Rare Tangible Assets: Consider Buying Some

Ordinary investors and the wealthy for about 300 years now have been able to invest or buy intangible assets (paper, in one form or another) as well as tangible assets.    Intangible asset examples would include stocks and bonds (popular since the Mississippi Bubble in the late 1600s / early 1700s), cash, trademarks and software.   Intangible assets have been popular because they are easy to buy and require little or no storage or other safekeeping.  Access to intangible assets have, without doubt, allowed great numbers of people to participate in the growth of the world’s various economies since those early days.

Tangible assets on the other hand are those that are real things, whether precious metals, farmland, guns & ammo or many other things that are desired.  In this article I will only discuss tangible assets that are worth at least some money even though there are many things that are rare and collectible but not valuable (e.g. butterflies).  I also exclude tangible assets that are worth money, but not of interest to most investors (capital goods like John Deere farm equipment).  Below is a table that classifies tangible assets, many of which, especially valuable ones, are discussed below:

Examples of Rare Tangible Assets		Useful?
Not collectible, not valuable
Osmium		no
Collectible, not valuable
Beanie Babies		no
Rare butterflies		no
Not collectible, but valuable
High quality family farms and "Bug-Out" farms		yes
Collectible and valuable
Silver and platinum		yes
Gold		no
Diamonds and other gems		no
Art and certain antiques		no
Coins and stamps		no
Rare watches and other high end collectibles		no
Collectible guns		no

Some general comments from the above table:

An example of a tangible good that is not collectible nor worth (much) is the metal osmium (Os, element number 76, see an interesting article here: http://en.wikipedia.org/wiki/Osmium).  Osmium is the densest element and the rarest stable (non-radioactive) element.  Despite its unusual properties, osmium has very little use and is of very little interest to collectors (except for those collectors who collect all of the elements…).  Osmium and the like will not be examined further.

There are lots of collectible things that are of little or no monetary value.  A nearly perfect example would be butterflies, I know two people who have extensive butterfly collections, but they are worth little.  “Beanie Babies” are collectible doll-like toys that were a fad in the 1990s, these were for a brief time a collectible that people would pay for (at least for certain scarce ones).  I consider things like Beanie Babies to not be valuable because of that characteristic that they were only valuable for a short time.  Collectible items that have a history of being valuable are a better bet.

Also noted are whether or not each item above is “Useful”.  Useful means that there is a fairly high percentage that is used in industry or otherwise used in productive activity.  The reason for this distinction will become clearer below.

***

Certain pieces of real estate could be considered “rare” and of potentially great value to a certain class of investors.  Included would be small family farms of high quality (good soil, good water and right location); similarly a high-quality “Bug-Out” farm would have those same characteristics of good soil and good water.  A piece of rural property that can produce enough food to feed a family is of potentially great value when the chips are down…

These kinds of rural properties are rare as it turns out.  While there are a lot of properties available for sale at any given time, there are very few very high quality properties that make in onto the market.  Such small farms with good water and other desirable characteristics are often snapped-up by locals, and so never become available for sale to outsiders.

(Special thanks to “DCFusor” for insights into rural properties)

Excluded from this discussion are pieces of real estate like beachfront homes and luxury penthouses in popular cities (cities like London, New York and Miami).  While beachfront homes and luxury penthouses are desired by many wealthy people, they are not rare.

***

Our discussion now turns to collectible and valuable goods, which are defined as those rare tangible assets that people want (they may want them for various reasons) and that are worth something.  Most of these collectible assets have little use outside of people just wanting to collect them.  Two of the few exceptions to this are silver and platinum.

Silver and Platinum

Silver is used in more industrial processes and to make more products than anything else (other than crude oil).  Silver has unique properties that make it almost critical (nothing can substitute for silver) for a huge variety of products – a famous example is the 50 lbs. of silver that goes into every Tomahawk missile.  Much silver that is used by industry is used but once, not recycled.  Platinum is the other precious metal with extensive industrial use (catalysts).

Silver (and to a lesser degree platinum) has its fans.  Apparently there are no large above-ground stockpiles of silver anymore, and its industrial usage is running very close to the amount of silver coming into the markets now.  Fans of silver claim that supply disruptions and other events could cause the price of silver to go way up in the future due to these characteristics of tenuous supplies and extensive industrial demand.

To a similar degree platinum shares those characteristics of silver, especially the high use of platinum by industry.  Other physical materials that are rare and useful in the recent past have been considered for investment (owning and possessing the materials themselves) have been rare earth metals and ruthenium (ruthenium is a platinum-group metal that will be used in jet engine turbine blades).

The rest of the collectibles described below are not particularly “useful” to industry. 

Gold

Probably the most famous collectible tangible asset (“hard asset”), however, is gold.  About 10% of gold production is used by industry, but the other 90% is used in jewelry and in investment forms (coins and bullion).  Because gold has relatively little industrial use, it can be classified as being desirable just because people (and central banks, central banks hold only gold among the precious metals) want it.  Gold is a hard asset that humanity has valued for over 5000 years.  Most all of the gold ever mined is still with us (gold often is recycled, from old circuit-boards for example).

