Back trading…
About five years ago I bored some of my friends on how one should go very long 1960s and 1970s american muscle cars. The investment thesis was as follows:
- (Demand side) Cars usually hit rock bottom in terms of valuation when they are approximately 20 to 30 years old; they are seen as just old and not yet ‘classics’. Also they have no natural buyers - the (mostly male) teenagers that coveted them in their youth are in the middle of paying off mortgages, having families and working hard to have the time or money to indulge themselves.
BUT…as these potential buyers reach their late 40s, 50s and 60s, they have both the financial resources and the mid-life crisis driven motivation to revisit the dream cars of their youth. Furthermore, fashion usually celebrates a revival of 30 year old ideas and designs and they enjoy a resurgence of interest (think music, clothing, popular culture and yes that includes…cars!)
(Supply side) Also 20 to 30 years after new, there are still quite a few around, most in the shape you’d expect a 25 year old car to be in, passed down the value chain as a cheaper and cheaper second hand car until it rusts out and dies.
So when the enthusiast start to buy and restore these old hulks, only a few are saved from the junk yard and over time many of these are used for parts and spares, further depleting the supply.
So what did I do about it? Nothing. Nada. What a muppet. And just to make me feel worse (and motivated enough to write this), today I stumbled across (channel surfing) the fact that this 1971 Plymouth Hemi ‘Cuda Convertible sold at auction earlier this year for…(wait for it)…$2,420,000!!! (yes not a typo…almost two and a half million dollars!) Sure, this is the best of the best, but pretty much any top condition good car from the era is now regularly topping $100,000 - most of which you could buy for less than $25,000 ten years ago (and less than $10,000 twenty years ago.)
So why didn’t I do anything about it? Two main (related) reasons: firstly, almost all of these cars are in the US, living in the UK meant that I would have to be extremely organized and motivated to ‘get involved’ and secondly, I would have had to find someplace to store and maintain them. Unless this was my main passion or hobby, realistically the barriers to entry were too high to participate in this market. At least based on how it is currently structured (physical delivery only.) If only an online electronic derivatives market had existed…I know it is back trading* but hand on heart, I would have invested (of course ideally this would have been through my pension plan, but probably unlikely given that the trustees tend to think anything that isn’t long large-cap equity is ‘too risky’…I’ll skip pointing out the ridiculousness of this investment philosophy despite the real damage it is doing to most people’s long term savings…) Yes Virginia, there is a point (to this post): here is yet another example of an alternative asset class (in this case similar to other real assets or collectibles like art, wine, even property etc.) that would benefit from a (financial - ie cash settled) derivative market. Clearly there are a number of difficulties in creating such markets in assets that are by definition highly heterogeneous, but given the technology and financial know-how available today, previously intractable difficulties can now in my opinion be overcome.
I guess I should put my money where my mouth is and get cracking.
(* no wikipedia definition…for those of you not familiar with this trading floor jargon, it means ‘trading’ after the fact…which of course everyone is very good at, hardly ever losing money… 
)
June 24th, 2007 at 6:00 am
If you follow the same teenage cool car strategy now, you could stock up on the Honda CRX and Civic Si from the 1990s.
June 25th, 2007 at 3:00 am
I think the more generic term for the cognitive bias in question is hindsight bias: http://en.wikipedia.org/wiki/Hindsight_bias
I just went long one 1991 Porsche 911 (964 Targa). In Porsche circles these are the ones that seem to be at the right place on the… ummm… nostalgia/testosterone forward curve? We need a name for that curve. Plus, it’s fun as hell to drive. *shrug*
-JD
June 25th, 2007 at 4:50 pm
Hi Sean, What about the British hand made cars of the 70’s and 80’s made famous by the likes of Timothy Dalton !! You don’t need to look to the US for the ultimate in cool driving machines - some of which are still reasonably priced !!
June 25th, 2007 at 11:36 pm
Don, were these really the cars that teenagers drooled over in the 1990’s? I would have thought more along the lines of the BMW 3 series convertible, or possibly the Dodge Viper…were there any special limited editions of the CRX?
JD, easy to say now. 20/20 etc.
You might be 5 years early (in terms of minimum relative value) on the Porsche but looks like you are on to a winner, close to the minima on the sentimental/lust curve.
Paul, I think cars that were available in the US are the best bet as there is the deepest pool of potential middle aged rich sentimental males to drive up valuations. But clearly a similar market mechanism should operate.
June 27th, 2007 at 2:30 am
Sean, considering that Hollywood lags street trends, and “The Fast and the Furious” came out in 2001, yes. Another possibility would be the late 70s/early 80s Datsun(Nissan) 280Z.
Some of the CRX versions got a really nifty Honda VTEC engine…
http://www.carsurvey.org/review_33842.html
http://www.carsurvey.org/review_12497.html
July 2nd, 2007 at 3:05 pm
If you do go long a car, do it better than Tulsa did with their ‘57 Plymouth:
http://www.autoblog.com/2007/06/16/tulsas-buried-belvedere-revealed-its-a-rust-bucket/
I recommend a nice garage out in the desert.
-jd