Is there a limit to the number of shows dedicated to collecting?
I wonder: When I click through the cable channels I invariably stumble upon a show dedicated to antiques, picking, pawn shops, storage containers, and classic cars. Another man’s old junk really is another man’s new treasure.
It’s also another man’s investment. One show, CNBC’s The Car Chasers, caught my attention recently. The show’s host effused over a 1957 Chevy Bel Air and expounded the potential for a far-sighted collector. According to the host, a 1957 Chevy Bel Air cost around $1,900 new. Today, that same car in pristine condition (so not junk, but still old) fetches $100,000.
It sounds like a heck of a return: $1,900 to $100,000 means the asset has appreciated more than 50 times its initial cost. Who wouldn’t want such a return?
Well, me, for one.
1957 through 2013 is 56 years. If you focus on the average annual rate of appreciation, the return becomes considerably less impressive. That old Chevy Bel Air has appreciated at a 7.5% average annual rate. This isn’t an inconsequential rate of appreciation by any means, but it’s also not the realized rate of appreciation. Every year, the Chevy’s owner has had to pay insurance, storage, and maintenance expense.
I’d bet dollars to donuts that most collectors realize similar inferior returns when all expenses and the time value of money are factored into the equation. I’d also bet that most collectors dismiss these factors and focus solely on purchase price and current market value.
So forget the collectible as an investment; I’ll take a high-quality dividend grower any day of the week.
ExxonMobil: The Top Dividend Stock
That Chevy Bel Air would have been worth roughly $4,650 in 1970. That same year, an investor could have bought ExxonMobil for a split-adjusted $1.70 a share. That $4,650 would have bought 2,735 ExxonMobil shares. (I’ve moved the dates up to 1970 to accurately track ExxonMobil’s dividend and price history.)
Today, that $4,650 investment in ExxonMobil would be worth $469,650, which is nearly five times the value of the Chevy Bel Air. Over the past 43 years, ExxonMobil shares have appreciated at roughly an 11.3% average annual rate.
And it gets even better for ExxonMobil investors. While the car collector is paying to own his investment, ExxonMobil is paying investors to hold their investment.
In 1970, ExxonMobil paid $0.11 in dividends per share. In 2013, it paid $2.46 in dividends per share. Today, the 1970 ExxonMobil investor is receiving 145% of his initial investment annually in dividends. In addition, he has the benefit of decades of cash paid by ExxonMobil. His investment has paid for itself many times over in dividends alone.
Now, I’ll readily admit that a share of ExxonMobil lacks the aesthetic appeal of the Chevy Bel Air. Psychic profit – the beauty and pleasure derived from admiring and driving the Chevy – has value.
But psychic profit can also be bought. The ExxonMobil investor could sell a quarter of his holdings, buy the Chevy Bel Air, and be left with three-quarters of his initial investment, which will continue to appreciate and pay dividends.
I have nothing against collecting or collectibles, but I don’t confuse collecting with investing. Many investors do, and there is a high probability they’re shortchanging themselves in the process.
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