other investors.
And beware passing fashion. Damien Hirst's sale prices may have risen 325 per cent since 1997 (according to artprice.com) but will anyone give a toss for his work in 20 years' time? In the field of film, pop and sports memorabilia, James Bond, Elvis and Ayrton Senna have enduring status; but the bottom already seems to have fallen out of Michael Jackson, Geri Halliwell and Nigel Mansell.
The classic-car market illustrates all these points. It became a trading playground for City boys in the 1980s boom, but prices collapsed when they lost their jobs in the 1990s. You should only go into it now if you love cars. says Simon Kidson of Bonhams, but your money will be relatively secure in the most celebrated marques. A top-condition E-Type Jaguar, 'the greatest crumpet-catcher of all time', can cost £80,000 but will hold its value. Likewise Maseratis and Lamborghinis from the early 1970s, 'sought after by rich middle-aged men who had posters of them on their bedroom walls as teenagers', and some, but by no means all, Ferraris.
The wise investor will pick carefully, buy one, and cherish it lovingly. The unwise will end up with a shed full of brokendown motors and a reminder that the value of all man-made things — objects, images, FT-SE 100 companies — is essentially transient, subject to the whims of time and taste.
And in the end, perhaps the only way to mitigate those risks is to invest in the immutable products of nature. Jimmy Goldsmith, one of the great investors of modern times, sold his shares ahead of the 1987 crash and bought forestry, gold and tracts of Mexican jungle instead. Exotic precious metals such as palladium and tantalum are the Holy Grail for some specialist investors today.
Others still believe that diamonds are for ever: rare precious stones are certainly the world's most valuable objects by weight. In search of the ultimate alternative investment I visited JD. Boles of the British Gemmological Institute in London, who pointed out that coloured diamonds — they come in pink, blue and green, but there are only about ten red ones in the world, worth up to £2.5 million a carat, and only one, literally priceless, pure purple one (see picture) — have been rising in value in a steep curve for the past 20 years, untainted by financial markets' downturns.
If you can't stretch to multi-millionpound single stones, he suggests, buy diamonds set in well-certificated pre-war jewellery pieces by houses such as Cartier or Mauboussin, whose names underpin the intrinsic value of the gems. Or simply arm yourself with a magnifying lens and a little knowledge and go to Portobello Road to look for orange-pink padparadscha (Sinhalese for 'lotus flower') sapphires, which can sometimes be found for under £100 but will sell for many times more.
'One day you'll find one,' he says, `and it's a most exciting thing when you do.' With more Marconis to come in an extended bear market, it is the sort of excitement we are all going to need.
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