Conducting Due Diligence on Collectibles
We all know the dangers of not doing enough research before making an investment. What you buy could be worth much more than what it costs, or you could end up with something that is worth far less. Imagine buying a car for $10,000 and then finding out it’s only worth $2,000! This article will help you avoid these types of mistakes by teaching you how to conduct due diligence on different collectibles in order to make sure they are indeed valuable investments.
What is Due Diligence in Collectibles?
Due diligence in the context of collectibles means performing the necessary research before making an investment. This can include researching online, consulting experts, and becoming familiar with market trends. This process has two goals:
1. Validate your understanding of what you are investing in, i.e. that you are in fact investing in what you thought you were.
2. Ensure that the collectible in question is “worthy” of your investment (i.e. not a fool’s errand).
Why Conduct Due Diligence on Collectibles?
Conducting due diligence on collectibles is important for the same reasons as any other type of investment: to protect yourself from making a bad decision. Collectibles, however, tend to be less liquid than other types of investments because they generally can’t be converted into cash quickly and easily. This means that if you make a mistake, it may not be possible to correct it without taking a significant hit.
How to Conduct Due Diligence on Collectibles
Basic steps for conducting due diligence on collectibles:
1. Research what you have and how it came to be valued as such
2. Consult experts, especially those that specialize in your chosen collectible
3. Perform market analysis regarding the collectible’s value over the long term
4. Do not overpay for the collectible(s).
Stamps, or philatelic objects, are generally valued based on scarcity and condition. Due diligence can include research into the history of the stamp, how it came to be in the present owner’s possession, what it is made out of (paper, plastic, etc.), and whether or not it’s in mint condition.
Many coins are valued based on their metal content. The main determinants of a coin’s value are its weight, metal type, and the date it was made. In many cases, older coins are more valuable than newer ones due to their age and rarity. These factors can be verified by consulting a local dealer or going online.
Original artwork is valued based on its authenticity and condition – there is no such thing as a print “valuable” enough to be considered an investment. Original artwork can be authenticated by consulting experts and/or online databases.
Sports cards are valued based on the sport(s) they represent, their condition (i.e. mint vs near-mint), and whether or not the card is a rookie or other special edition. Due diligence can include verifying that it comes from an authentic set, which you can research online and/or consult experts about.
Bottles of wine are valued based on their authenticity, where they came from (i.e. region), and the quality/type of wine it is (i.e. vintage). Basic due diligence can include verifying that it’s authentic through the bottle’s label or cork, as well as learning more about how to tell if a wine is “good.”
Cars and Other Vehicles
Due diligence for cars and other vehicles can include research into the car’s quality and maintenance history, as well as photos/videos of any major flaws. Be sure to consult experts such as mechanics to verify that there are no underlying problems with the vehicle.
Antiques and Collectibles
Antiques and other high-value items are generally valued based on their rarity and authenticity. Basic due diligence will include verifying that the item is, in fact, authentic (e.g. by consulting an expert or online database) and that it was actually made in that time period (i.e. there’s no such thing as a 1932 iPhone).
What Not to Do When Conducting Due Diligence
This article covers the basic due diligence techniques you should use before making an investment. It is important to note, however, that there are no foolproof methods for determining if an item is valued correctly or not – ultimately it’s up to you to determine whether or not you’re willing to pay the asking price.
For example, this article will tell you that a stamp is generally valued based on its scarcity and condition. However, there are some exceptions to this rule – for example, not all stamps have been cataloged by the major stamp collecting societies. And because of the fact that many people only collect certain kinds of stamps (e.g. a collector that only specializes in U.S. stamps), some stamps can be worth more than their scarcity and condition would suggest.
The same goes for the other collectibles listed above – while there are some general guidelines on what something should cost, it’s ultimately up to you to determine whether or not an item is actually worth whatever price is being asked for it.
When it comes to making an investment, nothing is more important than conducting due diligence beforehand. Knowing what you’re buying and who you’re buying from will ensure that your investment turns out to be a profitable one!