Gold is probably the best Store of Value throughout humanity’s history.  Much about gold is controversial, even among fans of physical ownership and/or Gold Bugs.  The price does indeed move up and down relative to the dollar.  Some consider gold to be money, some do not (“money” is a little bit of a tricky concept to define, many people think of “money” in different ways).

Gold has a number of properties that are desirable in making it desired as a store of value or as money:

n  It is inert, resistant to almost all chemical attacks

n  It is fungible and divisible, it can be re-melted and divided almost without limit

n  It is shiny, people just like it and it universally valued; it is liquid everywhere

n  It is rare, and its properties make it fairly hard to counterfeit

n  Gold is produced in a variety of countries, there is no monopoly on gold supply

n  Gold has a high “value density”, a little bit of gold is worth a lot

Gold has been getting more attention recent years as we have seen major problems in the world’s economies (excessive debt perhaps the greatest problem of them all).  The price has about tripled since 2000.  It has been as high as $1900 and was briefly traded below $1200 in the April – June 2013 price declines.

Gold is also bought and held by those who want “insurance” against government financial ineptitude or as a protection against financial catastrophe.  Few other investments have the characteristics of gold as a protection against almost all economic woes.

There are almost innumerable sources of information about gold, including many blogs that examine gold in as much detail as almost any investor could want.

(Special thanks to anonymous blogger “FOFOA” for making the gold discussion better, read his blog: http://fofoa.blogspot.com)

Diamonds and Other Gems

Somewhat related to gold are diamonds and other rare gems.  These have been valued throughout human history as well.  Beautiful diamonds and other gems (usually emeralds, rubies and sapphires) are often extremely valuable.

Diamonds and the other “precious gems” usually exceed gold in density value.  In other words a handful of high quality diamonds are worth a fortune…

There are a couple of issues re investing in diamonds and gems.  The first is that much time and study must be put into studying diamonds and the diamond markets.  Diamonds are not a game for amateurs, diamond grading greatly influences the valuable of diamonds, and such grading can really only be done by experts.  The second issue is liquidity, unless one is in the business, the price for selling a diamond (in your city’s “Diamond District”, for example, or even a jewelry store) is very low compared to the price you would have to pay for a similar diamond.  A high bid-ask spread.

Art and Certain Antiques

Art as well as certain antiques and historical relics have always had high value among many wealthy people.  These clearly have no industrial use, and very well illustrate the idea that certain collectibles are have inherent (but sometimes difficult to quantify) worth.

Art and antiques are examples of collectibles which are collected for their own sake, that is, the collectors enjoy possessing them in addition to hoping for financial gains…  The beauty of these kinds of collectibles gives their owners a satisfaction beyond their financial worth.

There are lots of different kinds of art competing for attention however.  Paintings are the most famous artworks out there.  High-end paintings have been a feature in the homes of the wealthy for centuries, and this kind of art has maintained its value very well through time.  Many paintings since Pablo Picasso have tended to be in the class of “Abstract Expressionism” which makes them dependent on opinion makers in the Art World to value…

Rare antiques and historical relics can be good items to invest in as well. 

As with diamonds and gems, a knowledge of the art in question is important in getting a good value (unless you are so rich that you do not care…).

Coins and Stamps

Coins and stamps are perhaps the two most famous types of “collectibles”.  Both have a long history of being collected, lots of experts and a fairly liquid marketplace.  There is a lot of information available on both, especially coin collecting.  Because of the long history of collecting coins and stamps, there is a reasonable expectation that collecting these will remain a worthwhile hobby that might generate a good financial return.

Once again, knowledge of the asset is useful if any financial gain is hope for (or even just to be a competent collector).  Not all coins, not all stamps are good candidates for collecting for value.  Historically, for example, “Morgan Dollars” and “Double Eagle” US coins in excellent condition have done well.

(Special thanks to “Rocky Racoon” and “Matt in NC” for insights into coin collecting)

Exotic Collectibles (Watches, Guns and other collectibles)

There are other less known collectible items that have an active collector marketplace (buyers and sellers).  These would include high-end watches (like Patek Philippe and Rolex brands) as well as collectible guns.  But, these more exotic assets are less liquid than the ones described above.  It would be even more important for prospective collectors to educate themselves in the field chosen.

Here is a final comment on collectibles.  The time frame may be important in deciding what is collectible (and for what price).  In good times and bad, it is typical for the “best of the best” of a collectible to do well.  In a bad economy / SHTF / TEOTWAWKI low-end Rolexes and somewhat high-end guns may do poorly if desperate consumers must dump them to get cash.  In these cases, other hard assets (TP, .22 LR and .45 ACP ammo, etc.) might do better, but these are not rare.  But, there will always be a market for the best of the best.

(Special thanks to “Polly Metallic” and “Matt in NC” for comments on hard assets in hard times)

***

Buying rare, and valuable, tangible assets has always been an option for the wealthy and even ordinary investors who have extra money to spend beyond the necessities.  There is a variety of assets available to cover almost any interest.

This article described some of these kinds of assets.  Prospective buyers and/or collectors have a lot of choice, and in many cases it is important that they educate themselves in the assets they consider buying. 

American Hard Assets is a new magazine that covers a large variety of rare and high-end hard assets.  Here is a link to their website:

http://AHAMetals.com