The Blade Show-A LOT of Overpriced Customs

[Robert Dark]

STeven, Anthony, Jerry......

Thanks for the input. Very informative.

Robert

 

[Les Robertson]

STeven,

Excellent observations as always, my point was to show that some are short term and some are long term. But you have to know what the market is for each maker and what their position is in their market.

Your comment about Kit's knives going for double was accurate. A $500 Carson Model 4 is selling between $1100 and $1300! Thats an average of a 120% ROI. Not one of the ABS "Superstars" mentioned here currently has a 120% ROI. Kit's knives are difficult to get, but then so are Fogg's and Hancock's.

If you spent $3000 with Fogg or Hancock you could probably turn the knife for a 25% profit fairly quickly. That is a $750 ROI on that $3,000. If you spent the same $3,000 on Kit Carson knives @ 120% your ROI would be $3,600 PROFIT.

This is why most collectors have difficulty with investing with custom knives. They just don't do the research. They fall in love with a particular style or a particular maker. They do what collectors do, they buy what they like. While investors buy what is going to give them the best chance for a particular ROI.

Back to Mike Obenauf, you can buy a $375 knife from him and sell them for anywhere from $450 - $475 in the aftermarket. That is a 20 - 25% ROI.

I would hazard to guess that right now you could get a 25% ROI on Matt Roberts knives bought at the just past Blade Show.

"Investment Grade" knives are all around us.

There are lots of makers out there who's work will go for 25% over their retail price immediately.

Ladies and Gentlemen, there is a lot of money to be made in custom knives.

WWG
This goes back to what I was saying about doing the research about a particular market

 

[Kohai999]

Anyone you would like to add to the list?

Who do you feel is obscure?

1. No one that I can think of off the top of my head, but I do believe that Hank Knickmeyer makes some very high QPR damascus.

2. Obscure makers (as defined by a VERY limited group of people knowing who in the heck they are) to me, Russ Andrews, JR Cook, Michael Connor, Steven Filicietti, Keith Kilby, Dan Maragni, Greg Neely, Tim Potier, John M. Smith.

I mean, I love Dan Maragni, but he simply DOES NOT make knives by and large, anymore. He is Cold Steel's Director of Production at Camillus, but that may change very soon.

Best Regards,

STeven Garsson

 

[RogerP]

Well, if the cat wasn't already out of the bag where Russ Andrews is concerned, it sure is after this thread.

Roger

 

[Joss]

For Damascus, JD Smith, Tom Ferry, Jerry Rados, Schwarzer,Colter, Kilby, Zowada, Cashen, JM Smith , Filicetti, JW Randall, Ray Rybar, Darrel Meier, Al Pendray, Howard Clark, Jim Schmidt, Dan Maragni, Fogg again, Don Hanson and others have produced some incredible, incredible steel.

I would never put Ray Rybar in the same list as Fogg, Cashen, Zowada, Schmidt, etc. Yes, he does some impressive damascus (although gaudy and unrefined IMHO), but his grind lines, the shape of his knives, are just nowhere near those makers.

 

[Joss]

Well, if the cat wasn't already out of the bag where Russ Andrews is concerned, it sure is after this thread.

He doesn't have a website, does he?

 

[Bladeandbarrel]

. No one that I can think of off the top of my head, but I do believe that Hank Knickmeyer makes some very high QPR damascus.

2. Obscure makers (as defined by a VERY limited group of people knowing who in the heck they are) to me, Russ Andrews, JR Cook, Michael Connor, Steven Filicietti, Keith Kilby, Dan Maragni, Greg Neely, Tim Potier, John M. Smith.

I mean, I love Dan Maragni, but he simply DOES NOT make knives by and large, anymore. He is Cold Steel's Director of Production at Camillus, but that may change very soon.

