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Trophy Inflation

A walk through the Forum shops at Caesars Palace in Las Vegas brings one dominant message. This is the Mecca of Luxury Branding. For jewelry and "signature" watches, it's Bulgari, Chopard, and Tourneau. For clothing it's Armani, Bernini, and Escada. And don't forget the three V's--- Versace, Valentino, and Vasari.

Walking by one shop, a familiar watch catches my eye. It's a Patek Philippe, the understated, simple Calatrava model that I have coveted since learning about them more than thirty years ago. They are still hand built, still mechanical, and still stunningly accurate---even when passed to a second generation. Today, it can be mine for about $13,000, due to a recent 20 percent price increase.

            I blink in amazement. That's more than double the price I remembered.

            Back in Dallas, I visit deBoulle, the high end Highland Park jewelry store. Owner Denis J. Boulle confirms the price. It's $13,850. This is a Trophy watch, a watch distinguished by its quality and relative rarity.

            History shows that the Patek Philippes made in very small numbers have enjoyed astounding appreciation. Indeed, 80 of the 100 most expensive watches ever sold in auction sales have been Patek Philippes. From the early 80's to now, for instance, prices have multiplied about 60 times.

Yes, you read that right. Sixty times. That's an annualized increase of about 22 percent.

            Call it Trophy Inflation.

While different trophies have risen in price at different rates, one thing is certain. They had risen much faster than the conventional Consumer Price Index. Whatever the monthly ups and downs of food and energy, whatever the constant increases in medical care costs, the broad increase in consumer prices was only 3 percent a year over the same 20 year period.

Needless to say, the Bureau of Labor Statistics doesn't track Trophy Inflation. But it isn't difficult to find in the usual places. Start with art auctions. Prices continue to reach new highs and appreciation rates dwarf what most investors have found in the stock market. A recent listing of the top 100 American auction prices on www.askart.com showed a top price of $27 million (for a George Wesley Bellows). The lowest price in the top 100 was a bit under $4 million. The list includes works by relatively recent artists such as Frank Stella, Jasper Johns, Jackson Pollock, and Roy Lichtenstein. Whatever the current price, we're looking at gigantic multiples from original sale prices.

Nor is Trophy Inflation limited to mechanical or artistic works of art. Consider Trophy houses. Check the Friday real estate listings in the Weekend section of the Wall Street Journal. The Sunday San Francisco Chronicle real estate listings will serve equally well. And there are always those nifty listings at the end of the New York Times Sunday magazine. Multi-million dollar homes, once rare, are now amazingly common. Many are offered for sums that would have purchased an entire NASDAQ company only 20 or 30 years ago.

Whatever the Trophy object--- art, jewelry, watches, houses, cars, or yachts---its price has risen much faster than anything in the world of common objects and everyday living.

And that may include common stocks.

Quality--- real quality--- may always be our best investment.

Only published comments... Nov 01 2004, 10:21 AM by scottb
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About scottb

Scott Burns has covered the changing world of personal finance and investments for nearly 40 years. Today, he ranks as one of the five most widely read personal finance writers in the country. Scott began his career as a newspaper columnist at the Boston Herald in 1977 where he was also the financial editor. Nationally syndicated in 1981 and now distributed by Universal Press, the column appears in newspapers from Boston to Seattle. In 1985 he joined the staff of the Dallas Morning News where his column quickly became one of the most widely read features in the paper. He left the Dallas Morning News in 2006 to become one of the founders of AssetBuilder and its Chief Investment Strategist. Burns is a graduate of Massachusetts Institute of Technology (1962). He has written four books, including "The Coming Generational Storm" (MIT Press, 2004) coauthored with economist Laurence J. Kotlikoff. His fourth book, also coauthored with Kotlikoff, was published in 2008 by Simon & Schuster. The paperback edition will be available in January, 2010.  "Spend Til' the End" uses consumption smoothing to demonstrate the errors of conventional financial planning. His business experience includes working as a staffer for a major consulting company and service as a director and audit chairman of a NASDAQ listed manufacturing company. He and his wife now live in Dripping Springs, a "hill country" town about 25 miles outside of Austin.


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