How to Make Money in a Down Market

How To Make Money In a Down Market – Business of Doing Business – The Journal of Antiques and Collectibles – December 2005
By Ed Welch
The antique marketplace is in a down cycle. This is not unusual. The antique marketplace constantly fluctuates up and down depending on the state of the economy as a whole. This time, the major factor driving the antique marketplace down is the cost of gasoline, and of cost of goods delivered to the marketplace that rely on petroleum products.
Americans are hooked on their automobiles. More precisely, they are hooked on their automobiles in the same way that a drug addict is hooked on heroine. Americans, and I include myself in this statement, will not change driving patterns because gasoline costs $3 a gallon. We will not change our driving patterns if the cost of gasoline increases to $4 or $5 a gallon.
I personally believe that it would take $10 a gallon gasoline to change the way we use our automobiles. This change would not be a willing change on our part. Ten dollar a gallon gasoline would suck up all disposable family income and force us to change the way we drive.
I have lived through the five major down-swings and up-swings in the antique marketplace. Three of these swings have been caused by an increase in the price of gasoline and other fuel oils. Two are the result of a sharp drop in the value of stocks.
On Black Monday, October 19, 1987, the stock market crashed. The S&P 500 index fell 20.5 percent. The Dow Jones Average fell 22.6 percent. The Nasdaq fell 11.3 percent. At that time, I carried country cupboards and other country furniture in original paint. I had 23 major pieces in inventory on October 19, 1987. I lost money on every item. My biggest lost was $2,500 on a stepback country cupboard in original blue paint. It took the antique marketplace five years to recover. It took my business eight years to recover sale volume equal to the dollar value of that prior to Black Monday.
In 1972, the first Arab Oil Embargo caused an increase in the price of gasoline from 25 cents a gallon to $1.57 cents a gallon. It took Americans between three and five years to adjust to this price change. In fact, we were just beginning to adjust to the high price of gasoline when the second Arab Oil Embargo caused the price of gasoline to top two dollars a gallon. When the second Arab Oil Embargo ended, it took several years for prices to fall back to less than $1.50 a gallon.
In order to purchase gasoline, I and my entire family had to cut back on other purchases. We chose to cut back on the amount we spent on food and clothing. Whether a person eats lobsters or beans, he or she is hungry four hours later. During both Arab Oil Embargos we ate a lot of beans and macaroni.
Keep in mind that we still had to buy heating oil, pay our electrical bill, make mortgage payments, pay for telephone service, and other common household expenses. The only place we could cut was on food and clothing.
We also changed the nature of our antique business. Antiques are not a necessity, they are a luxury. In the months following the first Arab Oil Embargo, antiques quit selling! They also fell in value. Faced with the choice of buying gasoline to get to work or decorative antique accessories for the home, people chose gasoline.
At that time, I was a full-time antique dealer. It took nearly three years for my sales to recover. The high cost of petroleum products today is caused by a different set of circumstances. However, the impact of the high price of gasoline on the American family will be the same as in the early 1970s.
Just because the antique trade is in a down cycle does not mean that your personal business can not prosper. In fact, antique dealers can take advantage of this down cycle to increase sales. The secret to succeeding in a down marketplace is to pay less for merchandise. This is not an easy thing to do.
Three days ago, I was in a group shop in Arundle, ME and found a signed Shaker maple sugar bucket priced at $140. I really wanted to buy this item. It was in excellent condition and stamped with the Enfield, CT Shaker mark. Generally, signed Shaker maple sugar buckets sell between $350 in $450. I made a professional decision not to purchase this item. The reasons are: the Shaker market, as a whole, has been in a depression for the past five years. Prices for Shaker made items have decreased as much as 40 percent. Also, because of the high price of gasoline, the antique marketplace as a whole will suffer, in my opinion, a decrease in value of around 25 percent. Therefore, the purchase of this Shaker item, even at a very favorable price, is a bad business decision.
Had I purchased this item for $140 and priced it at $350, it would have taken between three and five years to resell. At the time of the sale, I would have made $210.
From this same group shop, I purchased three items for a total cost of $67. I can resell one item for $65. I can resell a second item for $95. I can resell the third item for the amount I paid ($18) or $350 depending on the outcome of my research. I believe that the third item is a rare 16th century piece of pewter. I have made close-up photographs of the hallmarks and I have sent these photographs to an expert in Europe.
In plain English, I can use the $140 that the Shaker bucket cost to purchase several items that I can resell in 30 days or less. My cash flow ratio is between three and four to one. Every dollar I spend on antiques results in an income of between three and four dollars. I can reinvest the $140 cost of the Shaker bucket at least 15 times in the next two years resulting in a potential profit of $4,800. Even if I am wrong by 50 percent, or 70 percent, or 80 percent, I will still make much more money buying something other than this Shaker bucket.
Personally, I feel bad that I had to leave this Shaker bucket behind. I love Shaker made items and I have several in my personal collection. However, as a business person, I made the correct decision.
A dealer in the trade as a collector, hobbyist, or simply for something to do could purchase this item and resell it for more money than it cost. The hard reality is that he or she would not make one cent of profit even if the selling price was $200 more than the cost, unless the resale took place within a few months after the purchase.
Professional dealers in the antique trade to make a living must adjust their buying habits and the prices they pay to the reality of a declining market. If a dealer pays today’s going prices, he or she will not be able to sell the items they buy for a profit until the antique trade, as a whole, starts an upward cycle. In my opinion, the next upward cycle will not begin for at least three to possibly five years.
It is nearly impossible to buy antiques for 25 percent less than the going price at the beginning of a down cycle. About one year into a down cycle, prices began to fall as dealers try to unload what is now overpriced inventory. By the second year of a down cycle, prices have generally fallen between 15 and 25 percent.
Professional dealers need the willpower to resist buying at the beginning of a down cycle. They must try to judge, or at least guess at, when the bottom of the down cycle will occur. This is the time to buy. Although, prices fall slowly during a down cycle, prices rebound quickly once an up cycle begins.
I use an inventory program that allows me to sort the items I purchase in many ways. I used this program to sort my inventory according to the number of similar items purchased. I discovered that although I purchase hundreds of items each year, I tend to buy 45 items over and over again. I added up the total price I paid for each of these 45 types of items and divided this number by the number of items purchased. This gave me an average purchase price for each of the 45 items I commonly buy.
One item that I always have in inventory has an average cost of $133.12. I have paid as much as $185 and as little as $35 to purchase this item. I have made the business decision to pay no more than $125 for this item until the market starts an up cycle and I have the willpower to leave behind such an item priced above $125.
I sell a common collectible for which I pay an average price of $16.18 but I will no longer buy this item if it is priced more than $15. I have set a maximum paying price for each of the 45 items I commonly buy. In addition, I carry a complete list of items that I am likely to buy so that I can quickly check my purchase and sale record while on a shopping trip. My goal is to pay as close as possible to 25 percent less for the items I commonly buy.
The Shaker bucket is only one of many items I have refused to buy because they are, in my opinion, priced too high for next year’s antique marketplace. This time next year, when Americans have used up all of their disposable funds and some of their savings paying for high priced gasoline, the last thing they will think about buying is an overpriced antique.

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