Investing in fine tobacco

[PaulPower]

Any thoughts on the financials of this? The "aged premium" thread has me thinking. It looks like with the right box I can make 10%, but since it only compounds at sale, you won't make a true 10%. Still. That's pretty good if you can turn a box in 5 years. Global returns are expected to decrease, so 10% noncompounding ain't bad. Plus you can't smoke a poor preforming security !

What are the pitfalls?

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[Kbb]

Something is only worth what someone will pay for it.  Do you have a source of buyers?  Do you have the starting capital and storage to make it worth while?  What are the costs of storage, postage, and insurance on loss if someone stiffs you on the bill?  Are you prepared for the costs to recover goods someone is disappointed with?  Whenever it sounds like easy money, typically someone has not factored in the risks.

[PaulPower]

Something is only worth what someone will pay for it.  Do you have a source of buyers?  Do you have the starting capital and storage to make it worth while?  What are the costs of storage, postage, and insurance on loss if someone stiffs you on the bill?  Are you prepared for the costs to recover goods someone is disappointed with?  Whenever it sounds like easy money, typically someone has not factored in the risks.

That's what I'm doing; I'm evaluating risk on an investment. But those are all good points


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[dominattorney]

If you dollar cost average into a decent etf or mutual fund for five years the amount that you would consider investing in this idea, I bet you'd do better in the end. 

[Notsocleaver]

If you are going to be legit, taxes on sales will likely eat a lot of your profit margin.

If you aren't going to be legit, why not just sell weed like every other drug dealer?

The uncertain status of the US Cuban embargo may destabilize the market, its really hard to know just how much it is warping the market. The eventual fall of the embargo may result in a lot of people in the US with aged stock deciding to sell since they may be able to do so openly. Being able to buy Cuban cigars from retailers may also depress the secondary market. Aged NC cigars do not resell with the kind of mark up Cubans do. We like to tell ourselves that it is simply because Cuban cigars are superior and age well, but I suspect the market warping effects of the embargo are also a factor. Just hard to say how much of a factor it is.

I'm no economist though, so this is just wild speculation on my part.

[polarbear]

This thread comes up a lot

http://www.friendsofhabanos.com/forum/topic/122248-cigars-as-investments/#comment-580647

http://www.friendsofhabanos.com/forum/topic/118412-how-to-tell-what-cigars-to-lay-down-and-age/?page=1

http://www.friendsofhabanos.com/forum/topic/117356-when-does-it-end/?page=1

http://www.friendsofhabanos.com/forum/topic/108764-smoking-out-the-winners-financial-times-how-to-spend-it-dec-9/?page=1

 

 

[BEVOSREVENGE]

3 hours ago, PaulPower said:

 

Any thoughts on the financials of this? The "aged premium" thread has me thinking. It looks like with the right box I can make 10%, but since it only compounds at sale, you won't make a true 10%. Still. That's pretty good if you can turn a box in 5 years. Global returns are expected to decrease, so 10% noncompounding ain't bad. Plus you can't smoke a poor preforming security !

What are the pitfalls?

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Buy and smoke what you like.  If you unload some at fair market value great, sell them and buy more of what you like.  If you don't also great, smoke them.

CCs are a comidity like all others, except in the US, supply and demand will dictate pricing of said comidity within any specific  marketplace.

Trying to guess the value of any particular CC into the future is no better than gambling, so if that is your vice just head to Vegas.

just my two cents, as hobbies are supposed to be fun not stressful.

[ErikB]

The pitfall is that you end up thinking the wrong things about something that you should enjoy


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[NSXCIGAR]

My opinion is that it can be done, but not without extreme difficulty. 

