Talk Back Tuesday: A safe investment? Certainly not in old cars/motorcycles, right?
If you're like, well, everybody these days you're probably watching one or more financial indicators and thinking your given investment choice wasn't too wise. But because pretty much everyone
is feeling this way right now it doesn't seem like there's a safe port in this storm.
Or is there?
I remember back in the "greedy" '80s (because, you see, there was no greed before or since that decade...) when Black Monday hit and everyone was convinced financial armageddon had arrived. In the midst of people calling for Reagan's head on a platter, even after seven years of strong prosperity under him (sound familiar?) there was the looming question -- If not the sometimes-turbulent stock market, where should I invest my money?
This was a particularly interesting question from my perspective because, at that time, American muscle cars were in the early stages of their first run-up in value. Seen as little more than old cars (actually big, gas guzzling old cars) since their demise in the early 1970s, there was suddenly growing interest in these metallic beasts from another era, with cars like a 1971 Hemi 'Cuda convertible (one of seven) going for as much as...$30,000!!
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I didn't own a Hemi 'Cuda at the time, but I did have two Plymouth GTXs, a 1969 and a 1970. I bought the '69 for $2,300 in April of 1985, but it was far from mint (though complete, clean and with its original drivetrain). I picked up the '70 in September of 1986 for $4,000. It was a two-owner car in near mint condition with only one re-paint since new. Even at that time I knew I'd made a pretty good deal, despite my older brothers disbelief at paying so much for a car (they never spent more than $1,000 for any of their cars -- as was quite clear as soon as you looked at them).
When Black Monday hit, and everyone watched their paper-based wealth turn into just paper, I remember being grateful for having sunk my money into something tangible. It wasn't that I thought increasing muscle car values were a guarantee (as was proven in 1990, when all collector car prices dropped dramatically), but I knew even if my car's market value dropped to zero I still had a car.
The people holding various stocks certificates after the crash? They had nothing (or almost nothing).
As you might have guessed by now, I'm feeling pretty much the same way today. I haven't put much faith (and even less money) in the stock market since that fateful day 21 years ago. I've always preferred investing in tangible items with value beyond what "the market" says they are worth.
Furthermore, as someone who's been at this game for a quarter of a century, I can say without hesitation that if you know what to buy and sell, and when to buy and sell it, you can pretty much always get your money back on classic vehicles, and quite often make money. That may not sound like the key to long-term wealth, but I prefer it to watching my assets randomly evaporate for reasons that never truly make sense. And I'm betting that philosophy looks pretty attractive to a few folks these days.
Of course cars aren't the only material item you can invest in. There's always real estate, artwork, and even stamps or comic books. Like cars, and the stock market, none of them are a guarantee. But unlike the stock market, they have value beyond some number on a digital board. Think about it for a second -- when you own Google stock you don't get up early on Sundays to wash it or take it to local hang outs to show it off. You own it purely as a desire to make money, and if that doesn't work out for you, well, you're pretty much stuck.
Certainly I like the idea of my old muscle cars (and, more recently, my old motorcycles) going up in value. But you know what? Even after the market slippage that has affected everything recently (including old cars and motorcycles), those items remain cars and motorcycles, with all the sensory appeal they had when the Dow was at 14,100.
I actually went out to the garage yesterday to confirm this. I pulled the cover back on that 1973 Triumph Hurricane and, damned if the triple exhaust pipes weren't as shiny and the orange paint covering the tank and side panels just as lustrous as the day I bought it. It's like that stupid bike doesn't even know the financial world is in ruin. It just goes right on being one of the coolest motorcycles ever made. And if I'm really feeling kooky, I can even start it up and ride it around for both functional and emotional reasons.
In my simple-minded view of the world, that is one safe investment.
- Posted by
- Karl Brauer October 14, 2008, 6:00 AM
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- Stock Market Muscle Cars Triumph Hurricane
Reagan and prosperity...those are two words that I dont hear often in the same sentance.
I like the idea of owning property instead of paper investments. Land in the right location purchased at a reasonable price is one idea, but property taxes can be a problem. A friend of mine bought a used Delorean at a good price. Has "Back to the Future" movies to spur conversations and demand and an easy to maintain stainless steel body. One negative is the problem of buying and selling in one car increments. Krugerrands are less fun than cars, but they're easier to buy and sell.
I know I know, Beanie Babies - greatest investment EVER.... now worth just slightly over 0.
Just wait to see what happens to the value of those cars once all the middle aged men get over their mid life crisis, and stop trying to re-live their youth.
I guess I fall in the catagory opfreakx is in. If you think the stock market is risky, then buying non-commodity assets should be insane to you. Not to mention you have probably paid more in insurance over the last 30 years than the car is worth (adjusted for TVM). Bonds or dividend paying stocks pay you (the money is going in the correct direction), you don't pay expenses to the tire store, gas staion, turtle wax, and the insurance company.
