Investment and Luxury: The Birkin Bag

From fashion magazines to feminist commentariat and regular journalism outfits, many seem to be telling women this January that buying Birkin bags is a better idea than investing in the stock market. A luxury bag selling website’s research comparing S&P 500 performance with that of Birkin bags says the latter stacks up more favourably over a 35 year period.

Is this good advice?

The short answer is a qualified MayBe. The devil per usual is in the details which these articles are too busy to get into.

The long answer lies in a suggested framework to think about your investment philosophy and goals, your risk propensity, and how they match with Birkin as an “alternative asset class”. All this with the huge qualifier that this is not investment advice.

What is your investment goal? Do you seek growth in capital, or do you seek income? If the latter, Birkin bags are not a great investment for you. Regardless of the legends surrounding them, Birkin bags don’t pay dividend! I make the point with levity if only to ensure the point is understood, but this is the serious first question to ponder.

If you are seeking capital growth, you need to consider carefully the kind of Birkin you buy.

Birkin bags are extensively customised with choice of skins, colour and hardware. This is where deciding what to buy gets tricky. In order to realise that capital growth at some point in time, you (or your heirs) need to be able to sell the bag. Which means there needs to be a buyer for the bag you buy. For a commoner version, such as grey or brown snake skin, there may be many buyers but equally there may not be so much growth in value, more on which later. You will also need to think of the channels through which you can sell the bag for a profit, and unlike stock brokerage accounts, there is no one clear channel for soliciting buyers and completing the sale transaction.

For a less common version, say a white Himalayan Birkin, made of platinum and encrusted in diamonds, you may not have many buyers because it is a serious test of affordability. The channel here, however, may be clearer; antique houses or auction houses could advise you on disposal although they will certainly take their cut, which will come from your capital growth.

When it is argued that Birkin delivers a better investment growth than some stocks, it is important to take into account all the comparators behind that claim. Are you comparing for risk? Are you comparing for time horizon over which you hold the stock — and the Birkin? Which other asset classes, other than stocks, are you taking into account (for instance, London residential real estate has been a high growth asset class over the last two decades for sure!)?

Regardless of what a handbag vendor website says, it is difficult to predict which bags will retain value and which may become commoner and more ordinary over time. That uncertainty is no different from stocks. Also Birkin bags will need to remain a scarce resource, their scarcity being the real reason for their “value”, for them to grow in value. That is a pretty big assumption to make for your investment decision. The only consolation being that, unlike stocks, you are at least able to use this “asset class” as arm candy and social signal.

All this is the Birkin equivalent of “fundamental analysis“, if you will.

If you can conduct this analysis rationally — while also keeping in mind that you could always keep your Birkin and pass it on as bequest — then you will arrive at your own conclusion as to whether this is good advice. As antique dealers often point out, such alternative assets often have unpredictable or smaller growth in market value, but they can and do grow in intrinsic value due to the personal stories we imbue them with.

Whichever way we look at it, thirty five years is a long time!

(This post appeared originally on https://shefaly-yogendra.com/blog/2016/01/15/investment-and-luxury-birkin-bags/ and is being cross-posted here.)