Well, I hate to break it to fellow traders on the AIM, but in my opinion the real white knights of the investing world are those that go a step further down the "alternative investment" route and pick the truly bizarre assets. These normally take more time, skill to pick profitably and specialist information on the subject, but nevertheless they can yield very large returns if done well:
1. Whisky Casks:
I was first introduced to this as an investment when I heard that good friend of mine had bought a whisky cask. In my friend's case he did intend on actually drinking it, but he also told me that it wasn't uncommon for people to sell the cask back to the distillery after it had matured - picking up a decent return on the way.
Like buying stocks and shares, when you purchase a whisky cask you're not buying just whisky, but instead paying for a lot of extra costs (what we could describe as the whisky spread): VAT, insurance, storage at the distillery and bottling costs (assuming you choose to have the distillery bottle it). This does mean that in order to get a decent yield from your newly casked whisky you often have to let it sit for a minimum period of ten years.
In the USA it's much more common to hear people buying whisky in the bottled form and there are a few advantages to this: you have a more liquid investment (please excuse the pun) because it's much easier to auction just a bottle than a whole cask and it's easier to diversify on a lower budget - you can have many different bottles for the same price as a cask.
If we have a look at the return on the whisky indices from Q4 of 2012 to December of 2013, there are some clearly very impressive gains to be had in that market.
Before running out and buying a load of whisky to keep in your garage, it's worth noting that (ironically) it's not always a liquid asset (it can be difficult to find buyers and sellers) and it often requires a genuine interest in the subject in order to make good picks and thus substantial profits. The advice given to me when I was considering it was to start out with well known brands, as they're easier to value and you'll get much better liquidity on them.
2. Cheese Flipping:
This is one of the stranger investments I had ever heard of and it's certainly not a long term investment, but cheese flipping (a bit like property flipping) can yield very high returns. It's a more intensive investment than some of the others on this list and you could argue that it's really more of a full time business than an investment.
A traditionally made two year matured Parmesan wheel is worth about $2500 and the investment required per cheese wheel (excluding labour) is the equivalent cost of five hundred litres of milk, some natural rennet and a sea salt solution - about $600.
This has meant that (in Italy in particular) certain banks will allow producers to flip their cheeses; so in short, they can get 80% of the future value of the cheese as a loan, with which they can then buy more raw materials to make more cheese.
This is one of the stranger investments I had ever heard of and it's certainly not a long term investment, but cheese flipping (a bit like property flipping) can yield very high returns. It's a more intensive investment than some of the others on this list and you could argue that it's really more of a full time business than an investment.
A traditionally made two year matured Parmesan wheel is worth about $2500 and the investment required per cheese wheel (excluding labour) is the equivalent cost of five hundred litres of milk, some natural rennet and a sea salt solution - about $600.
This has meant that (in Italy in particular) certain banks will allow producers to flip their cheeses; so in short, they can get 80% of the future value of the cheese as a loan, with which they can then buy more raw materials to make more cheese.
Factoring in labour costs (although a lot can be fully or partially mechanised now), there's still the potential for over 100% profit per wheel and for smaller outlets possibly more.
3. Wine:
It used to be standard practice for the gentleman wine investor to buy five casks of a wine he considered worthy of his collection: one to drink, one to drink with friends and three to sell when they were aged for a profit.
By using this investment strategy, if they managed to make the right picks, the gentleman could make enough of a profit from each batch to buy another five casks, take a profit and fuel their own drinking habits.
The market for fine wine as an investment has changed dramatically over the past decades. The prices of the most commonly traded investment wines rose sharply over the first decade of this century and this had it noticed by the big investors who, rather than having a genuine interest in the substance, simply saw it as a means to make money. More recently another thing has changed; a growing number of Asian buyers are appearing, who are changing it back to the practice of gentleman. Combining the investment side of fine wines, with an interest in the status they think having a large collection of wines gives them, they are bringing it back to the five casks approach.
Though this doesn't mean it’s been brought back as a gentleman's sport. As with any market, fraudsters have appeared offering the common investor fake deals. It is estimated that by 2012 more than £100m of private investors money had been stolen in fine wine scams. The Metropolitan Police after getting involved in a number of incidences have issued two pieces of advice to the amateur investors:
1) If you want a guaranteed deal, go to a large public merchant such as Berry Bros & Rud or Corney & Barrow. They’re expensive, but you know what you’re getting.
2) If you will use a less known supplier, check out their details carefully. Put their premises address through Google street view, if it is an actually warehouse or store-front, you’ve struck a winner. If it’s a field somewhere is Suffolk…
Handling the investment, is much like whiskey. Generally you’d buy the casks from the dealer, and then one would pay them a management fee, storage costs, perhaps bottling, etc. Though interestingly, wine happens to be a far more liquid investment than whiskey. It standardly proves more volatile, and it has many more market maker equivalents.
4. Stamps:
In my humble opinion, stamps are the world's most boring alternative investment, however I still felt that I ought to mention them.
Characteristics to look for in stamps are non-perforated edges, as perforations didn't become a mark of the manufacturing process until 1854 (before which stamps were cut from the sheet with scissors) and thematic stamps, which often have a lower supply level. The real issue here is that actually collecting anything remotely valuable is very hard.
The issue is that if you haven't inherited a stamp collection from a period when the stamps collected were not valuable, your ability to collect anything that with ease that has large growth potential within your own life time is vey low.
However, the large amount of stamp brokers and dealers does make this a pretty liquid investment in comparison with the others in this list and if you strike gold, you could make as much as £5,000,000 for the 1855 Swedish Treskilling Yellow, which is so prized because it should have been printed in green.
