On the way up, every buy is a good buy, because mistakes are papered over as the market rises. On the way down, every buy is a bad buy
The only constant in the market is change. While our vintage Porsche market has enjoyed an upward curve for the past several years, it may not continue. The key to success is to understand the rules of the market and how to play the game. Success can be found in all markets, but only if you have a sense for how to dance differently when the music changes.
When markets accelerate quickly, there are great opportunities to make money, but fewer opportunities to accumulate cars. If you are trying to build a collection in today's market you can certainly do so, but you need to be willing to risk being underwater for some time.
Every car bought in a market like this brings with it not only a high price but an added bit of special risk, the risk that the market may change while you own the car. Market changes can happen quite suddenly. As in musical chairs, the music stops without warning.
One way to maximize your leverage in an up market is to buy a restoration project. These cost less than a completed car, but still appreciate in similar fashion. So with fewer dollars at risk, you still get a ride on the way up. However, restoration projects purchased in today's frothy market have an extra risk.
Time to take some chips off the table
Earlier this year I purchased a 1956 356 Speedster from a long-time collector who had owned the car for about 25 years. The car was substantially disassembled and had some missing parts; it was the classic restoration project. He had done some work on the car 24 years ago, but as the years passed, I noticed he hadn't kept moving on the long and expensive restoration road. Occasionally I would offer to buy it and had always been politely rebuffed. Earlier this year, to my great surprise, the collector set a price and we put a deal together.
What happened was that this savvy collector began to think about time. He realized that it would be at least a few years before the car could be completed and that by then, we might be in an entirely different market. He loved the Speedster and wanted to keep it, but faced the risk of a market change wiping out his well-earned gains and decided it was time to take some chips off the table. In my ownership of the car, I must make the same calculation about the risks of owning a project like this. Yes, I estimate the costs of restoration, and they can vary widely, but I must add the risk of the market changing as well. If I am committed to owning the car, then the decision is easy. If not, I need to judge all the risks.
Today, there are more buyers than sellers, and prices continue to rise. This is partly because of the fear of a permanent shortage of neat old cars. But higher prices are also driven by the promise of money to be made. When the market changes, the upward momentum we have today works just the same way in reverse.
You can buy better cars in a down market
On the way up, every buy is a good buy, because the mistakes you make are papered over with the next general rise in the market. It's easy to think you are smart when in fact you've merely been lucky. On the way down, it's a whole different deal. Every buy is a bad buy because even if you bought smart, reverses in the market take away the effect of your skill. It is this kind of market-a down market-that allows for the building of a collection, because people who have cars worth less than what they paid often want to eliminate tangible proof of their misstep. Great cars flow from weak hands to strong hands, but only when the timing is right.
You can sell more easily in an up market, but you will buy better values in a down market. This comes down to the essence of the difference between an investor and a collector. To have an investment, you must purchase something you are ready, willing, and able to sell when the time is right, because gains can only be realized when an investment is sold.
Most of my cars are not investments, because I enjoy owning them and have no desire to sell them. When I am up in that big Porsche parking lot in the sky, my children may desire to make the cars investments, but for me, they are not for sale. If they happen to be worth more than I paid for them, that's a lucky happenstance that ends up burdening me with additional insurance costs and mostly gets in the way of my enjoyment of the cars.
Easier to find cars, harder to sell
A down market is a wonderful time to be a collector, because the negative momentum caused by the prospect of even greater losses ahead causes "investors" to bail. It is less risky and easier to find interesting cars in a down market, but harder to sell them.
So the way to win in either market is to understand the game and play by the rules. It also helps if you know what you are trying to achieve. If you want to sell, this is your time as long as the music keeps playing. If you have no concerns about a potential drop in the value of what you purchase, then enjoy all the wonderful cars streaming onto the market at world record prices and buy what you want. If you are trying to build a collection and values are important to you, then this is the time to be sitting patiently on the sidelines.
I'm not a great believer in the saying, "All comes to those who wait," but I have to admit that at certain times, it's awfully good advice.