3 Reasons Why You Can't Compare Collectibles To Other Investments

Kathryn Tully, Contributor
2/26/2013 @ 12:24PM
Article from http://www.forbes.com/sites/

This weekend, Teresa Levonian Cole wrote in the Financial Times about an upcoming report by real estate company Knight Frank that charts the investment performance of different luxury collectibles, such as fine art, watches, stamps, wine and classic cars, global real estate markets and other assets. The report’s findings are accompanied by an impressive FT graphic, which shows, among other things, that if you had owned classic cars in the 10 years up to the third quarter of 2012, you could have made 395%. Says Cole:

“With an astonishing growth of 395 per cent (according to the HAGI Classic Car Index), that sector has outperformed any other investment, with the single exception of gold (434 per cent).”

Cole says that high-net-worth buyers are supporting these collectibles markets, who typically invest less than 4% of their portfolios, hopefully after they’ve got their retirement covered. Nevertheless, listing the investment potential of different collectibles alongside global real estate markets, and the gold market no less, suggests that they are some sort of equivalent investment.

Here are three reasons why they are not:

1) Gold is a commodity and my gold is worth exactly the same as your gold. If an investor wants to sell gold right now, he or she can do so, at the spot price offered by an exchange. By contrast, the collectibles markets mentioned in this report are neither liquid or uniform, while some objects are unique and like no other.

So how much, for example, a 1oo-year-old ruby and diamond brooch can be sold for depends, among other things, on current tastes, its condition, its history and how many buyers are interested in that particular item, if at all. Is a collector that sells his or her estate jewelry collection today going to make anything like a 140% return over 10 years? Maybe or maybe not.

2) The collectibles indices on which this report’s results are based include a selection of data about these markets, but not all the data, mostly because these aren’t transparent markets where all the sales information is available. Instead, indices are based on the successful sales of the most coveted items among those collectibles, or even more dubiously, on the appraised value of the most expensive items in that market, which tells you nothing about realized investment gains at all.  In some cases, they represent just a tiny subsection of the overall market.

Of course, plenty of bond or equity indices also track sub-sectors, but that’s a lot more useful when the information is readily available for you to compare the performance of an index with the rest of the market. In the case of many collectibles, no one knows how the whole market performs, and when you only focus on the strongest part of any market, you are likely to skew the results.

The FT article acknowledges that these statistics about collectibles ‘can easily be skewed by anomalites’, but the anomalous example given here is that the investment return on classic cars could be misleading because classic cars were particularly cheap in the 1970s, not the fact that many of these indices are based on a fraction of the transactions in that market.

3) The comparisons in this report between the markets for various collectibles and luxury residential real estate markets such as Paris, London and New York appear more meaningful on the face of it. After all, real estate is also an illiquid and pretty singular investment that can involve high transaction costs, maintenance and taxes. But real estate transactions are publicly recorded, so all the data is available here.  Meanwhile, the scale of the high-end residential real estate market, like commodities, is huge compared with many of the collectibles markets listed here. Someone who is looking for investment diversification by selling his or her New York apartment, for example, is not going to be able to reinvest that cash in rare stamps.

Perhaps this last point is obvious, but put all this together and you can see why comparing niche collectibles to real estate or commodities really is astonishing, but not remotely helpful to investors.

Kathryn Tully, Contributor
2/26/2013 @ 12:24PM
Article from http://www.forbes.com/sites/

J.C. Penney analyst on Q1 earnings: 'We knew it was bad'

DBJ Confidential
Danielle Abril
Staff Writer-
Dallas Business Journal
Article from http://www.bizjournals.com/dallas/blog/
May 16, 2013, 6:14pm CDT

While there were no major surprises in J.C. Penney Co. Inc.’s first quarter earnings released May 16, analysts said there are indicators that the retailer’s financial situation could improve.

“If management can execute, there is cash to make it to the end of the year,” Morningstar Inc. analyst Paul Swinand said about the leadership team, including CEO Mike Ullman. “Hopefully the third and fourth quarters pick up.”

“They’re in a much better position than just a few weeks ago," said Rick Snyder, senior retail analyst at New York-based Maxim Group LLC.

J.C. Penney (NYSE: JCP) reported a $348 million loss in the first quarter, with sales down about 16.4 percent. Total debt was reported at $3.83 billion.

