Today, I want to talk about something a little different; something my MoneyWeek colleagues probably don’t talk about very often. In The Right Side, I like to bring you fun and interesting ways of investing to go with the standard investment fare. I want to show you a great way to shop for deals on anything from property, fine art and antiques, to this year’s Christmas present for a loved one.
I spent the large part of yesterday morning at a property auction in central London. I was after a greenfield site for development. Alas, I didn’t get what I was after, but between lots, I thought of you. I grabbed some downtime to jot down some notes on auction investing.
With Christmas looming, now is the time to start acquiring some auction catalogues. I want to show you how to invest in something really special this year. And you could even pick it up for a song.
As with any investing, it’s the buy price that really sets you up. Just follow the rules. And here they are…
Do your homework. At home!
First off, you need to find an auction house. These days you can find and bid on stuff all over the world with nothing more than a phone, or even just a computer. But that’s not the best way to start. I prefer to get into the auction room and join the melee.
Go online and find auction houses close to you, offering the type of auction you want. I think you’ll be surprised to find out how much is going on in your back yard. As well as the big established auction houses, you’ll find many one-off auctions taking place in hotels, public meeting halls and even stadiums. Trade associations like the National Association of Valuers and Auctioneers (NAVA) may help your search.
Get yourself a catalogue and have a look at things of interest. Most catalogues are published online these days, so you can get cracking immediately. Before you get too excited about the listed guide prices, do bear in mind these are usually set unrealistically low. The auction house wants to tempt as many people as possible into the room; an auction room without bidders looks very bad.
Let’s say you’ve seen a piece of jewellery that’s of interest. First rule is, don’t set your heart on it!
The best thing is to find at least five or ten items in the same sale that could work for you. Then comes the tough part: valuing the stuff.
Unique items are, by their nature, difficult to value. That said, if you go to a website like eBay, you can do a search of completed listings, putting in key terms, for instance: “platinum + 2 carat + earrings”. You can be quite specific in your search. You can see what these sorts of things have sold for on eBay. Pretty soon you’ll start to get an idea of value. If all you can find are similar items on sale in retail stores, then assume the value is something like half of the ticket price.
Make sure you research quite a few items – the last thing you want is to miss out on your target, then end up bidding willy-nilly on other stuff you don’t know anything about. It’s too late to do your research when you’re stood in the auction room. Homework is best done at home.
If you really can’t value it, then it’s best not to bid. Leave it to the professionals. Don’t lull yourself into a false sense of security thinking that every lot will go for the ‘correct’ price, and therefore you don’t need to do any research.
There will be bidders at the auction that don’t know what they’re doing – the last thing you want to do is get caught in a bidding war with a muppet! Know the value, have a maximum bid in mind, and if it goes over that, walk away.
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The auction house will have an allotted time for you to inspect the lots. So when the time comes, get yourself over to the auction house and check out anything of interest. Check condition and functionality. Remember, unless specifically described otherwise, these goods are sold as seen. A lot of traders will use auctions to get rid of stuff they don’t want, so be careful.
With auctions, you have to be prepared to put in work that often comes to naught. For instance, before attending yesterday’s property auction, I had already invested a day’s work researching a couple of lots. I’d visited the sites, drawn some sketch plans, talked to the relevant planning departments, talked to a local estate agent and done some costings. On top of that, the auction blew a few more hours, too.
If you aren’t prepared to write off these costs when the price drifts away from you, then this may not be the thing for you.
Of course, to get round this problem, you could prepare yourself to ‘over-bid’. Let’s say you’re after a silver jug. You’ve calculated the scrap silver value as £300. Your searches suggest that the trade price is something like £350. An item like that could have retail ticket price of anything from £500 and upwards. For jewellery, the mark-ups are usually even more.
In this instance, maybe you’re prepared to pay a little over the trade price in order to secure a deal? After all, it’s still a much better price than at the antique fair.
Get stuck in
On the day, make sure to get there early as you’ll need to register (take ID and your preferred form of payment). The key is to try to enjoy the experience. Certainly don’t be intimidated by the auctioneer. Always remember, he’s there to try to cajole you into bidding higher than your maximum price.
He may even use a technique known as ‘bidding off the wall’ – where he invents a phantom bidder to help drive the price to its reserve.
Don’t have any of it. Keep calm, and stick to your bidding strategy.
And when it comes to auctions, don’t worry about all that stuff you’ve seen in the comedy sketches – you know where someone scratches his nose and ends up with a £2m Rembrandt. This stuff doesn’t happen in real life.
When bidding, subtly raise your bidding paddle (or registration number) – the auctioneer will see you. And once you’re in the bidding, you can just use a nod or shake your head to indicate your intent. If the auctioneer ignores you, it’s likely because he’s already got a couple of people bidding against each other – there’s no need to complicate matters with several bidders at the same time. He’ll get round to you.
You can find plenty of info online about bidding strategies. Personally, I recommend you keep it simple. You know what you need to do. The key here is to spend your time finding the right auction for you, and then researching the lots you’re interested in – and researching them well.
• This article is taken from the free investment email The Right side. Sign up to The Right Side here.
Information in The Right Side is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Right Side is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do
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