Sure, a good way to diversify would be buying tangible assets, like real estate, gold, baseball cards. But then there is no positive cash flow, just the hope that they will appreciate in value. With stocks you get both, for less risk bonds (cd's, money markets) give you just the cash flow.
But I do see Karl's point, that there is value to using [not owning] these items, and that number is unique to each person. And if it's high for you, not a "bad" financial move.
bepperb - if you are using them, then even I can see value. The use is the dividen.
And while I dont agree with the basic idea behind the topic...
i can see 'investment' value in any object if the following are true:
1) its part of diverse set of investments
2) your an expert in the field.
No . . . actually, "7 years of strong prosperity" definitely does NOT sound familiar. I know it's a political season, and this is obviously called "Karl on Cars" so its yours to do with as you please, but please leave BS like that (even when its fact, much less when it's fiction) out of the blog.
My 2 cents, not that they're even worth that much.
Big problem with classic car "investing" - classic cars require constant upkeep and storage. My father has classic cars. He spends hours keeping them in tip top shape and he must store them, insure them, keep everything working. A stock = purchase and leave it if you like. A painting = buy it and hang it. A classic car? Don't buy it for an investment, buy it for what it is...fun.
And yeah the 7 years of prosperity thing is a joke. For most Americans they've seen everything get worse. Yes a few of us have gotten lucky or pulled the trigger at the right time on sales/shifts but for the most part people today have less spending power than they had in 2000. And our country in 2000 wasn't involved in 3 wars (Afghanistan, Iraq and the "War on Terror"), our deficit was under control, unemployment was lower, all costs were lower, we had more freedom, government was smaller (homeland security is a money pit), veteran's spending was lower (we've got tens of thousands of disabled vets we're gonna be supporting forever because of the three wars above) and defense spending was lower.
Bigger government, more money wasted, fewer jobs, 3 wars, more government involvement/snooping in lives, economy in the tank and less spending power does not = happy times.
"Just wait to see what happens to the value of those cars once all the middle aged men get over their mid life crisis, and stop trying to re-live their youth."'
Yeah, like all those Model Ts and Packards and Dusenburgs and Bugattis and V16 Cadillacs that were new when people born around 1900 were in their "prime." Those folks are between 90 and 110 now, meaning most are dead, and the values on those cars sure have plummeted...
"No . . . actually, "7 years of strong prosperity" definitely does NOT sound familiar. I know it's a political season, and this is obviously called "Karl on Cars" so its yours to do with as you please, but please leave BS like that (even when its fact, much less when it's fiction) out of the blog."
It's not BS that the stock market hit its highest value a year ago. It's not BS that OVER THE PAST EIGHT YEARS both unemployment and inflation have been extremely low (they have shifted in the past 12 months but not drastically, and 12 months does not define eight years...unless you have a pathetically shorty memory and/or ADD...which most Americans do and the popular media plays to it as much as possible).
If you don't like it, don't read it.
Karl, do you even remeber what you write sometimes?
http://www.edmunds.com/news/column/carmudgeon/108706/article.html
"I will never buy another classic American muscle car"
or how about this ridelust article
http://www.ridelust.com/classic-car-values-are-reflecting-the-struggling-economy/
Just a small quote "It is reported that those cars are suffering up to a 1/3rd drop in their value as sellers come down in price to meet a shrinking demand.
"
Your insulting post "Yeah, like all those Model Ts and Packards and Dusenburgs and Bugattis and V16 Cadillacs ...."
Yes, those handfull of cars that have historical value...
How about that 2001 sunfire gt 5spd. Great collector car, I'm sure 20 years from now it will be worth something. Oh I know what will be hot, that late model grand prix v8.
Your magic 8-ball must be much better then everyone elses.
Let's have some fun with this.
In 1910, you could have bought a Model T for $850.
The highest price for any of the 71 Model T's on EBay right now (buy it now price) is $25,000. So you would have made 3.51% APY. That's actually pretty good, even though it doesn't beat inflation it's better than I expected. Even a more normal price of ~10,000 is 2.55%. Not bad for something you could have used. Say the cost of maitenance perfectly offset the value of using the car, and those aren't bad returns.
But, the Dow was at about 70, and now it's at least 7000. That's 4.81%, which is better. Plus, most stocks in the dow over that time paid a significant dividend, probably in the range of .5% per year. Significantly better.
Of course, there are bugattis and ferarris just like there are Microsofts and Intels. And there are Pintos and Gremlins like there are Enrons and WorldComms. Only on the internet do people pretend to know which is which before the fact. Unlike classic cars, it's pretty easy to buy hundreds of stocks to protect yourself from this risk. For me, at least, with Classic cars that's not so easy.
