I recently wrote about Bitcoin being a standout investment amid the pandemic pandemonium. Just in time for Christmas, I’m here to tell you that handbags are being hailed as another (feel free to share this piece “to whom it may concern”!).
Arm candy has been increasingly in the spotlight as a serious financial asset, helped by the abundant media coverage given to a string of stellar auction sales in recent years – the peak of which was the 2017 Christie’s sale of a Hermès white Himalaya Birkin bag for £293,000.
Now we read that handbags have had an exceptionally good crisis too, with sales booming as consumers sought investment pieces that will hold their value over time. In fact, research shows handbags have performed better than classic cars, jewellery and art, and often by a very wide margin actually.
As with stocks, there are “blue chip” brands. Among these, Hermès leads with hard-to-beat average returns of over 40%, while Louis Vuitton and Chanel handbags net their lucky owners 10% and 5% respectively on average.
However, as with any other asset class, there is a vibrant secondary market for handbags which covers the full spectrum of brands and vintages, meaning that collectors are making healthy profits at all price points. During the pandemic, Vestiaire Collective (which sells pre-loved luxury items) has reportedly seen an almost 110% increase in sales of Gucci handbags, and of over 90% in names including Dior and Prada.
A cyclical play
Fashion being cyclical, styles can be dug out of the closet as cult classics. It is now a seller’s market for the Fendi Baguette popularised in the 1990s by “Sex and the City”, for instance. It is said that savvy buyers can often double their money in just a few years, however, by buying examples with real cachet. As with other alternatives like gold and cryptocurrencies, rarity and finitude make hard-to-find handbags attractive as stores of value at a time of jet-fuelled quantitative easing.
Growing allocations to alternatives has in fact been one of the wealth management sector’s biggest stories in the years since the financial crisis. And this trend has been seen growing right across the investor spectrum. Around the world, the super-wealthy and their family offices have been piling into private equity and private debt in a bid to improve both returns and diversification. Meanwhile, disruptor platforms have opened up hedge funds and private equity to the masses. It is now possible for the HNW and even mass affluent investors to get exposure to all kinds of alternatives at quite modest levels of investment.
And that is likely to be their best course. As I recently wrote, the 60-40 rule (that your portfolio should be allocated 60% bonds to 40% equities) has had a lot of detractors recently, and many people have been looking beyond traditional asset classes during the crisis, sending cryptocurrencies, gold – and evidently handbags – soaring. But while I would never rule these kinds of assets out, and particularly not one that will put a smile on you or a loved one’s face, they shouldn’t form any significant part of your portfolio, in my view. I recently read about a woman investing heavily in her handbag collection as her pension. As a former financial advisor that made me wince.
For those not in the very uppermost echelons of wealth, it’s hard to justify anything other than a quite modest allocation to alternatives for a number of reasons.
The first ones are the volatility these assets often display, which can be violent, and the highly specialist knowledge required to invest successfully. Equally important to consider is that they are frequently highly illiquid, meaning that it can be far more difficult, lengthy and expensive to find a market for your asset and turn it into cash than with trusty old stocks and bonds – and potentially impossible with a collectible. Traditional assets are what you rely on to deliver the steady growth of your portfolio long term, although alternatives may be more exciting.
What I perhaps haven’t given enough weight to, however, is non-financial returns – all the pleasure handbags, jewellery, watches, cars, art and other passion assets provide to their (hopefully very careful) owners. Surveys say that the majority of people are going to really splash out this Christmas to make up for the privations of the year, and it makes sense to give a gift that really could keep on giving as a long-term investment as well.
I’d say you could even make a pretty strong case to justify a big-ticket present to yourself…