Signals #25 – Alternative Assets: Classic Cars

This is report #3 in the Signals – Alternative Assets series.

In 2018, a 1963 Ferrari 250 GTO, one of 36 ever produced, sold at auction for a whooping $70 million. The original MSRP? $18,000. Even adjusted for inflation, that’s a 442x return🤑. Vintage cars have become some of the hottest alternative assets in the market with explosive valuation increases. In this issue, we’ll be exploring these alternative assets and analyze the opportunities in the market. 📶

Overview

  • Conventional assets (stocks, bonds, funds) are heavily influenced by the markets 🏛️ with values constantly in fluctuation. They can also become overpriced, locking out retail investors.
  • Alternative assets have different fundamental assumptions: rarity. The demand for these assets increases while the supply decreases. The values of alternative assets rise slowly but steadily. 📈
  • Vintage vehicles have had a great decade with certain models seeing a near 300 percent increase in value, in line with the Nasdaq and significantly outperforming both the S&P 500 and Dow Jones by over 60%.
  • Classic cars 🏎️ are also the second most popular alternative asset (behind only art) at a market cap at around $30 billion with regular tradeshows and auctions.
  • The valuation of classic cars rests on two key assumptions, rarity and celebrity ownership 🎤. The 1963 Ferrari 250 GTO was only one of 36 ever produced and the most-expensive car sold in 2020 was a 1934 Bugatti Type 59 Sports driven by King Leopold of Belgium.

Opportunities

  • With alternative assets,the best way to get started is to become a collector. There are classic cars that are selling for less than $5,000. Treat it like any other investment and start small and developing a thesis for what works and what doesn’t.
  • Purchase fractional ownership in classic cars through platforms such as Rally or BlueChipCar. These companies handpick cars to list on their platform with experts and lower the risk to the individual investor.

How to Launch

  • As always, start by understanding the market. Learn more about the cars at the auctions and start to make mental notes on how each factor whether celebrity ownership or impacts the valuation of the car. Document your learnings and even publish them to build an audience. ✍️
  • Scour your local Facebook Marketplace and Craigslist for classic cars. A surprising number of classic cars are listed on both platforms and doing your research, you could find an incredible deal from older collectors looking to offload their collection. More on this in the resources section.

Cases

Platforms

  • Hagerty – The best media authority on cars. Although primarily an insurance company, their magazine has some of the best content out there.
  • Rally – Fractional investing into classic cars and other vintage assets
  • Barrett-Jackson – Largest classic car auctioneer with up to 1,000 classic cars sold per auction
  • RM Sothebys – Private broker for selling classic cars
  • Facebook Marketplace – Great place to start looking for cheap classic cars

Market Data

  • While classic car investments won’t outperform the stock market, it’s pretty close. And is generally a better investment than art.
  • 2020 was one of the best years in classic car history with median condition values increasing an average of 10.26 percent. More striking, classic car values rarely decline.

Signals

  • One of the key themes in the past year is that alternative assets have gained mass market appeal with influencers and foreign investors getting into the game. With them, demands at the lower ends of the markets have increased and prices will like catch up over the next year.
  • With global chip and supply chain shortages, 2020 and 2021 have both been years of lower car production. In a market where demand very rarely decreases, the lower supply means higher valuation growth for cars built in these two years. Might be a good time to buy that new Ferrari.

Resources