Nick’s Note: Regular readers know we’re big advocates of asset diversification. In fact, studies show that more than 90% of a portfolio’s long-term returns are driven by its asset allocation. So if you want higher returns with lower risk, you need to diversify.
That’s why we recommend you own alternatives like cryptocurrencies and precious metals—in addition to stocks and bonds. But there’s one alternative asset that’s long been reserved for only the ultra-wealthy: classic cars.
Most people don’t know this… but over the past decade, vintage cars have vastly outperformed the stock market. In today’s interview, PBRG guru Teeka Tiwari tells me how ordinary investors can get into this rich man’s game…
By Nick Rokke, analyst, The Palm Beach Daily
Nick: T, millionaires like Jay Leno, Jerry Seinfeld, Ralph Lauren, David Beckham, and Floyd Mayweather all have garages full of classic cars.
But they aren’t just driving these vintage cars… They’re looking to make money with them. And now, you’ve found a way for ordinary investors to get into this rich man’s game.
Before we get to that, though… I hear you’re a fan of classic cars, too.
Teeka: I’ve always loved sports cars. In fact, as a kid growing up in England, I was obsessed with them.
My first car was a 1969 Ford Mustang GT convertible. It was a dream come true.
Every time I drove it around, someone would give me a nod of admiration. I still remember taking drives with my girlfriend and watching her blond hair flow in the wind.
It felt amazing.
Nick: Well, your first car is much more impressive than mine—an old Dodge pickup truck… And I sure didn’t get any nods of appreciation with it.
So what other cars have you collected over the years?
Teeka: I was one of the first Americans to buy a Land Rover Discovery Series II. I bought it in 1994—the first year it came to the U.S.
I walked into the Manhattan dealership as a young Wall Street hotshot and plunked down $38,000 in cash for it. I could’ve written a check, but I’d always dreamed about buying my first Land Rover with cash.
After that, I bought a 1987 Porsche 911 Turbo. People called it the “Widowmaker.” And I almost died in it a couple times.
You see, the old Porsches didn’t have electronic stabilization systems. And as rear-engine cars, they were prone to frightening oversteer… So if you went into a turn too fast and hit the brakes, the rear end would start sliding.
Now, most people would let off the gas if they started to slide. But doing that would make you fishtail—causing many deadly accidents. To kill the oversteer, you had to hit the gas instead to get some weight on the rear wheels.
It happened to me once. I went into a turn at a high speed… and like an idiot, I took my foot off the throttle. The back end just went whoosh. I’d never felt anything like it before.
Thank goodness I regained control of the car because I almost hit a stone barn.
Nick: Wow, I’d be ready to sell my car if that happened to me. Do you still own it?
Teeka: No, but I wish I did… You see, I bought it for $30,000 and sold it a few years later for $35,000. That’s a pretty good deal considering I drove it a lot.
But if I’d held onto it, it’d be worth a lot more today. Since so many people totaled their 911 Turbos turning too fast, the supply has dwindled. There are very few left in factory condition.
And I estimate that one would be worth over $160,000 today.
Nick: So is investing in collectible cars profitable?
Teeka: Millionaires and celebrities have been enjoying and profiting from them for years.
Look, since 2005 the S&P 500 is up 145%… Yet during that same span, Südwestbank’s OTX Classic Car Index quadrupled—giving investors a 300% return. That would turn $5,000 in $20,000.
And from 2007 to 2017, the classic car component of the Knight Frank Luxury Investment Index returned 334%. The S&P 500 gained just 82% during that time.
Even last year—when almost all asset classes lost money—the HAGI Top Index for rare classic cars was up 2.5%.
Classic cars have risen in value for the last 30 years. And during the 2008 financial crisis, the smart money flowed into this safe-haven asset.
That’s because collectibles like classic cars are uncorrelated to other assets. They’re also hard assets that maintain their value… which is why they’re part of our PBRG asset allocation model.
But not all cars are collectibles. Nobody’s investing in a 1990 Ford Tempo or a Toyota Corolla. There’s too many of them made.
So you have to look for cars that are rare and iconic.
Nick: Many classic cars cost hundreds of thousands—even millions—of dollars. How can ordinary people invest alongside the rich in this asset class?
Teeka: It revolves around one of the biggest trends I’m seeing in the financial world today. It’s called “fractionalization.” Instead of buying an entire asset, you can buy a small piece of it.
Like you said, collectible cars sell for hundreds of thousands of dollars—or even more. That’s not within reach for the average person. But with fractionalization, ordinary investors can buy a small “fraction” of a collectible car for as little as $50.
Stocks are the ultimate form of fractionalization. For instance, when we buy shares in Apple, we own a tiny fraction of the company. And now, technology is enabling fractional ownership in a host of new assets.
Soon, people will be able to own a piece of artwork by Picasso or other famous artists for just a few dollars… Or they could invest in a wine gallery and other rare-asset income streams. You can even buy fractions of real estate. Imagine owning a piece of Trump Tower or the Empire State Building.
With all the volatility in the stock market, it’s important to diversify your assets. And investing in these collectibles is a great way to do so. It’s how some of the richest people on the planet have grown their wealth.
Plus, just think about how much fun you’ll have at your next cocktail party…
While others are talking about their latest stock picks, you can casually mention the vintage Porsche Turbo you just invested in.
Nick: As always, great to talk to you, T. Thanks for your time.
Teeka: You’re welcome.