In my humble opinion, stamps are the world's most boring alternative investment, however I still felt that I ought to mention them.
Characteristics to look for in stamps are non-perforated edges, as perforations didn't become a mark of the manufacturing process until 1854 (before which stamps were cut from the sheet with scissors) and thematic stamps, which often have a lower supply level. The real issue here is that actually collecting anything remotely valuable is very hard.
The issue is that if you haven't inherited a stamp collection from a period when the stamps collected were not valuable, your ability to collect anything that with ease that has large growth potential within your own life time is vey low.
However, the large amount of stamp brokers and dealers does make this a pretty liquid investment in comparison with the others in this list and if you strike gold, you could make as much as £5,000,000 for the 1855 Swedish Treskilling Yellow, which is so prized because it should have been printed in green.
5. Classic Cars:
For car enthusiasts this is a great investment, as you get to have all the fun of playing with your new toy for a few years before you sell it. As with the other investments here there are other costs to factor in (insurance, storage and potential restoration), but this is certainly an easier job than flipping cheese or dressage horses.
This isn't to say that similar yields can not be gained from more common cars. Citroen 2CVs can be bought in pretty tired conditions for a few thousand pounds and be sold on restored for tens-of-thousands. Often for a decent profit to be made here you have to be prepared to work on these vehicles yourself and dedicate a lot of time and frustration to them.
6. Dressage Horses:
This requires a real equestrian to help you out and you may also need to fill out a lot of paperwork if your importing and exporting these animals to foreign buyers, but the margin available on dressage horses that are flipped between countries can range from 20-50% and be as high as 80%.
The real disadvantage with dressage horses however is that unless a deal is done shortly after purchase of the horse, you end up with a very expensive asset to keep, as you need extended veterinary insurance, food, stable housing, etc. This combined with the fact that the market for dressage horses is pretty illiquid means that you could be sat on the asset for a long time before you can find a buyer.
I think this is a real case where you need a love for horses in order to be able to successfully profit out of this investment type and it's probably the hardest of all of these investments to make.
This requires a real equestrian to help you out and you may also need to fill out a lot of paperwork if your importing and exporting these animals to foreign buyers, but the margin available on dressage horses that are flipped between countries can range from 20-50% and be as high as 80%.
The real disadvantage with dressage horses however is that unless a deal is done shortly after purchase of the horse, you end up with a very expensive asset to keep, as you need extended veterinary insurance, food, stable housing, etc. This combined with the fact that the market for dressage horses is pretty illiquid means that you could be sat on the asset for a long time before you can find a buyer.
I think this is a real case where you need a love for horses in order to be able to successfully profit out of this investment type and it's probably the hardest of all of these investments to make.
7. Christmas Trees:
Christmas trees are better suited to the American investors as in the US 72% of the thirty-nine million families that buys real Christmas tree purchase those trees from retail lots.
Now, the cost of a five to seven foot sized Christmas tree is about $12-18 for wholesalers and traditionally people will pay anywhere between $50-80 for these trees and $100-200 for larger trees.
This gives the potential for a pretty hefty profit margin and it's not uncommon for one family to own multiple outlets. With the average lot making profits of over $10,000 each Christmas, this quickly becomes a seasonal investment that can reap in very high yields.
Christmas trees are better suited to the American investors as in the US 72% of the thirty-nine million families that buys real Christmas tree purchase those trees from retail lots.
Now, the cost of a five to seven foot sized Christmas tree is about $12-18 for wholesalers and traditionally people will pay anywhere between $50-80 for these trees and $100-200 for larger trees.
This gives the potential for a pretty hefty profit margin and it's not uncommon for one family to own multiple outlets. With the average lot making profits of over $10,000 each Christmas, this quickly becomes a seasonal investment that can reap in very high yields.
8. Art:
Purchasing fine art is probably one of the more normal investments on this list and for many art flippers it's an easy way to make substantial profits by trawling jumble sales and charity shops for supply. For example, recently four porcelain plaques, were picked up at a Marlborough jumble sale and then re-sold again at a Swindon auction for £8500.
Investing in art however is a different matter and the easiest way to go down this route is to pick up and coming local talent. The most important factor here is simply to choose art that you enjoy looking at, be it modern or antique and ensure that what you buy has a signature on it - signature-less art is like a Ferrari without the Horse badge.
Landscape paintings will be the most liquid form of art for auction based selling, with large sculptures taking the last place on the liquidity tree.
Purchasing fine art is probably one of the more normal investments on this list and for many art flippers it's an easy way to make substantial profits by trawling jumble sales and charity shops for supply. For example, recently four porcelain plaques, were picked up at a Marlborough jumble sale and then re-sold again at a Swindon auction for £8500.
Investing in art however is a different matter and the easiest way to go down this route is to pick up and coming local talent. The most important factor here is simply to choose art that you enjoy looking at, be it modern or antique and ensure that what you buy has a signature on it - signature-less art is like a Ferrari without the Horse badge.Landscape paintings will be the most liquid form of art for auction based selling, with large sculptures taking the last place on the liquidity tree.
To sum up the extra-alternative investment market, we can clearly see that as with stocks and shares, if you're prepared to do your work and if you have a passion for a niche subject it can be really worthwhile to have a dabble in this market. Personally, I wouldn't go out and start flipping Parmesan cheeses with my local bank, but for many wine or whisky is a great initial step to take down this road.
Invest in whisky, see buy a cask of whisky. A safe investment which in the long term will be a good investment with a high rate of return.
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