Best Regards,

But those names aren't or shouldn't be obscure to serious collectors of hand forged blades if they have been paying attention. I wouldn't expect general knife collectors to know who they are, but someone who collects forged knives and regulary checks various websites will usually find some Cooks, Kilbys, and a few of the others. They are not household names in the custom knife world, but to collectors of forged knives they should be, but usually aren't for various reasons.

Along with
Scott Lankton, Hugh Bartrug, Shiva Ki (yes Shiva Ki), Bill Bagwell, Don Hastings, Louis Mills, Paul Champagne, Kaj Embretsen, Lyttle, Valachovic, Evans, Barry Davis. Forged blade collectors should all do their homework and know these names so the next time they are at a knife show a treasure doesn't pass them by.

This is just a partial list of significant forgers, not a QPR list, fit and finish list or anything else. Just names to know.

 

[Bladeandbarrel]

I would never put Ray Rybar in the same list as Fogg, Cashen, Zowada, Schmidt, etc. Yes, he does some impressive damascus (although gaudy and unrefined IMHO), but his grind lines, the shape of his knives, are just nowhere near those makers.
__________________

I just suggested that his steel not his knives, were at the highest levels of complexity and craftsmanship.

 

[Bladeandbarrel]

Forged blade collectors should all do their homework and know these names so the next time they are at a knife show a treasure doesn't pass them by.

Oh yeah, I forgot about MORAN too

 

[Joss]

If you spent $3000 with Fogg or Hancock you could probably turn the knife for a 25% profit fairly quickly. That is a $750 ROI on that $3,000. If you spent the same $3,000 on Kit Carson knives @ 120% your ROI would be $3,600 PROFIT.

OK - I'm getting tired of this discussion. Let me first establish my credentials. I have an MBA from Duke University ('98), and I currently work as a Finance Manager in the Mergers & Acquisition group at Microsoft's PSD unit (which includes Windows and MSN). In the last year I have built financial models for 10 acquisitions totalling more than a billion $ (not all went through).

I'm only saying this to make it clear that I have extensive experience of financial modelling. Now let's get started...

Even if you went to Blade and lined up at 7am and rushed to Kit Carson's table, he wouldn't sell you $3,000 worth of Model 4. Let's assume he allows you to buy 2. Then you've pretty much lost the first 20mn of the show, which means you cannot be first at any other of the top demand knives (Onion, Mayo, etc).

Now let's assume you spend $1,000 on Carsons with an instant markup of 120% and another $2,000 on other makers with an instant 25% markup (not as easy as it sounds). You potentially have a return of $1,700. Impressive so far.

Now let's add the costs in the equation. Flight to Atlanta, + one or 2 nights at a hotel, + taxi fare, etc. How much does that add up to? Let's say $500 (coming from Seattle, I would pay quite a bit more). So your profit is now $1,200.

Now you need to turn around and sell your knives. I'm assuming here you do that very quickly so you don't pay any cost of capital. Let's assume you're an individual and you sell the knives on eBay for $4,700, and buyers use PayPal. Let's say you have 2 knives at $500 and 2 at $1,000. You'll pay the eBay fees of 5.25% of the initial $25.00 ($1.31), plus 3.00% of the remaining closing value balance. Let's keep it simple at 3%. So you'll pay 3% X $4,700 = $141. You'll pay another 3% in PayPal fees. So let's see where we are:

Revenue: $4,700
COGS: ($3,000)
Gross Margin: $1,700
Travel: ($500)
eBay fees: ($141)
PayPal fees: ($141)
EBITDA: $918
(Earnings Before Interest, Taxes, Depreciation, and Amortization, basically pre tax profit)

On this you should pay taxes. Of course, we don't generally pay taxes on small transactions like that, but if this is an investment strategy you're going to compare to other investment strategies, you need to factor in the taxes. (If you want to include in your investment strategies those that break the low, then I can suggest a few other highly profitable ideas... )

This is a short term capital gain, so it's going to be taxed at your income tax level. Let's say 25% (although one could argue that people who spend $3,000 on knives in a day probably are in a higher bracket). So:

