Someone ever said to you, you should buy more than 1 or 2 shares to diversify? What happens if the market collapses, is your risk diversified if you have 10 or 20 shares? How about you say well I have a house, and bonds and I have shares in my country? What happens if your countries currency collapses (think Zimbabwe)? Are you diversified. The answer is no.
Diversification is more than just different assets in the same class, country etc. So what else could you invest in to diversify?
I met an interesting guy this last weekend, Tim, who had just bought an Aston Martin (I forget the name because I am not a big car person, but looked cool from the window). Which he proclaimed to be an investment. As a finance kind of guy at first you could imagine I was a little skeptical. However always worth listening, so I asked a bit about it and why he thought it was a good buy. He then went into the full story about he had a Jaguar and sold it, and knows people who deal in cars.... However the crux was "Quality cars that are fairly limited, usually decrease in price, hit a minimum and then start increasing in value over time. If you understand the cycle you can buy cars as an investment.". He then gave a few examples... a Mercedes Pagoda and some Porsche 911 where the lights were pointed in.
I know people who collect art, and people who collect coins, and they can make money from selling them. They have effectively invested. Kyle for example loves coins, and he can talk about the history of certain coins and how many there are and what they last auctioned for for days, and he'll buy coins anywhere in the world. It is amazingly interesting, but I own no coins.
I once went to a talk on diamonds (I love diamonds - and have bought a few on auction as investment - lucky for my wife, and to a certain extent some other precious stones), and Dr Prins (Prins and Prins is one of the oldest family of Jewelers in Cape Town) the expert giving the talk, was explaining what creates value in a diamond etc. I spoke to him for like the whole day, because he knew everything there was to know about diamonds and diamond dealing, he even gave me a book on starting a jewelry store (which I read).
Just want to clarify going to a jewelery store and buying a diamond is not a good investment. As you'll only be able to sell it back at your cost less +-35%, so basically prices have to go up 35% for you to breakeven. When I bought my diamonds they were firstly uncertified (risky if you don't know what you are doing), and I could tell (through the magnifying glass) that they good quality, and I paid a much lower price that it was worth, because I could look at it and "value" it. That was later verified when I asked the jeweler what he would pay me for them (which was significantly more than I paid).
So you might say okay so thanks for he stories but what are you saying? I am saying that an investment doesn't have to be shares, bonds and deposits. An investment could be anything. It could be art, diamonds, coins, cars, property or vintage handbags. During the financial crises, some of the assets that performed best were rare luxury goods. Art or rare coins generally do well whether the economy is crashing or not. It is a store of value, much like gold, except with a rare good you get the bonus of pricing power. With gold your price is determined by the market, you are a price taker. With the Mona Lisa you can only buy it for what someone's willing to sell it for.
Another beautiful thing about a rare good, it is rare everywhere. Kyle often buys his rare South African or African coins in the US or the UK. Famous South African or European art could be bought/sold in any country.
So should we go rush out and but art, cars, properties and diamonds? Well think of it as an investment, and think, how do I go about investing. I need to understand the market, I need to understand the value of something (or what creates value) and I need to know what a fair price is. I have been to many auctions and reviewed 100's of auctions lists, been to talks on art and diamonds and I am thus I feel I am getting there. I read the property times week in and week out. So I can understand enough to invest.
I went to a talk given by an America researcher on South African art (pricing and importance of artists). Other than Kyle, my wife and I, everyone else was at least 25 years older than me. For me that is one of the biggest opportunities I have ever seen. In 25 years time, who of my contemporaries is going to understand the price of art if nobody is learning now?
About 10 years ago I should have seen this. I went to a poker night at a friends place, Mike. Mike is British and comes from a very well off family. So we strolling around just two rooms in a "house", and Kyle looks at me and says "Do you realise what painting are hanging on the wall?", So I was like "No". He was like there must be millions just hanging on the wall. So he says to Mike, "I would like to buy your painting for R50 000". Mike said he'll have to ask his dad. He really did ask his dad, and his dad just laughed at him.
Value can be added by understanding your investment and identifying when the market is not seeing the value. This is true for any investment. Ever heard the saying "Knowledge is power", which it comes to investing, knowledge is key. If you are an expert whether it be in cars, art, diamonds, hand bags or figurines. There in lies a potential investment. As Buffett says, he only invests in what he understands! So you should probably also, but my advice is consider what interests you as you will need to spend time on it, and it does not have to be shares!