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On Investing in Knives

Originally Posted by James0723:
"Glad to hear that. In my opinion the Benchmade 42 is going to be the one production knife that goes up in value the most within a year. Look at the older discontinued benchmade balis from the 80s and how expensive they are with just steel handles. How much would a mint one of those cost? Now imagine in five or ten years how much the 42 will be, if I had the money I'd have bought knifeworks' entire stock."

My response:
Although I believe the 42 will appreciate if no more are produced, so many more of them were made than the stainless steel-handled balis from the '80s that I suspect supply will be much greater even over 5-10 years. I am also one who believes knives make good investments, including certain production knives if you know how to pick 'em, but returns are generally not astronomical on average, so it's got to be a hobby someone loves, not just a financial decision. Some knives may go up by alot, and some may go down or remain about the same. It's hard even for seasoned collectors to consistently pick knives that appreciate aggressively.

The stainless steel models from the '80s are not that expensive, in light of the math. They seem expensive, because we look at what they sold for back then (you've got to translate that price into today's currency value), and because we can get comparable products for less these days (like the 42). The stainless steel models from the '90s have done a bit better. For example, in 1996, a BM model 45 had a street value of $80. Retail on it was $99.99. Today that knife is worth (in mint condition) about $250 (maybe more to the right collector, like $300, but it's a tough market right now, so I'll play it safe and say you could probably sell it for $250). That's an appreciation of $170 over 13 years, or about 9% annually on your initial investment. That's not bad, considering a fixed-income instrument could have delivered about 5% annually over the same period. But at the same time, if you consider inflation at about 3% annually, then you have a net return of 6% annually on your money, and you have to worry about a physical object you're trying to store, not lose, and maintain in top condition.

Obviously one knife isn't going to make much of a difference to your pocketbook. For example, the difference between a 9% return and a 5% return on $80 over 13 years is 100 bucks. So let's say you would have invested in fifty model 45s in 1996. Today you could sell them for a $8500 profit. A fixed income instrument at 5% over the same period would deliver a profit of $3500. That's a difference of $5000 after a 13 year wait. So then maybe it becomes worth it, but buying fifty knives, then storing them in the the right conditions, then selling them individually, is a big investment in time, energy and attention.

But if you had bought the BM model 45 in 1993 rather than 1996, you would have paid $100 street price (retail was $130), resulting in a total appreciation of only 6%, or 3% over inflation. Who would have had the foresight in 1993 to wait three years to buy all their model 45s?

Now lets look at the model 30 from the '90s. If you bought a BM model 30 in 1990, you would have paid $50 street price ($60 retail). Today you could sell it, in mint condition, with the box and everything, for $175. That's a return of 7% annually. Not bad, but you better have a safe full of model 30s to make a difference.

Let's look at stainless steel models from the 1980s that you mentioned. A PCC model 68 had a street value of $60 in 1986 (retail was $75). Today, in mint condition, you could sell it for $300 (I'm being generous) with the box and everything. That's a return of about 7% annually. How about a PCC model 44 from 1986? Street price $70 (retail $85), today, it's worth maybe $300. That's a 6.5% annual return. How about a PCC model 43, which turned out to be rarer? About 7%.

So I don't know, if you ask me, those returns are decent when compared to fixed-income instruments, but only if you love knife collecting. Otherwise, the hassle of buying physical objects in the proper quantities, hoping they are all without flaws (unlikely), storing them (need the space), under the proper conditions (another big hassle--can't store them in the plastic baggies they come in), then trying to sell them individually after 23 years, is not worth it, when you can earn 5% over the same period with no hassle at all.

Moral of the story? Knife collecting can be a good investment, especially if you enjoy it. But don't expect astronomical returns. In fact, a broadly diversified stock portfolio is likely to beat your knife investments.

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