EBITDA: $918
Taxes @ 25%: $229
Net Profit: $689

ROI = $689 / $3,000 = 23%

Now, let's assume you do that 3 times a year, but you only have a 33% success rate getting $1,000 worth of Carson's M4 knives (which is still overoptimistic in my opinion). Your other two trips you have to get knives that "only" get you 25%. Each one looks like that:

Revenue: $3,750
COGS: ($3,000)
Gross Margin: $750
Travel: ($500)
eBay fees: ($112)
PayPal fees: ($112)
EBITDA: $25
Taxes @ 25%: $6
Net Profit: $19

So after 3 trips, you spent $9,000 and got net profits of $689 + $19 + $19.

ROI = $739 / $9,000 = 8.2%

This is impressive return over a couple weeks when compared to stocks, etc, but it is not scalable. Unless you make that a job, you can't do that more than a few times a year, and in any case the market for knives can only support a few thousand dollars worth of sale a week.

It's also very risky. What happens to your returns if suddenly the price of a flight goes up $100? Or if one of your knives is damaged? Also, what are the chances of Kit getting tired of seeing each knife he sells you on eBay within a few weeks, and decides to stop selling you his stuff?

There are also some additional costs to factor in: time lost from work to be at the door of the show on Friday morning (up to 2 work days since you have to fly Thursday), time to photography well the knives, cost of zipped pouches you need to carry the knives safely, etc.

Buying & selling knives can be a highly profitable event, but it is not a viable investment strategy. You will never put your children through college doing this (unless you make it a full time job).

 

[Joss]

As a side issue, WWG, would you mind sharing your first name with us? "WWG" is a bit anonymous...

 

[Kohai999]

The majority of "investment knives" are not purchased at shows. They are purchased via e-mail or the telephone.

The "experienced investor/collector" knows what they want, and don't have to go to a show to get it. Only about 30% of my custom knives were purchased at shows. I am sure that Les, Dave Harvey, Bob Neal and Neil Ostroff only get 30% or less of their inventory via the show circuit.

In addition, myself and several other "investor/collectors" have an extensive list of potential buyers, obviating the need for fleabay/paypal. I don't even have a Paypal account.

Now YOU may purchase more knives at shows than I do, but that does not make it the norm.

This makes the COGS significantly lower.

Shows are about business, but they are also about fun and interaction, should be for both knife maker and collector. When you went to Reno the get the Fogg sword, you were in and out, you HATE Reno.

Me personally, I still couldn't tell you what Reno is really about, because I spend all my time there either on the show floor, BS'ing with the makers in their hotel rooms, or eating/sleeping.

Best Regards,

STeven Garsson

 

[Joss]

Joss, only one flaw in your reasoning that I see.....

The majority of "investment knives" are not purchased at shows. They are purchased via e-mail or the telephone.

You can't get a Carson M4 for $500 unless you get it directly from him, which means going at a show or having placed an order several years ago. To go back to Fogg and my collection, I bought most of my pieces like you, via mail, etc, but the top 2 pieces of my collection I bought at the Reno show. Very high end Foggs are just not available otherwise (it's hit or miss on his list - generally, by the time the last email is sent to his customer base, he already has several customers lined up). You can also establish a special relationship with a maker, but that takes years, and it's not going to work if you keep reselling their knives at a huge profit within weeks.

Les & Bob Neal are not experienced collector, they're dealers. For them, this is a full time job with a completely different cost structure than for you and me. Of course, it's a profitable endeavor, like any job. But a job is different from an investment. An investment is where you put the money you earned doing your job.

I agree on the pleasure of the interaction, etc, but if you want to trully calculate the ROI of the investment you need to factor all those costs in. Once you decide it isn't such a good investment after all, you can choose to do it nonetheless, but pleasure, not profit, is the main goal. Remember that the critical decision you make is which first table you go to. Once you've visited the first table, it's likely that the very best value pieces will have been taken. So either you go the the one maker you want to buy from to turn around at a profit, or you go to the one maker you want to buy from and hold. You can't do both.

