The basics and rationale of passion investment

In a recent ET article, market expert Richa Karpe points out how tangible investments that yield a decent long-term return and also provide enjoyment are getting increasingly popular. Here are the key points of her column that explain the basics and rationale of passion investments:

• Along with the above mentioned investments, there is also an increasing trend of investors coming together to pursue investments in areas of their liking or expertise. Groups of private angel investors comprising individuals who take a keen interest in particular fields and are willing to back aspiring start ups have been proliferating in various cities in the country.
  
  
• Such investments fall under the broad category of alternative assets. The exposure to such investments has to be kept limited and should be ideally be around 10% to 15% of a portfolio's total value.
  
  
• A lot of such assets including art, wine, collectibles, etc, have shown a fair amount of negative correlation to traditional assets such as bonds or equities. Such assets are, therefore, ideal to diversify one's portfolio.
  
  
• In times of economic uncertainty, bad news is often good news for collectors and sellers. Therefore, when typical investments are down and when the stock market seems jittery, art, wine, and fine jewelry can be great investments.
  
  
• These investments come with their own set of issues. They are relatively hard to incorporate into a traditional portfolio. Firstly, they are subject to fads and fashions that keep changing. They are also hard to classify.
  
  
• Passion investments - be they old master paintings, vintage cars or cases of Bordeaux wine - remain an area of fierce debate among financial advisors. They could at stage turn to be high-risk investments with no or low liquidity, inefficient price discovery mechanisms and high gestation periods.
  
  
• In conclusion, it can be said that passion investments are an important area for wealthy investors and wealth managers alike and are gaining increasing prominence in investment portfolios throughout the country.