Dino Market Values : Real and Nominal

The graphs attached measure the UK Market for RHD Ferrari 246 Dinos over the past 35 years.
Fig1: Initial Offer Price by year - the bubble era and the current trend is clear
Fig 2: Shows the data in Fig 1 rebased and converted into an index of value (nominal)
Fig 3: Converts Fig 2 into "real" value by adjusting for UK RPI (Retail Price Index)

If any owners (esp in the UK) would like to assist the ongoing research project do please pm.
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And Finally, annual and 5 year real percentage gains/losses
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if iam reading this correctly i see that todays rise is over a 5 year period where the bubble of the 1990 was 1 or 2 years and a shot to the top...thats how i read it............

 

How is nominal value computed, F328NVL? Very interesting post.

Many thanks.

Andy

 

thanks for the post, but the real question is what real cars have sold and for what?

asking prices are one thing, but real sales are something else. what has actually sold. auction prices are the easiest way to determine value, but we all know the other problems that come from that area.

with the us $ being weak, i expect that we will see us cars leave, but we still have numerous cars being offered for a long period of time.

any insight/ideas about the future?

 

The constant dollar chart is proof positive the words "Ferrari" and "Investment" do not go together well.

 

I wonder if these trends are represented in other countries. The American prices seem very healthy as discussed in other threads. I have seen asking prices up to 169k pounds in recent UK motor publications - are they getting these amounts or just speculation ?
In Sydney (Aus) within the last 6 months, a couple of Dinos have been sold for over $300k Aud . Greg246 can probably verify this. When will the bubble burst again ? My crystal ball is a bit murky at the moment

 

People will pay over £100k for a mint GT car with all its bits, a little more for a GTS. While i'm sure there are people out there who would pay even more, as soon as the advertised prices in the UK hit £100k a lot of people who had dinos in storage started to advertise them. There seem to be a lot to chose from at the moment and even more cars being recommissioned.

 

The data set contains the offer price of all 246 Dinos that we can identify. The various sources include reading 35 years classidied advertising in back copies of various car magazines, auction data from the various sources that publish prices and more recently monitoring the internet weekly. We know that we have data on 25% of UK Dinos i.e. We have chassis numbers. In addition we have data without chassis numbers on another 500 offers. The data is the average initial offer price per annum. It therefore has two (at least) variable components: Quality of vehicle and "offerors" premium (i.e. how much the vendor adds on for negotiation). A bulleting board isn't the best place to write la engthy academic treatise (which is what this is part of), but we make various adjustments and collect data to measure these varaible components (however imprecisely).

The index here is, in academic terms, "a bit of fun" (note to self: get out more!) but it does distill down the conclusions regarding the investment value of motor vehicles: No new car makes money for the first purchaser unless they sell it fast and supply is restricted (speculation). Old cars fluctuate in value far more than traditional investment assets, liquidity is very thin in the market (they are related) and to make money you need to be able to be counter cyclical - without any data to monitor the market - that's got to be tough.

 

I absolutely agree, but the data on price paid isn't out there. If people would tell me what they actually paid/sold for (and I could find the people to ask) I'd love to look at that question.

Auction data is available (see below) and you can see the discount to the dealer and private markets. Helpfully this data also includes estimates and "no sales" - very hard data to get in other markets. The problem is that the risks to a buyer are different and higher in an auction than in a dealer sale and therefore the price differential has (at least) 3 elements in the discount:
1. Risk discount, 2. the "offeror's margin" (i.e the premum of offer price to traded price), and 3. a discount to reflect the fact that auctions are "one shot" sales whereas dealers hold the asset out in the market for a lengthy period.

We do track the movement in offer price and the length of time a vehicle is offered in the market so can analyse the movements in offer price as the market meanders around. that data is also below.
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Agreed. The perceived price does drag cars out into the market, as illustrated below (oops forgot chart!). The market has characteristics that make it seem more active than it is though. The same cars are quite commonly advertised by more than one dealer on SOR. One dealer routinely advertises cars that they do not have to sell in the hope of being able to broke a deal once a potential purchaser approaches them.

You can also do interesting things to quantitatively estimate the amount of fraud in the market - It too rises as the price increases. As a simple proxy the last graph shows the claimed mileage over the decades. The data has no correlation with age of the vehicle - it's actually negatively correlated but not significant, surely this is somewhat unlikely (albeit it has a small positive probability).
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Graph I forgot!
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Great data guys.

Thanks to all.