 

[Danbo]

As a side issue, WWG, would you mind sharing your first name with us? "WWG" is a bit anonymous...

Yeah, come on, Les. Tell us all about it!

 

[Keith Montgomery]

I don't purchase knives as an investment. All I want to do is know enough that when I need to sell a knife, I won't lose my shirt. There was a time I bought knives just based on whether I liked them. Having taken to heart the lessons given by Les, I don't do that anymore.

 

[RogerP]

He doesn't have a website, does he?

Nope. Not that I know of.

Roger

 

[Keith Montgomery]

Russ has no website. He gets all the orders he can handle without one.

 

[Bladeandbarrel]

OK - I'm getting tired of this discussion

I am sorry we are boring you!

Very high end Foggs are just not available otherwise

There were 2 Kemal knives at Blade show, does that count?

You make a lot of assumptions Joss, for example when you talk about the cost of the show, you assume that the "dealer" was only at the show to buy Carsons, not buy others knives or sell other knives, maybe other Carsons. It is important for a dealer to have not one, but 10 Carsons!

I am sure you can run rings around most of us with financial models and forecasts.

I also work in a high value, technology field. My "buyers" tend to be the top 10% in their professional, post-graduate level class. They are tough customers and very highly educated, most at doctorate level. I am responsible for generating approximately 10-15million dollars in sales annually which is very substantial for the small company I work for. A customer who buys our product could generate a million dollars worth of income over the lifecycle of that product for my our company. We take them very seriously.

Guess what? My income-generating career doesn't help me pick good knives. It could help me sell knives. I can develop a business and marketing plan and a SWOT analysis and I know how to sell as I have been professionally trained by the best Ivy league minds--but it is my experience as a collector and aficionado, talking to literally hundreds of makers over the last 10 years, and hundreds of dealers from production to custom--that is what helps me pick good knives.

Again, there are no secrets to the art or business of knife collecting(take your pick). Buy the best knives from the best makers at the best prices and you wil see your collecton increase in value. It is not very complicated at all. However, if a collector cannot or refuses to recognize overall quality of fit, finish, style or begin to understand performance is derived, he is S.O.L. (Shit Out of Luck). If a customer fails to do their homework, they will buy the wrong knives more often than not.

I am not suggesting that a collector could earn a living collecting. That is not feasible because to earn you have to continually sell and that is not the immediate goal of collecting. There are many dealers, however that do earn a living buying and selling custom knives. Follow their principles and you will rarely get hurt buying custom knives.

Les & Bob Neal are not experienced collector, they're dealers

Yep-dealers that interact with collectors, some much more experienced than us, every day of the week, offering them new and different insight into the market, trends, buying patterns and new makers that we just don't have. In my experience, a good purveyor is worth listening to.

PS-I wonder how many emails Randy Morgan got when he posted some of his collection for sale. Not a bad knife in the bunch. I am sure he will show a profit on most if not all pieces.

 

[JeremyM]

even a 'sure thing' like Fogg isn't always so. i know of one, new, high-end piece by him that's been sitting with a dealer for a while now at a relatively small 20% markup.

not to say the 'investing' in knives isn't possible. but no matter how much you know or plan there are always surprises, pieces that just don't move for no particular reason.

STeven has said a couple times that he think the market is do for a serious correction. i'm not in any position to speak to that in terms of knives specifically. however, in the art world at large, that seems to be a lingering thought as well.

 

[Bladeandbarrel]

even a 'sure thing' like Fogg isn't always so. i know of one, new, high-end piece by him that's been sitting with a dealer for a while now at a relatively small 20% markup.

Where is it. I am sure someone on this thread would be interested as long as it isn't a "Shiv" model.