As an automotive enthusiast, I follow the collector car market very closely. Four major companies handle the majority of automobile auctions throughout the year: Barrett-Jackson (mostly American classics), RM Sotheby’s (mostly European exotics and pre-war models), Bonham’s (similar to Sotheby’s), and Mecum (a little bit of everything). Sometimes you can catch these auctions on television and they can be quite exciting

Anyways, savvy (read: lucky) automobile collectors and enthusiasts are making a fortune. How, you ask?

Consider the first car Ferdinand Porsche ever built under his own marque: the Porsche 356 (yes, he designed and built the VW Beetle and the world’s first hybrid car, but those don’t count). According to Hagerty, a “Good” example was valued at approximately $30,000 in 2006. Today, the same car is worth $85,000. That’s an average annualized return of almost 11%. In the same period of time, the S&P500 has returned about 7.7% annually and the All-Cap World Index has averaged 4.7% per year (Source: Morningstar).

Like many other types of collectables (art, coins, etc.), it’s very difficult to know what will be desirable in three, five, or ten years. Unlike stocks or bonds, collector pieces don’t earn cash flows, don’t pay dividends, and don’t have any valuation models based in fundamental analysis. Rarity and condition are two major calculable factors in defining the price of most collector pieces, but the majority of the value is determined on “desirability,” a subjective trait that varies between buyers. As the accompanying chart shows, the values of a ’59 Porsche 356 and ’88 Ferrari Testarossa have more than doubled since 2006 while the value of a ’71 Dodge Challenger R/T (the most desirable of the three in ‘06) has been cut in half. Fundamentally, one of these three is not “better” than another – they are each from a different era and each vehicle appeals to a different type of collector. It just so happens that, today, the Porsche and Ferrari enthusiasts seem to be enjoying the most success.

How can mere mortals participate in the collector car market? Unfortunately, like fine art, it’s very difficult for anyone with a net worth below three commas (that’s a billion) to trade in the cream-of-the-crop pieces. Unlike fine art, a mechanically-inclined investor can potentially buy a bargain fixer-upper and turn it into a gem with only some elbow grease and a few spare parts.   

The market is becoming more mainstream, however. Pink Floyd (psychedelic rock band) drummer Nick Mason is involved with a collector car “hedge fund” of sorts, designed for wealthy investors who don’t want the hassle of upkeep but do want the exposure to a fast-appreciating asset class.

Perhaps it’s only a matter of time before Blackrock and Vanguard enter the field…

Ben Sadtler