… is a Ferrari 250 GTO. Admittedly it’s not a modest request
– the last recorded auction price of this widely revered classic was a cool $38
million and there is one on the market today for a reported asking price of $56
million (here). When new in 1962, they cost $18,500. To put this into perspective, I have
converted this using prevailing exchange rates into sterling values in order to
compare with other so-called safe asset values such as housing.
According to data from the Nationwide Building Society, the average price of a UK house in 1962 was £2,600 – around one-third of the price of a Ferrari 250. By 1965, when the 250 was auctioned for the first time, the selling price was 25% of the original list price and it could be purchased for 40% of the average UK house price. Up until the early 1970s, the selling prices of the 250 were never higher than average house prices but from the middle of the decade, prices began to ramp up hugely (see chart).
According to data from the Nationwide Building Society, the average price of a UK house in 1962 was £2,600 – around one-third of the price of a Ferrari 250. By 1965, when the 250 was auctioned for the first time, the selling price was 25% of the original list price and it could be purchased for 40% of the average UK house price. Up until the early 1970s, the selling prices of the 250 were never higher than average house prices but from the middle of the decade, prices began to ramp up hugely (see chart).
The first $1 million sale occurred
in 1986 and by the late-1980s – the peak of the bubble in classic car prices –
the 250 GTO was selling for prices in excess of $10 million which was 125 times
the price of an average UK house. Following the early-1990s crash, which saw
Ferraris changing hands for a mere $3.6 million (42 times house prices), prices
began to edge up again but it took until 2010 for prices to exceed the previous
1990 peak. It is notable that the ratio of Ferrari prices to house prices has
already gone above the 1990 level and if the current prospective seller
realises their expectations, the buyer could in theory buy more than 200 houses
for the same money.
If someone had bought this wonder of engineering new in 1962 and sold it for $38 million in 2013, they would have realised an annual average return of 16%. Had they waited until 1965 to buy at auction, they would have realised a gain of 21%. It’s a much better rate of return than housing, where prices have risen at an average rate of 8.5% since the early 1960s. However, the FTSE All-Shares index has posted an average return of 13% since 1962. Investors would not, of course, have realised such stellar gains as they would have had to adjust their equity portfolio holdings in order to replicate the index which would have resulted in transactions costs which eat into returns.
On balance, therefore, the Ferrari 250 looks like a great investment compared to other forms of asset. But we are not all fortunate enough to have the wherewithal to afford such an outlay. Most classic car enthusiasts have to start much more modestly and prices have risen much more slowly over a longer horizon. In any case, the market is highly segregated with top brands showing significant gains whereas at the lower end of the spectrum price inflation has been less dramatic. However, the Historic Automobile Group International (HAGI) index suggests that over the last five years, classic car prices have risen by between 25% and 30% per year. I would attribute this at least in part to the low rates of return on financial assets which have forced investors to look at alternative investment products. It may be a market which, when it pops, does so with a vengeance.
Unfortunately for me, I do not own a classic car, so I am speaking from observational rather than practical experience. But as a reader of classic car magazines in my youth, I used to scan the adverts to check what I may one day have been able to afford. In the late-1970s I recall seeing an ad for an Aston Martin DB5 which was described as being in need of some loving care. I subsequently came to realise that meant a total wreck which was probably held together by rust. However, it was on sale for a mere £750 (no – I have not missed a zero) which was cheap even by the standards of 1978. I barely had 75p to rub together in those days so it was a little out of my league. But a DB5 in even fair condition is today valued at £438,000 with a top notch model able to fetch £958,000. Allowing for £10,000 of maintenance to bring it up to concourse standard, that would have provided a cool annual return of 12.5% over the last 38 years.
They do say that this is the season when dreams come true, so if you’re listening Santa … Merry Christmas!
If someone had bought this wonder of engineering new in 1962 and sold it for $38 million in 2013, they would have realised an annual average return of 16%. Had they waited until 1965 to buy at auction, they would have realised a gain of 21%. It’s a much better rate of return than housing, where prices have risen at an average rate of 8.5% since the early 1960s. However, the FTSE All-Shares index has posted an average return of 13% since 1962. Investors would not, of course, have realised such stellar gains as they would have had to adjust their equity portfolio holdings in order to replicate the index which would have resulted in transactions costs which eat into returns.
On balance, therefore, the Ferrari 250 looks like a great investment compared to other forms of asset. But we are not all fortunate enough to have the wherewithal to afford such an outlay. Most classic car enthusiasts have to start much more modestly and prices have risen much more slowly over a longer horizon. In any case, the market is highly segregated with top brands showing significant gains whereas at the lower end of the spectrum price inflation has been less dramatic. However, the Historic Automobile Group International (HAGI) index suggests that over the last five years, classic car prices have risen by between 25% and 30% per year. I would attribute this at least in part to the low rates of return on financial assets which have forced investors to look at alternative investment products. It may be a market which, when it pops, does so with a vengeance.
Unfortunately for me, I do not own a classic car, so I am speaking from observational rather than practical experience. But as a reader of classic car magazines in my youth, I used to scan the adverts to check what I may one day have been able to afford. In the late-1970s I recall seeing an ad for an Aston Martin DB5 which was described as being in need of some loving care. I subsequently came to realise that meant a total wreck which was probably held together by rust. However, it was on sale for a mere £750 (no – I have not missed a zero) which was cheap even by the standards of 1978. I barely had 75p to rub together in those days so it was a little out of my league. But a DB5 in even fair condition is today valued at £438,000 with a top notch model able to fetch £958,000. Allowing for £10,000 of maintenance to bring it up to concourse standard, that would have provided a cool annual return of 12.5% over the last 38 years.
They do say that this is the season when dreams come true, so if you’re listening Santa … Merry Christmas!
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