Let's take what I think is the safest investment: Cohiba Robustos. For the last 20 years that I've seen, Cohiba Robustos have almost invariably just about doubled in value after about 5 years. That being said, there are some things to consider:

You're going to have storage expenses. Also, you're going to have provenance factors. Buyers will want to be confident these cigars have been stored properly. So a cigar locker at a reputable vendor is recommended. There is a cost to that. if you already maintain a locker or humidor space, those costs are somewhat deferred. Then, you're going to have sales fees, or auction fees if sold by the vendor or at auction. Expect 10%. And finally, you'll have income taxes--let's say 25%. 

So your Cohiba Robustos that you paid $400 for that may sell for $800 will net you $540, minus any storage costs spread over 5 years. If you're storing other cigars, as I mentioned, those costs are offset some. But figure if you're storing 20 boxes at $25/month, this box will cost $1.25 per month to store. 60 months of storage equals $75. Deduct that, and you're now down to a final take of $465, meaning a net profit of $65. That's only a 16% profit over 5 years, or around 3-4% per year. With inflation, even less. And I didn't even take into account transportation costs to get the cigars to the final vendor or auction location, or in packing/handling labor to the final buyer.

So unless you can find a way to significantly reduce at least one of the factors above, which i suppose could conceivably be done, buying cigars to re-sell as an investment probably isn't feasible for the average Joe.

[Guest Nekhyludov]

I would imagine that the big challenge that can't be easily projected or quantified would be finding willing buyers. 

As has been pointed out before, when it comes to vintage cigars, you're buying the seller. To establish a reputation and client base would be time-consuming and costly. 

[PaulPower]

This thread comes up a lot

http://www.friendsofhabanos.com/forum/topic/122248-cigars-as-investments/#comment-580647

http://www.friendsofhabanos.com/forum/topic/118412-how-to-tell-what-cigars-to-lay-down-and-age/?page=1

http://www.friendsofhabanos.com/forum/topic/117356-when-does-it-end/?page=1

http://www.friendsofhabanos.com/forum/topic/108764-smoking-out-the-winners-financial-times-how-to-spend-it-dec-9/?page=1

 

 

The word investment/investing did not come up as a topic title when I searched. I blame tapatalk


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[Smallclub]

5 hours ago, ErikB said:

The pitfall is that you end up thinking the wrong things about something that you should enjoy

Exactly. And each time you smoke a fine cigar you have its $$value in mind… no thanks…

[PaulPower]

My opinion is that it can be done, but not without extreme difficulty. 

Let's take what I think is the safest investment: Cohiba Robustos. For the last 20 years that I've seen, Cohiba Robustos have almost invariably just about doubled in value after about 5 years. That being said, there are some things to consider:

You're going to have storage expenses. Also, you're going to have provenance factors. Buyers will want to be confident these cigars have been stored properly. So a cigar locker at a reputable vendor is recommended. There is a cost to that. if you already maintain a locker or humidor space, those costs are somewhat deferred. Then, you're going to have sales fees, or auction fees if sold by the vendor or at auction. Expect 10%. And finally, you'll have income taxes--let's say 25%. 

So your Cohiba Robustos that you paid $400 for that may sell for $800 will net you $540, minus any storage costs spread over 5 years. If you're storing other cigars, as I mentioned, those costs are offset some. But figure if you're storing 20 boxes at $25/month, this box will cost $1.25 per month to store. 60 months of storage equals $75. Deduct that, and you're now down to a final take of $465, meaning a net profit of $65. That's only a 16% profit over 5 years, or around 3-4% per year. With inflation, even less. And I didn't even take into account transportation costs to get the cigars to the final vendor or auction location, or in packing/handling labor to the final buyer.

So unless you can find a way to significantly reduce at least one of the factors above, which i suppose could conceivably be done, buying cigars to re-sell as an investment probably isn't feasible for the average Joe.

Storage is a though. But I see my storage cost as a fixed cost for my personal collection: kinda like storing business inventory in your garage. In such a case you don't have to factor in the cost of storage, because your personal unused space is the storage.

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[Smallclub]

5 minutes ago, Nekhyludov said:

As has been pointed out before, when it comes to vintage cigars, you're buying the seller. To establish a reputation and client base would be time-consuming and costly. 

