There were some words of wisdom in Berkshire Hathaway’s Annual 2014 Report – ‘Forget what you know about buying fair businesses at wonderful prices; instead buy wonderful businesses at fair prices’ – and these words struck a classic car related chord with me. If you didn’t already know, Berkshire Hathaway is the holding company chaired by ‘best investor ever’ and ‘worlds richest man’ candidate Warren Buffett who seems to know a thing or two about adding value. If the classic car market is to stay healthy, then we all need to be buying and selling wonderful cars at fair prices.
It is quite possible that we spend too much time thinking about the dynamics of the classic car market in our office. The classic car juggernaut continues to roll on, powered by enthusiasm, greed, fear and the internet, and even though sales prices at auction have seen some cooling in certain sectors, the rest of the market continues to see price growth – but why?
‘I guess it must be easier to learn how to make a few quid playing pass-the-parcel with old cars than figuring out how to trade derivatives’
Have you asked yourself why classic car prices keep going up? It can’t be supply and demand because there are more classic cars for sale than ever – even the rare stuff. The fundamental question is ‘why do people sell their classics’ and the answer in too many cases now is ‘to make money’. There are a lot of cars that are going up in price simply because healthy profits are expected. Fortunately at the moment there are enough buyers out there who are either frightened that their dream car will soon be out of reach or confident that they can make a profit. Whether this supply is inexhaustible only time will tell, but to be honest it looks like it might just be.
What I can tell you with certainty is that the number of speculators in the market is snowballing and this may well be the fault of the internet. Ten years ago you really needed to know something about cars if you were going to make an informed purchase – now pretty much anyone seems able to become a classic car expert in minutes provided they have wifi. We are seeing a lot of cars being shuffled around the UK marketplace and plenty of them are moving quickly from showroom to buyer to showroom and going up in price all the time. I guess it must be easier to learn how to make a few quid playing pass-the-parcel with old cars than figuring out how to trade derivatives although I suspect many of them already know how to do the latter and sooner or later they might just unwrap the final layer of paper to find nothing much inside.
It is alleged Mr Buffett has regrets about not investing in classic cars but he may yet have the last laugh as the concept of playing fair and adding value seems to be eluding far too many players in the classic car market – and sooner or later their expected cut may not come.
What is a fair price for a car?