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Sans Cash Flow Entitlements

[By Staff Writers]

Many medical professionals have a broad range of investments that are typically not securities and rarely provide entitlement to specific cash flows.  One example is collectibles, which are durable real property expected to store value for the owner. 

Definition

According to Jeff Coons PhD, CFP™, the term collectible may represent such items as artwork, jewelry, sports memorabilia, stamps, and wine. While a detailed discussion of the wide variety of collectibles markets is outside the scope of this post, there are common characteristics of collectibles as an investment. 

Common Collectible Characteristics

First, the value of a collectible generally rests entirely in the eye of the beholder.  Since there is typically no cash flows associated with a collectible, unless the collector charges at the door for a look at their collection, the value of the collectible is only what another collector is willing to pay for that particular item. 

Second, while there are some collectibles that may be considered standardized across individual pieces in terms of quality and other defining characteristics, collectible investments are generally unique.  As a result, there is typically not an active market with prices established on a regular basis for most collectibles in a manner similar to the stock and bond markets.

Assessment

In total, the lack of ongoing cash payments from a collectible and the general non-comparability of items result in the collectibles market being more of a knowledge-based market than most of the investments discussed on the E-P.  Since the value of a collectible is limited to the amount that another collector-investor is willing to pay for the item, a knowledgeable investor may be able to benefit from the lack of information of another investor. 

By the same token, if a physician-investor does not have superior information regarding the value of a collectible, then the basic lack of economic fundamentals behind a return assumption for such investments makes collectibles generally less attractive as compared to investments providing ongoing cash payments.

Conclusion

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Filed under: Alternative Investments, Investing | Tagged: collectibles |