"Your insulting post "Yeah, like all those Model Ts and Packards and Dusenburgs and Bugattis and V16 Cadillacs ...."
Yes, those handfull of cars that have historical value..."
My point remains -- you said once a given generation dies so will the desire for "that generation's" cars. You're wrong - at least for certain cars. Looking at the continued use of muscle cars in everything from Fast and the Furious movies to music videos proves the desirability for them has already jumped generations, which would be the definition of "a handfull of cars that have historical value..." now wouldn't it?
bepperb, you're still missing the main point of my post. If someone bought a Model T in 1910 and used it for those 98 years...well...they'd be pretty old. But they would have gotten a helluva lot of use out of that car. It could disappear into oblivion at the end of those 99 years and STILL have been a great investment for functionality reason alone. If it has ANY value at the end of that 99-year period it's all pure gravy IMHO. If you could get $10,000 to $25,000 for it? SCORE!
When you buy a stock it has NO VALUE unless it makes money for you. That's the only reason you bought it. IT HAS TO MAKE MONEY OR IT WAS A TERRIBLE INVESTMENT.
But a car doesn't have to make you any money and it can be a good investment. If it provides functional transportation AND HAS VALUE AT THE END OF YOUR OWNERSHIP you just scored big time.
I bought my 1970 GTX in 1986 for $4,000. It turned over 83,000 miles on my drive home from the seller. The odo now reads 32,000 miles. Unlike far too many people with "collector cars" I actually used the GTX for primary transportation throughout high school and college. Then my wife drove it as her primary transportation for several years after we got married.
Current market value on the car (even in today's depressed market) is around $25,000 (was closer $40,000 a year ago, and likely will go back there eventually). Admittedly I've put somewhere between $10,000 and $12,000 into it between restoration work, insurance and maintenance. Most of that is resto work, as my insurance was never very expensive (right now it's about $150 a year) and I did almost all the maintenance myself.
So let's just say I'm into it for $16,000, meaning I've only made $9,000 over 22 years. Not a very good return -- EXCEPT I GOT 50,000 MILES OF USE OUT OF IT, TOO.
Basically, it's like someone in 1986 said "I need you to use this car for the next 22 years and 50,000 miles, and I'm willing to pay you $9,000 to use it."
That's a great investment no matter how you slice it.
If you buy a collector car or motorcycle and just park it then you're getting closer to buying stocks in that the vehicle HAS to appreciate to justify its ownership, because you're getting NO functional value out of it. People who do that and expect to get rich are dumb and, admittedly, they'd likely be as well or better off playing the stock market. Though saying that today feels really weird...
ALL of my vehicles are driven (that's why the GT has 16,000 miles after three years). They may not be daily drivers...but they all COULD be in terms of their functionality and my willingness to drive them. I simply can't drive all five bikes and three collector cars everyday, but I still drive them all regularly and even use them for purely functional reasons plus the odd car/bike show, etc.
To have that kind of functionality PLUS the likelihood of making back my money and even getting a profit? Stocks just can't compare.
BTW, if you're looking to get rich I think stocks AND old cars are dumb ways to go. Real estate is far better than either (and only people who don't know what they are talking about would use the last 12 months as "proof" that real estate is a bad investment).
Karl, it's only in the last 12 months that real estate tanked? Not so. I sold a house in socal in August of 2005. From late 2005 on that then-2-year-old home's value only plummeted. It's now worth 50% of what I sold it for in August 2005.
I sold in August of 2005 too (woo-hoo!).
But the I think "plummet" is too strong a word for the last 36 months. Last year, maybe last 18 months, but it's not been three years of "plummeting" from what I've been watching.
Real estate values here in Montana are pretty steady. In fact, in some areas, they're actually climbing!
In all, I think the investment with lowest risk and appreciable returns would be land. Execpt in places like the UAE, they aren't making more land.
Rental property is booming right now, too. But that can be a very risky investment. And as someone said earlier, taxes can really eat your profits. I was considering a move to Melbourne, Florida because home prices were insanely cheap. But then I saw $4K taxes on property worth $120K. No thanks.
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As you stated in your blog, if you know what to buy and when to buy it, you can make money. Sure, if the economy continues as it had the past 20-ish years. But let me ask you this, what were Model T's being sold for back in the 50's? 60's? It's only recently that this nostalgia trend has occured. That still leaves me to believe this is a fad. What happens in 50 years when gasoline is $100/gal? What utility will they provide if some yet-discovered mass transit breakthrough takes off? What if battery technology advances beyond our wildest dreams and low-cost electric airplanes become the mainstay? Long term investments are always risky, no matter what you feel has staying power.