This comes after the Plano-based retailer spent $1 billion to rebrand the company under ousted CEO Ron Johnson and drew $850 million from a revolving line of credit.

“The earnings are slightly worse (than expected)," Swinand said. “But we knew it was bad.”

J.C. Penney also reported an operating cash flow of $752 million and investing cash flow of $196 million. The company’s cash and cash equivalents were reported at $821 million.

“They borrowed $850 million, and they had $821 million on the balance sheet,” Snyder said. “That’s pretty easy math. They literally ran out of cash.

“They need to turn cash flow positive very quickly,” he said, adding that it’ll be interesting to see how they handle stocking stores for back to school and the holidays.

Snyder believes the second quarter will be much more telling about the retailer’s future. Regardless of the numbers, he sees some hope.

“One thing I see is customers coming back,” said Snyder, who visits the store weekly, “but … how deeply do they have to discount to bring customers back? What is the gross margin, and how do sales taxes offset gross margin?

“This is just a fascinating case study in history.”

J.C. Penney will hold a shareholders meeting May 17.

Danielle Abril
Staff Writer-
Dallas Business Journal
Article from http://www.bizjournals.com/dallas/blog/
May 16, 2013, 6:14pm CDT

Debt fears dog solar power suppliers

Renewable energy companies must repay US$3.5 billion this year, giving investors worries about another default in the sector

Wednesday, 15 May, 2013 [Updated: 05:58]
Article from http://www.scmp.com/business/companies/article/

Renewable energy companies from the mainland and Hong Kong need to repay US$3.5 billion of debt this year, prompting global investors to fret that another issuer will follow Suntech Power into default.

Solar, wind, hydro and nuclear companies also have the equivalent of US$5.3 billion of notes due next year. The 2014 yuan bonds of LDK Solar, which failed to fully repay US$23.8 million of convertible notes last month, slid to a seven-month low of 34 yuan (HK$43) per 100 yuan face value this week, pushing the yield to 220 per cent.

The debt pile includes US$766.5 million of dollar-denominated convertible bonds in solar companies whose shares have slumped 88 per cent from their 2007 high, making the equity option unattractive for investors.

Suntech, once the world's biggest solar panel maker, defaulted on a US$541 million equity-linked bond in March, while LDK Solar must settle a US$240 million loan unless it spins off a subsidiary by June 3, filings show.

Bryan Collins, a fixed-income portfolio manager at Fidelity Worldwide Investment, said: "For the solar companies, it's a function of too much debt and poor market dynamics leading to an inability to refinance.

For the more experienced and conservative companies, they will refinance well in advance but, for convertible bonds especially, I think they issue on the hope some will be converted to equity

"For the more experienced and conservative companies, they will refinance well in advance but, for convertible bonds especially, I think they issue on the hope some will be converted to equity."

While shares of the biggest solar companies have rallied 43 per cent this year as near-zero interest rates in the United States, Europe and Japan burnish the appeal of riskier assets, they plunged for four of the past five years.

Suntech's stock has slid to 63 US cents from a high of US$47.81 in August 2008 after the bonds were sold. The Chinese solar issuers with dollar convertibles maturing this year all booked losses last year or are expected to have done so.

JA Solar's shares have fallen 95 per cent since the company sold its notes in 2008, while China Sunergy slid 93 per cent and Trina Solar lost 58 per cent of its value.

JA Solar, whose convertible bonds mature today, is prepared to repay the debt, its chief operating officer Xie Jian has said. The company had 3.03 billion yuan of cash and cash-equivalent assets at the end of last year.

China Sunergy had US$183 million of cash or near cash assets as of December 31 last year, and is slated to repay US$1.5 million of convertible debt on June 15.

The company's bonds were quoted at 71.9 cents on the dollar as of May 13, according to BCP Securities.

Trina Solar, based in Changzhou, owes US$83.6 million and had US$807 million in cash at the end of last year. Its chief financial officer, Terry Wang, said this week that it, too, would tap its cash pile to pay off the debt.

This article first appeared in the South China Morning Post print edition on May 15, 2013 as Debt fears dog solar power suppliers

Wednesday, 15 May, 2013 [Updated: 05:58]
Article from http://www.scmp.com/business/companies/article/