From Pokemon cards to music royalties: Do alternative investments work?

It was a bit of a gamble, spending $100,000 for three packs of cards. But it paid off: two of them combined were worth more than what he paid.

“One could argue the Pokemon cards and trading cards are a better place to store your value than something like the U.S. dollar, just given the scarce properties of the cards,” said the Edmonton resident in an interview.

What are alternative investments?

Alternative investments—assets other than stocks and bonds—may bring to mind hedge funds or real estate. But for millennials and generation Z, indulging in niche collectibles such as limited-edition shoes, handbags or trading cards is another way non-traditional investing has taken shape. 

The popularity of trading cards grew during the pandemic when people were looking to invest time and money in hobbies, said Patrick O’Neill, senior vice-president of sales and business development at NFP Canada. That interest drove up prices, and people who owned cards and memorabilia saw the value of their possessions surge.

“It was going up a lot faster than inflation or investments in the stock market—very comparable to art, sculptures, fine wine or expensive jewelry,” O’Neill recollected.

He said the shift in price and value attracted younger generations to invest in memorabilia. 

“For the young people, it’s teaching them life lessons at a very early age—even investment,” he said.

Why Canadians see value in alternative assets

O’Neill, who is in his 60s, has been collecting hockey and game cards for five decades. For him, it was about nostalgia when he first stepped into the space.

“Now, you’ve got people that have that interest (of nostalgia) but also the interest of being an investor,” he said.

O’Neill said his cards are now worth about $50,000. 

Earlier this year, a case of old unopened hockey cards likely featuring Wayne Gretzky in his rookie season fetched more than $3.7 million after it was uncovered in a Regina home.

The winning bidder bought the case of 16 sealed boxes of O-Pee-Chee’s 1979 hockey card collection, amounting to more than 10,000 cards, Heritage Auctions said. 

The auctioneer says the case could include 25 or more highly coveted Wayne Gretzky rookie cards. 

How do you value alternative investments?

But placing value on niche alternative investments such as wine bottles, designer bags or sporting cards can be difficult.

O’Neill said it’s hard to value sporting or trading cards unless they are professionally graded, which means assessing physical conditions such as fades, creases or residue. 

To preserve the value of his rare edition, high-value Pokemon cards, O’Brien has stored them safely in a locker.

“They’re stored in a fireproof vault, definitely not in my house,” he said. “They’re stored in the same way that you’d store bricks of gold.”

For other items, factors like rarity, circumstance and sentiments play a strong role in determining the value. And the amount can fluctuate widely.

“The valuation is literally what the next person will pay for it,” said Scott Blair, chief investment officer at CWB Wealth.

“It’s not a liquid market.”

The risks of buying alternative investments

While some alternative investments can return a good value, it is also a risky bet, Blair said.

It’s hard to determine the value of niche alternative assets similar to a mainstream investment, such as corporate shares, because there are no quarterly appraisals, cash flows or earnings to quantify the asset, he said. 

“Pokemon cards, sports cards, memorabilia—a lot of it is tied to emotions,” Blair said. 

“If in 20 years nobody really cares about Pokemon cards, then you might have spent hundreds of thousands of dollars only to find out that it’s not worth anything,” he said. 

“There is a huge risk that as you go through time, it (could) just fall out of favour.”

But valuations can be a little more calculative if done right. 

Music royalties, for example, prove a good alternative investment depending on streaming patterns. It might also be worth considering the age of the musician, said James Burron, co-founder of the Canadian Association of Alternative Strategies and Assets.

“Gordon Lightfoot just passed on … then, everyone was playing Gordon Lightfoot (songs),” Burron said. “That would be a kick in the royalties.”

Burron, who owns vintage Wolverine cards, says the key to investing in niche alternative assets is to not put all eggs in one basket, instead diversify across markets.

“If you just have alternatives, then you actually have a more risky portfolio than if you add some of stocks,” he said.

Not correlated to stocks and bonds

Stocks and bonds are also not correlated to the alternative assets market, Burron said. That means economic elements such as inflation won’t affect alternative investments the same way as mainstream investments.

For O’Brien, buying the Pokemon cards has been a learning experience. 

Three years after the purchase, his collection value has dropped 20%. O’Brien said he has moved away from memorabilia.

“I don’t see that long-term value sustaining,” he said of his collection.

More about investing:

• Private equity, private debt and more alternative investments: Should you invest?
• What is the price of gold in Canada? And more about gold investing
• Scared of selling? When holding on to stocks can hurt you financially
• Boost your portfolio: Why and how to increase small-cap exposure with ETFs

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