Passion assets can be rewarding, too

These experiential assets appreciate in value and can give you lasting happiness

It is one thing to buy financial assets such as stocks and bonds, or mutual funds that invest in such assets. It is quite another to invest in passion assets. In this article, we discuss what makes passion assets so unique. Using behavioural psychology, we show you why passion assets can provide you durable happiness and also improve the value of your investments.

Experiential assets

Suppose you can buy an antique, rosewood, seven-feet cabinet that was once housed in a palace in pre-British India. Or you can take a vacation in the Alps. Which would you prefer? The former gives the ownership of a material good while the latter gives a great experience.

Behavioural psychologists have often argued that you should spend your money on experiences and not material goods if you want to enjoy durable happiness. Why? After a while, happiness from owning material goods could fade, but your experiences are likely to carry on. Or so the argument goes.

We do not want to debate on which is better. Rather, our argument is that you are likely to own a material good as well as have a lasting experience if you invest in passion assets. How?

A passion asset is any collectible that carries value. This value comes from two factors. First is the rarity of the object. And second is the desire among collectors to own the object. Examples include vintage wine, arts and antiques including furniture.

Now, suppose you buy a unique pre-1900 cabinet that was once owned by a maharajah. You have acquired a material good. According to behavioural psychologists, your excitement about this possession will fade in a while. We believe otherwise. Why?

Picture this. You have a fellow-collector or a friend interested in antiques, visiting you for the weekend. You may take great pleasure in explaining how you came to acquiring this unique piece of furniture. And in the process, you re-live the excitement that you felt when you bought the asset. How is that different from sharing your experience at the Alps with your friends?

We are not suggesting that you should not take a vacation at all. Rather, our intention is to show that passion assets are material goods with experience. From a behavioural perspective, passion assets are both consumption assets and investments. As a consumption asset, you drive your vintage car or use your 1800s mahogany canterbury in your living room, and see its investment value increase due to age and rarity. But of course, investing in passion assets is easier said than done.

Preservation costs

You need patience when it comes to investing in passion assets. You are unlikely to get a 19th-century mahogany armoire within the next month if you want one that carries a piece of history.

Then there is the question of fair value. The value of an antique bookshelf or a vintage car is what a collector thinks it is worth. Sometimes, you may have to pay a steep price to acquire your object of desire, especially when you are fighting for its ownership at an auction.

Then comes an even bigger issue — preservation of your collectible. This is a big concern if you collect art, first-edition books and wine, for instance. The cost of preservation can be high. Remember, the value of a passion asset is based on its condition.

A near-mint condition first-edition book could fetch a lot of money; but a sunning of the spine or even a bookplate could substantially reduce its value.

That said, you should consider investing in passion assets. You can start with objects that you like collecting. Ensure they are unique, rare or something that others will desire someday. And preserve those objects well.

The author is the founder of Navera Consulting. Send your queries to portfolioideas@thehindu.co.in

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