 

I KNOW ITS CALLED THE DISMAL SCIENCE, BUT IT IS STILL SCIENCE. AS YOU READ THIS, SUBSTITUTE MUSCLE CARS OR FERRARIS FOR HOUSE(S)

Economic View How a Bubble Stayed Under the Radar David G. Klein

By ROBERT J. SHILLER
Published: March 2, 2008
ONE great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming.


Alan Greenspan, a very serious student of the markets, didn’t see it, and, moreover, he didn’t see the stock market bubble of the 1990s, either. In his 2007 autobiography, “The Age of Turbulence: Adventures in a New World,” he talks at some length about his suspicions in the 1990s that there was irrational exuberance in the stock market. But in the end, he says, he just couldn’t figure it out: “I’d come to realize that we’d never be able to identify irrational exuberance with certainty, much less act on it, until after the fact.”

With the housing bubble, Mr. Greenspan didn’t seem to have any doubt: “I would tell audiences that we were facing not a bubble but a froth — lots of small local bubbles that never grew to a scale that could threaten the health of the overall economy.”

The failure to recognize the housing bubble is the core reason for the collapsing house of cards we are seeing in financial markets in the United States and around the world. If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.

Were all these people stupid? It can’t be. We have to consider the possibility that perfectly rational people can get caught up in a bubble. In this connection, it is helpful to refer to an important bit of economic theory about herd behavior.

Three economists, Sushil Bikhchandani, David Hirshleifer and Ivo Welch, in a classic 1992 article, defined what they call “information cascades” that can lead people into serious error. They found that these cascades can affect even perfectly rational people and cause bubblelike phenomena. Why? Ultimately, people sometimes need to rely on the judgment of others, and therein lies the problem. The theory provides a framework for understanding the real estate turbulence we are now observing.

Mr. Bikhchandani and his co-authors present this example: Suppose that a group of individuals must make an important decision, based on useful but incomplete information. Each one of them has received some information relevant to the decision, but the information is incomplete and “noisy” and does not always point to the right conclusion.

Let’s update the example to apply it to the recent bubble: The individuals in the group must each decide whether real estate is a terrific investment and whether to buy some property. Suppose that there is a 60 percent probability that any one person’s information will lead to the right decision.

In other words, that person’s information is useful but not definitive — and not clear enough to make a firm judgment about something as momentous as a market bubble. Perhaps that is how Mr. Greenspan assessed the probability that he could make an accurate judgment about the stock market bubble.

The theory helps explain why he — or anyone trying to verify the existence of a market bubble — may have squelched his own judgment.

The fundamental problem is that the information obtained by any individual — even one as well-placed as the chairman of the Federal Reserve — is bound to be incomplete. If people could somehow hold a national town meeting and share their independent information, they would have the opportunity to see the full weight of the evidence. Any individual errors would be averaged out, and the participants would collectively reach the correct decision.

Of course, such a national town meeting is impossible. Each person makes decisions individually, sequentially, and reveals his decisions through actions — in this case, by entering the housing market and bidding up home prices.

Suppose houses are really of low investment value, but the first person to make a decision reaches the wrong conclusion (which happens, as we have assumed, 40 percent of the time). The first person, A, pays a high price for a home, thus signaling to others that houses are a good investment.

The second person, B, has no problem if his own data seem to confirm the information provided by A’s willingness to pay a high price. But B faces a quandary if his own information seems to contradict A’s judgment. In that case, B would conclude that he has no worthwhile information, and so he must make an arbitrary decision — say, by flipping a coin to decide whether to buy a house.


The result is that even if houses are of low investment value, we may now have two people who make purchasing decisions that reveal their conclusion that houses are a good investment.

As others make purchases at rising prices, more and more people will conclude that these buyers’ information about the market outweighs their own.


Mr. Bikhchandani and his co-authors worked out this rational herding story carefully, and their results show that the probability of the cascade leading to an incorrect assumption is 37 percent. In other words, more than one-third of the time, rational individuals, each given information that is 60 percent accurate, will reach the wrong collective conclusion.

Thus, we should expect to see cascades driving our thinking from time to time, even when everyone is absolutely rational and calculating.

This theory poses a major challenge to the “efficient markets” view of the world, which assumes that investors are like independent-minded voters, relying only on their own information to make decisions. The efficient-markets view holds that the market is wiser than any individual: in aggregate, the market will come to the correct decision. But the theory is flawed because it does not recognize that people must rely on the judgments of others.

NOW, let’s modify the Bikhchandani-Hirshleifer-Welch example again, so that the individuals are no longer purely rational beings. Instead, they are real people, subject to emotional reactions.

Furthermore, these people are being influenced by agencies like the National Association of Realtors, which is conducting a public-relations campaign intended to show that putting money into housing is a reliable way to build wealth. Under these circumstances, it’s easy to understand how even experts could come to believe that housing is a spectacular investment.

