Classic Cars, like many collectibles, are not equivalent investments to the gold market (Photo credit: Martin Pettitt)

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.

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