The Opportunity In Rare Books

Alternative assets can be tricky to navigate. Why I like rare books as a potential investment and what I look for when making buys.

We live in a digital world. There’s no denying it. In a lot of ways, I’ve become a walking contradiction because of it. While I occasionally pontificate digital minimalism like some wannabe philosopher, I also pump digital assets like I’ve got a bag to dump. Back in late 2020, I got very into alternative investments. It became clear to me that dollar purchasing power was going to continue crashing as stimmy checks and production shutdowns were the chosen response to the virus. I wasn’t too elated with the idea of piling into growth stocks at sky high multiples but I also didn’t want to get overly exposed to crypto or gold either. Alternative investments offered diversification that I found intriguing.

“Alternative investments” is a very broad category. Some would probably put digital assets in there. But historically alternative investment assets have generally included vintage cars, rare wine, sports memorabilia, and old books. Every single one of these types of assets are available on Rally Rd through fractional share ownership. I like using Rally Rd and I even have some shares of a couple assets on that platform. But even when I was exploring those options I wanted to find the “alternative investments” that I could actually afford to own outright. And I liked the idea of books.

I was never interested in fractional vintage cars. Vintage cars have a significant carrying cost. They require large structures for storage and insurance payments. I’m also very worried about the potential for the mandated obsolescence of ICE vehicles. No thanks. I don’t need exposure to that much cost and risk.

Sports memorabilia is something I’ve been fond of and, frankly, “investing” in since I was a boy. But even sports memorabilia can be broad. The buyer of a rare baseball card may not be the same person who buys a game-used Kobe jersey. I’ve been far more interested in exposure to game-used equipment than the cardboard. Maybe I was scarred from growing up at the tail end of the junk wax era, but I don’t trust cards anymore. They feel like manufactured scarcity.

Rare wine? I love it. A winery only produces so many bottles in a given vintage. Beyond that, the supply is always diminishing as the years go on because each vintage gets consumed over time. Once those bottles have been poured, they’re gone. But there is still some risk in wine. Just because alcohol is widely consumed now, it doesn’t mean there will be demand for it in perpetuity. It’s pretty terrible for your health after all.

Books are different though. A book can be consumed multiple times. A book is enjoyment. It’s knowledge. And at times, books can even be “dangerous” because of the thinking they can spark in the mind. I decided in Q4 2020 that I’d make an effort to start buying a few physical rare books that were in my price range. In my research, I found out the desirability ladder of the rare book hierarchy. That ladder shows potential demand for rare books goes something like this:

• Inscribed first print of a first edition

• Signed first print of a first edition

• First print of a first edition

• First edition

As you can probably imagine, the higher up you get on the ladder, the lower the supply and the higher the potential demand. With low supply and high demand, you get higher price until the demand can no longer support price.

Initially, I thought it made sense to try to target old books by world renowned writers. Mark Twain was a writer who I found interesting and influential. I picked up a first edition of The £1,000,000 Bank Note on eBay. Year printed? 1893. Price? $45. Given most new hardcover books generally cost at least $25, this felt like a pretty ridiculous pricing discrepancy.

As I write this, the cheapest listing for a first edition of The £1,000,000 Bank Note is now $90 and most of the eBay listings are well over $100. It looks like that buy will pay off at some point if/when I decide to sell it. There are two other large factors to consider with books, however. The first is condition. My copy of The £1,000,000 Bank Note might not be as clean or as sharp as the listings currently on eBay or Abebooks (IMO, it holds up just fine). The other factor is age doesn’t necessarily mean rare.

For instance, there are more eBay listings for first editions of The £1,000,000 Bank Note than there are eBay listings for first editions of Dan Brown’s Digital Fortress under St Martin’s Press. The reason? Brown wasn’t a bestselling author yet and the print run for his first book was small. Print run is key. It gets back to that whole supply part of the equation.

Like all forms of art as an investment, I think the right approach in books is finding either an author or a novel that you actually really like. Because of my interest in markets, the holy grail rare book for me is a first edition of Reminiscences of a Stock Operator by Edwin Lefevre. Sadly, I don’t have eight grand to drop on one and I value my marriage too much even if I did have the money.

That book to me, has all of the traits; I like it, it’s rare, it’s old, and it’s renowned as a masterpiece in financial literature. But it’s out of reach. So what are some other opportunities one might look for? Well, the good news is that’s entirely up to you if you agree with the overall thesis and want to put in the work. Maybe you like spy novels. Tom Clancy’s first editions are pretty reasonably priced.

One more point regarding the rare book thesis; it generally requires a respect for the physical world. Which is something that I’m finding myself aligning with more and more as society pushes us towards all things digital. Kindle can go away some day. While I’ve never had a Kindle, there’s something about physical paper books that I find calming.

The last two years have been eye opening to me in a lot of ways. At a time when my entire livelihood is dependent on the internet, I’ve found myself wanting to unplug and appreciate nature more. I also want to minimize third party risk in my investments as much as possible. This is why I swear by storing your own inflation hedges if you can. Rare books, while not a conventional way to do so, have worked out pretty well so far.

Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions. Cryptocurrencies, tokens, STONKs, and digital trinkets could all go to zero. I have no job and I live in my wife’s basement. I’m the last person on the face of the earth who you should listen to for financial advice or life advice. I’m not featured on trustworthy financial news sources like CNBC or Bloomberg and I don’t wear a necktie when I make my trades.