It is clear that just such an information cascade helped to create the housing bubble. And it is now possible that a downward cascade will develop — in which rational individuals become excessively pessimistic as they see others bidding down home prices to abnormally low levels.

 

I hadn't read this, thanks.

jg

 

I really enjoy this discussion. I don't post often because I do not feel I have much to add (you may decide I still don't have much to add after reading my post!) However, I must say that the selling price (or asking price) that are being used to examine asset appreciation of these cars are only part of the cost of the cars and thus do not reflect the true costs of these "investments". I don't see anyone mentioning the other costs that these cars incur unlike other "investments", such as insurance, gas, maintenance, and upkeep. Even if one does all their own work, there are parts costs, gas, oil, insurance, tires, etc. These are not trivial expenses especially for a Ferrari! When these are factored in, I would guess that most modern Ferraris (even back to the 60's) are not money makers as investments (add inflation and they are definitely not according to the charts above). Now, with that being said, I think these are still great purchases. Where else can you buy a fantastic "toy" and have great fun at essentially minimal costs.

My 2 cents.

Robert

 

Just curious how Dinos do compared with their supposed competitiors from 1971-1974 - like Porsches, E types, Maseratis, and, God forbid, Mercedes SLs (as reflected in the Road & Track comparos from the era). My assumption is that Dino values clobber all of them.

 

Name any Porsche, E-Type or SL that sells for $150-200K.

You can't.

As a group they range from $15K to $90k for crap to 100 point cars.

Maserati had no competition for the Dino AFAIK.

 

Porsche 73 2.7 RS ducktail? I believe they're now well over $100k.

*EDIT*

 

Here's another way to look at this, Robert. I bought my '74 GTS in 1977 for $21,000. If instead, I had invested the money in a conservative package of stocks that had an average annual return of 8% over the last 30 years, I'd have about $211,317 in the bank before taxes. Had I taken a bit more risk and earned 10% return, my bank account would be overflowing with about $366,437 before taxes. I gave all that up for the joy of owning and driving this Italian beauty about 2,000 miles per year and making some really great Ferrari friends. Priceless! Ditto on your last two sentences despite all the other costs involved and the lost investment revenue.

Bill

 

Series 1 XKE's in "show" condition are regularly fetching north of $140k. I speak from experience on this one, but I will say the Dino I bought on a Thursday at Barrett Jackson a few years ago for $78K is looking really good right now.
The other little car that has suddenly found willing buyers at Dino pricing is the Porsche 1600 356A Speedster. A Speedster fetched $220k at RM in January and I've been pestered repeatedly with an offer over $200k for my little black Speedster.

There's a Porsche and an E Type that are getting bigger bucks than you would imagine they should,

 

The only people who can construct a rational explanation for buying a Ferarri are Kimi Raikkonen or Felipe Massa, and they don't have to pay, the rest of us do it for complex reasons that mix consumption (i.e. fun) and investment (typically negative returns). I'm actually not looking at the returns, it just happens that I have them, I'm more interested in the short term price movements and liquidity changes.

The various points made above are interesting and I guess can be summarised as:
1. Cost of ownership is significant and therefore real investment returns are probably usually negative, and when positive don't compensate for the volatility risks;
2. There is a huge amount of value to many owners in "consuming" their vehicles and the price for them is low relative to other things they might consume;
3. Brand really does matter, and Ferrari is an astonishingly enduring brand (are there any more prestigious, enduring global brands?).
4. The market price of Classic cars is volatile and correlated with investment assets - my question is to what extent is this price driven by the dealers and brokers setting offer prices that drive expectations due to severly limited information? Supply doesn't vary much (cars do get wrecked but not many), it's difficult to see why demand (for consumption - i.e owner drivers) would be any more volatile than for anything else, but the market price is highly volatile.

Thanks to those who've pm'd me, any other help welcomed

jg

 

jg And many original cars (with scars intact) were "Ralphed" in restoration, destroying all originality and what the market increasingly sees in the Ferrari 12s as a major value, just as Keith Martin has predicted for years. M

 

Bill,

As you know, I have had my Dino since 2000. I wouldn't trade the experiences for any amount of money (well I guess it could be bought at some price point ). I just mean it is somewhat silly to talk of these as assets and value appreciation without taking all the costs on the "investment" into account. On the other hand, it is fun to pay with the numbers.

Happy motoring!

RB

 

Good point. RS is way over $100k.

I guess E-Types have run up when I wasn't looking! For a car that beautiful, that money's not surprising.

I think the 356 predates the Dino a bit, so not really a competitor?