Grupos topol´ ogicos y paratopol´ ogicos pseudo- pseudo-compactos

Investors/collectors are generally advised to purchase only those hard assets in which they have an interest or those they particularly fancy. The reasons for this are multiple.

• Firstly, hard assets do not provide the investor with a periodic income stream such as dividends or coupon payments, instead they provide

“periodic income” in the form of emotional dividends and as such the investor should buy those assets which will afford him/her with the best emotional dividends.

• Secondly, should the value of the asset decrease dramatically the investor will still have an asset which he/she fancies.

4.10. ADVANTAGES AND DISADVANTAGES OF INVESTING IN ALTERNATIVE INVESTMENTS

On his website www.goodbyedebthellowealth.com (2003) Karl Green identifies the following advantages and disadvantages of investing in hard assets.

4.10.1 Advantages

• Hard assets are often considered inflation hedges as well as hedges against bear markets. From a South African point of view various hard assets act as Rand hedges as the majority of demand for hard assets comes from the UK and US markets.

• Various hard assets have “inherent appeal beyond their monetary value, which can result in a sales premium.” (Green:2003) As a general rule creating or preserving wealth via the use of hard assets/alternative investments is done via capital appreciation, only in exceptional cases do these investments provide periodic incomes such as dividends or rent, however, in most cases they provide “emotional dividends” to the owner for which investors would be willing to pay a premium. These emotional dividends take various forms such as the enjoyment of a fine wine and the status of owning a prized piece of art.

• They have potential for appreciation. It is, however, important that the investor should consider those factors that will have a bearing on the value of the asset.

• Some are liquid. Many hard assets are traded via dealers, auctions or even exchanges (precious metals) and as such they offer investors some form of liquidity. The lack of liquidity in some of the assets may be attributed to the low level of supply, current owners may be reluctant to sell their prized possessions. The increased use of the Internet to transact has created a market and also market liquidity for various collectables, antiques and hard assets. Many professional collectors believe that prices quoted on sites such as eBay.com give a true reflection of the value of an asset. According to Harry Rinker “If you want to see what something is really worth, go on eBay, check some sales. That’s what your stuff is really worth.” The Internet has increased the supply side of the value determination equation resulting in prices dropping by some margin to reflect their “true” value. The researcher is of the opinion that in the long run this added liquidity will be beneficial as investors will be able to purchase and sell assets at fair values.

4.10.2 Disadvantages

• Hard assets do not generate current income. As mentioned earlier return on these assets takes the form of capital appreciation and emotional dividends in most instances.

• Value is based on subjective criteria and qualified experts are required for valuation.

• Vital information used in the determination of the value of most alternative investments is limited. This may be attributed to the fact that these investments are traded in various markets ranging from exchange traded market and OTC-markets (precious metals) to fairs (antiques fairs).

• They may be subject to significant decreases in value. Current market moods and fads may leave the investor with an undesirable specimen, this characteristic does, however, extend to more traditional markets as well, one only needs to consider the bursting of the Information Technology bubble in the late 90’s. Again the importance of taking into consideration future expectations as well as value determinants are of the utmost importance for successful investments.

• It may be difficult to ascertain the authenticity of hard assets.

Authenticity is most definitely one of the major determinants of value for most hard/alternative assets.

• The nature of the market is such that investors often purchase the assets in the retail market, and sell them in the wholesale market. This might lead to investors not realizing the true potential of their investments. Another factor to be considered is the fact that dealers charge high commissions. This is not always the case but depends on the asset chosen.

• Investors have to contend with the fact that a large volume of these assets is sold via auction and therefore they will be bidding for specimens against industry professionals. This is, however, not always the case. Purchasing assets via an auction might result in acquiring valuable assets at discounted prices especially if the private investor visits smaller auctions.

• Another constraint of investing in art is that of theft, which brings in its wake the additional cost of insuring the assets.

4.11 SUMMARY

This chapter served as a review of the numerous assets that may be considered alternative investments. The term alternative investment may be used to describe various types of unusual investments ranging from hedge funds to antiques. This chapter identifies an alternative asset as being a hard asset, i.e. an asset with physical features.

This chapter aimed to provide a definition for the term alternative asset (as used in the context of this study). The definition provided in this chapter is a modified rendition of the basic definition used to define investments in their broadest sense.

Apart from reviewing various asset types, the chapter subdivides the assets into one of four groups, each with its own unique characteristics. These groups include:

• Antiques;

• Collectibles;

• Art; and

• General.

Following the discussion on each of the asset types the chapter aimed to identify a set of factors which influence the value, and hence the performance of these assets in general. This set of factors included factors such as authenticity, provenance and quality of materials used.

Lastly the chapter identified various advantages and disadvantages of investing in alternative assets, coming to the conclusion that the major drawbacks of these assets are their illiquid nature, and the fact that investors need in-depth knowledge with regards to a specific asset or asset type.

CHAPTER 5: EFFICIENT MARKETS AND ALTERNATIVE