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There’s an old adage, that says you should invest in what you love, know and understand. Which makes a lot of sense really, I doubt that most crypto traders have a clue what they are doing, so will most likely lose all their money. Most successful investors, look at established, profitable, transparent and well-known companies to buy. Just look at the major holdings of the top global growth funds, if you actually want to make money investing you have to take a long term view. But what to invest in?
If like Mr Clarkson you think investing in a SIPP or Investment ISA is the most boring thing in the history of the world, ever. Then, you may find that classic cars are a good place to “park” some money.
So are classic cars a good investment?
There is of course risk, cars as a rule depreciate, that’s a fact. But, as they do, there is no Capital Gains Tax on Classic Car investment profits. It’s the same reason why there are tax breaks on spread betting.
I used to say to friends who wanted to open a CFD account, (if they didn’t know what it stood for) that they would enjoy losing money far more if they just bought a sports car.
But, classic cars are different, they are joyful things, full of personality, smells, and adventure. They look beautiful, even the ugly ones. They are superb fun to drive. Plus, you can enjoy having an expensive car without being ostentatious. And all this whilst making money from it too…
So, if you are considering buying a classic car as an investment, either outright, or taking advantage of cheap money to leverage your exposure through classic car finance here’s what Shalom Benaim, CEO of JBR Capital has to say on whether Classic Cars will continue to be an investible asset class.
First and foremost – why do you think classic cars have performed so well as an investible asset class?
First of all, they have performed extremely well over a period up to 2016-17, but the froth has come off a little bit. It is an asset class that is not well understood. Therefore, those that do understand it face less competition – and with there being less players in the market, but more savvy players, this makes it a highly desired asset class.
In addition, there has been a bit of a herd effect for some of the rarer models. Some people have piled in. Indeed, Knight Frank produces an index that has shown that classic cars over a period of five years were one of the most highly performing asset classes, and that has perked the interest of new investors.
A lower interest rate environment also means people are looking for alternative returns on their capital, and ring-fence more of that capital for more exotic asset classes – classic cars being one of them, along with investing in art and other chattels.
Do you think the current bull run in the classic car market will continue or do you think prices are going to correct?
Yes, the current bull run is being corrected and certainly, the froth has come out. Having said that, there are factors that one needs to consider.
There are some cars which excel in their rarity and provenance and they keep on increasing – it’s pure supply and demand. Supply is very restricted on these cars and demand from especially the ultra-high net worth individuals is growing, as the percentage of these individuals is increasing – that’s people with £20 million or £30 million plus.
Therefore, there will always be demand for these very special vehicles. Although you do have to overlay the potential of an economic downturn. Whenever there is a potential of a downturn, the confidence factor – which plays a very important part in impulse purchases – goes away and then the level of price increases does get impacted adversely, if for example people feel there is a Brexit situation evolving that at the moment does not look very favourable.
So, there are a lot of factors, but for the good and rare cars, where there is proper due diligence done, they tend to maintain their value.
What about prestige cars, is there a clearly defined difference between those that will appreciate and those that will go down in value?
Again, it’s down to supply and demand. Marques which are iconic, Ferrari being the principal one, when they come out with a model which is limited, and they keep to that commitment, prices have held. The Ferrari F12 TDF being the perfect example, when it came out I believe there were only 799 being produced and they kept to that, with the right hand drive version only being about 10 percent of that.
It’s when a model comes out initially, they increase in value due to the desire factor and sometimes they even double in value. However, prices start to decrease as supply starts to increase. This can depend on production runs.
In terms of what you lend against – does anything make you nervous?
We lend against cars, but we lend to people. So, ultimately the asset doesn’t make me nervous if the person behind it is a solid individual. And that’s the sort of people we generally attract – clearly, we don’t get it right 100% of the time but pretty close.
In terms of an asset class, we have calibrated our loan to values and balloons to reflect the relative liquidity or illiquidity of these assets. So, whilst I’d rather be operating in a very bullish market, our underwriting is set for a bearish market. As long as the individual behind it is strong – it’s not the car that will repay our loan but the person in the first instance – we are confident that those individuals are relatively recession resilient.
What’s been the best/proudest moment as CEO of JBR Capital? And the worst?
There have been some excellent moments. Paying out our first loan was a very proud moment. Setting up HSBC and thereafter Citibank – two of the world’s premier banks – to support our growing operations was a huge endorsement from these two financial institutions.
Last but certainly not least, is seeing the team grow. We started holding Town Halls internally about a year ago to communicate performance and strategy with everyone; these quarterly meetings also include employee awards, and intend to diffuse the corporate / family culture. That is certainly a very proud moment, to see a team of around 55 people growing and being so successful.
That then brings me to the worst moment which is seeing some of those quality people leave, and leave to competitors. But that is partly an accolade because we have developed a brand and set some trends, with the training of individuals being one of them. They are sought after by our competitors and yes indeed we have lost some good people to those competitors – they are never good moments.
And finally, what three resources or tips would you give to anyone looking to finance a classic car as an investment?
Do your research. I would say research, research, research – focus on:
If you have got those covered then you are pretty much into phase two which is negotiating a very good package with a great finance company like JBR Capital.
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Richard founded the Good Money Guide (previously Good Broker Guide) in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.