Investing in Emotional Assets

Elroy Dimson and Christophe Spaenjers

Financial Analysts Journal, 2014, vol. 70, issue 2, 20-25

Abstract: The authors reviewed the long-term investment performance of collectibles and found that these so-called emotional assets have outperformed government bonds, Treasury bills, and gold over the long run. However, the costs of trading in these markets are high and an investor faces many dangers and pitfalls. Emotional assets are particularly attractive to some high-net-worth investors. The need for vigilance makes it hard to justify the inclusion of emotional assets in the portfolios of most institutional investors.The authors reviewed the long-term investment performance of three important categories of emotional assets—stamps, art, and musical instruments. The long-run returns on these collectibles have been superior to the total return from government bonds and Treasury bills (and gold), at least before taking into account differences in transaction costs and other expenses. However, the price volatility of emotional assets is larger than is suggested by the standard deviations of price indices. The investment risk is further elevated by collectibles’ exposure to fluctuating tastes and fads and by their vulnerability to frauds. Finally, indirect investment in emotional asset markets comes with its own set of problems. The available evidence thus indicates that an investment in collectibles should not be undertaken lightly. However, even if collectible emotional assets are dominated by financial assets with respect to risk–return characteristics, they can still be rational purchases for those who derive pleasure from owning them.

Date: 2014
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DOI: 10.2469/faj.v70.n2.8

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