Hi David.
if in part, it means calculating risks, future profit- i wonder how that jives with the volatile & emotional aspect of "collecting"?
First lets clarify something.
Collectors...collect. With regards to custom knives, it has been put to me consistently for the last 11 years on this forum. That Collectors buy what they like and there is no such thing as "investment" grade knives.
Most collectors do buy what they like which is why so many overpriced knives are purchased each year. Most makers don't know their position in the market they are competing in. Consequently their prices are a "guess" as much as anything.
Most collectors don't know the makers position in the market (and apparently most don't care..which is good for the makers). Consequently, they don't know they have over paid until it is time to sell the knife. Then the "After Market" lets them know how they did. Remember the "After Market" are their fellow collectors.
Second, dealers are not collectors! Professionals, who in theory do not get emotional about a purchase. Even do we do at times. Speaking strictly for myself, I spent a lot of time developing my "Position" theory and it's application. Consequently, I know what the price should be for a given knife in just about any market. That price being the price that will remove the knife from a makers table or website and find it's way to a new place to live!
Risk aversion is more of a financial planning term. In other words how much are you willing to risk to possibly make a huge profit. Low risk aversion...the CD at the Bank. High risk aversion..Derivatives!
The custom knife market, like most other product markets have those buyers who are known in marketing terms as "early adopters". In the case of custom knives they are the ones to buy new makers work, buy knives with new materials, buy new...well anything with regards to a custom knife. They have a high risk aversion.
The majority of custom knife collectors (especially in the first 1-5 years) are looking more for that "CD". They have limited "Custom Knife Knowledge" and feel more comfortable buying what everyone else is buying. This is where the Internet "Flavor of the Month Maker" phenomena comes from.
Every market has volatility, both internal and external. A show can have slow knife sales because a snow storm hits and collectors can't get to the show. That is external.
Internal would be what is going on with the ABS and their lack of shall we say "Communication" between the board members. Going to a show....then backing out of the show. This gives pause to some collectors out there as to whether the knives made by members of this organization are the ones they want to collect. This would have the most affect on newer collectors.
This of course would hurt the newer makers as opposed to the established makers.
What you call volatility I call a "fluid" market. If you pay attention to the totality of the market it is easier to know which knives to buy. As a dealer I am probably more sensitive to the early indications and warnings of a change in any given market.
Collectors who focus on a "Sector" within the custom knife market, would also be very sensitive to movements in that sector.
With regards to selling for a profit. As a collector you need to first and foremost buy the knife right. Then know when it is time to sell the knife. If a maker has had great success with a particular model and it seems the demand is about to be met...that would be the time to sell your knife for a profit. This is especially true if the maker is going to come out with an upgrade or a new model.
Know the market...Know the makers position in the market...determine if the knife is appropriately priced, if yes purchase the knife. Then be sensitive to the factors driving a particular maker and/or his work in that market. If your purpose for buying the knife was to sell it and make a profit. This sensitivity will indicate to you when the time is right to sell.
If you are a collector in it to just enjoy the knives. Then everything I just wrote you can forget. However, if you do decide to sell a knife down the road forgetting what I just wrote will cost you.
A couple years ago a collector came to me at the Blade Show. He had heard that a collector had spent over $100,000.00 on custom knives at the show. He asked me if I had $100,000.00 to spend at the show what would I leave with. My reply was $45,000 - $50,000 in knives and the balance in cash.
Surprised he said "why so few knives". My job is to buy knives that will resell for a profit. I replied that I probably could not get every knife offered in a drawing. So I would have to buy knives that are offered for sale to anyone. The amount of knives (even at the Blade show) that could be resold for a profit are limited. He asked me what that was. I replied because the majority of custom knives are over priced. Not with malice aforethought, but none the less overpriced.
Hi Jose,
A dealer invests and is able to hold onto a piece for the long term. If they are lucky they'll get their margin quickly, but they are able to wait and hold onto a piece for the long term. Waiting for a market shift or that collector that "must" have it to get a look.
Jose, actually TVM is almost the opposite of what you wrote.
"TVM is based on the concept that a dollar that you have today is worth more than the promise or expectation that you will receive a dollar in the future. Money that you hold today is worth more because you can invest it and earn interest."
In the case of my business, I want to sell the knife as quickly as possible. This allows me to make money and get my initial capital back. This allows me to re-invest both the capital and the realized profit (less expenses) into the next knife.
The best case scenario is to purchase 6 knives from a maker. Receive the package in the AM and in the PM all 6 knives are shipped to their new owners.
Basically creating an arbitrage situation which of course is the ultimate in application of the TVM for me.
This in turn creates the life blood of any business...Positive Cash Flow!
Sitting Inventory is money sitting on the shelf that you cannot utilize. There are very few makers that can be identified early on that you will know to adopt a buy and hold tactic.
Utilization of the TVM tactic will allow you to over and over again reinvest the profit made from the sale of anything. Using a TVM calculator you could crunch the numbers and determine what the ROI would have to be. With regards to annual percentage balanced against time.
More times than not it would be purely a lucky guess.
Everything I have just written is geared towards the profession of buying and reselling knives for a profit...specifically for a profit.
