‘Passion investment’ is a cool phrase to be dropping today in affluent circles, or in the company of people who earn a living by helping the rich get richer. What is it, is it a good idea, and how can people do well at it?

Passion investment usually involves the purchase of items like fine wine, pieces of art, classic vehicles, or antiques. ‘Investment’ is the act of buying something with an expectation of favorable returns in the future. Purists (value investors, for example) would say that passion investments are really speculative purchases - because there really isn’t a high degree of certainty of favorable returns, and because the assets purchased generally don’t yield an income.

Passion investment is certainly not so secure a use of money as investment in excellent businesses, or in an index fund. However, there are many people who have been very and consistently successful in making money through passion investments. The key lies in knowing the market, and buying at a good price.

1967 Aston Martin DB6 Vantage Volante

As well as the promise of potential appreciation, passion investments deliver intangible benefits - for example, art may be enjoyed while it is owned, as may cars and antiques. There are also undeniable emotional or ‘psychic’ payoffs in feeling good about owning things of rarity or beauty.

Entrepreneur.com featured passion investments recently (http://www.entrepreneur.com/passionplay/index.html), quoting Cap Gemini and Merrill Lynch as saying that high-income families will place 22% of their assets in passion investments today versus 10% in 2002. The article also includes some tips for wine buffs, racing car enthusiasts, and would-be art critics:

If wine is your passion, choose investment-grade vintages, which offer more longevity and liquidity… Wine investment funds, mainly based overseas, offer another route. Diversification eases the risk, but funds usually charge steep fees and require a minimum investment often in the tens of thousands.

Race car fans don’t need as much to spin their passion into an investment. The StockCar Stocks Fund (SCARX) requires a $250 minimum investment and offers a broad portfolio of stocks linked to NASCAR, from sponsors to dependable Dow names like Exxon Mobil. Since its launch in 1998, SCARX has returned about 8 percent annually.

Art has long been a favorite passion investment. But one big risk with investing in art: Artists can fall out of style… For added protection, buyers should research the gallery or auction house promoting a given artist… Do your homework, and speak to art consultants and appraisers.

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