This. Or, how to transform your cigar buddies into potential customers…

[PaulPower]

Exactly. And each time you smoke a fine cigar you have its $$value in mind… no thanks…

It's true that this will take a fair deal compartmentalization, which a lot of people find difficult with something and passionate about.


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[canadianbeaver]

I find investing in cigars and wine fascinating and lucrative. It takes nothing away from our enjoyment of fantastic sticks very day. 

Two thirds of our collection is for investment (long term, not sale now) and I am very open about it. 

But smoking cigars started it and is as interesting to me as bourbon, which is a collection for mmmmmmmmm...

[LGC]

Lots of people do it constantly to make money... or keep smoking for free, or very little. Just look for Facebook groups and OnLine Humidor type websites.

Pitfalls? I use cigars as an enjoyment, not an income source. I'm not a salesman, and prefer not to think of everything as money making opportunity... neither do I enjoy being around those constantly looking for customers.

[wabashcr]

The only aspect that interests me is the thought that with ties loosening between the US and Cuba, and regular production being pretty good on average the last 3 years, this might someday be considered a great period for Cuban cigars.  If Cuba ramps up production and starts cranking out garbage, it's possible cigars from this current period, or really anything from the embargo era, would be worth a premium down the road.  There are obviously a lot of "ifs" in this scenario, and it's not something I'm currently betting on.  I have never bought a cigar with even a thought of possibly selling it.  I just think it's interesting to consider the possibilities.

[MahDooRow]

I have enough trouble maintaining enough storage space just for the cigars I want to smoke.  Unless you have a very large storage facility with an extremely well-regulated and stable environment (i.e. 65/65), buying cigars purely for investment can be a bumpy road.  Over a 5-10 year period you're probably better off investing in the equities markets or real estate.  Just my two cents.

[BrightonCorgi]

I've made money over the last twenty years selling boxes, but taxes, legality (when applicable), and dealing with jokers has relegated selling cigars to a hobby at best or necessity to make room for other cigars.  It's certainly a gamble.

My advice for you if you want to invest in fine tobacco is buy the boxes you think may be an investment and wait until the time that Cuban cigars can legally be sold USA.  This could be a few years or decades away...  Once that happens, the major auction houses will start dealing with Habanos and there will be a surge in value for those sitting on a nice collection.

There is also selling the whole collection to some of the big Euro merchants that buy collections.  The estimates are generally uniform between them in my dealings.  Get 30-60K in cigars together and shipping them to the EU is not a big deal.

[Smallclub]

33 minutes ago, BrightonCorgi said:

 Get 30-60K in cigars together and shipping them to the EU is not a big deal.

Except that circulation of tobacco products is illegal in many european countries… talk about a gamble…

[BrightonCorgi]

The fortunes will be made at auction for those living in the US.  I know someone with 1000+ boxes patiently waiting...  

[rhcolbert]

It's just a "woohoo, bonus" situation for me. 

Cigars first and foremost for enjoyment. 

I cut WAY back on smoking and saw I just had a lot of stock sitting. Sold it for cash over here in states. Made some coin, paid for some things for the kids. Win. 

Ill never mix my pleasure with true biz. Have too little to love in life, so not ruining it with balance sheets. 

[JohnInCleveland]

Cigars are an excellent investment.  I consider them to be something that will appreciate exponentially over the next several years.  My portfolio keeps increasing in value commensurately to how much of my budget I piss away on more cigars. 

 

It's gone through tough times recently, as we've seen a steady decline in Cohiba, Punch, and San Cristobal, mostly attributable to my recent penchant for constantly smoking them. 

 

In short, some of them will increase in value, and someday I might sell a few boxes if they are worth more in $ than they are in pleasure they give me, but it's definitely a secondary purpose. 

 

John

[joeypots]

You got to remember that a little guy  selling contraband on line is competing with large vendors and collectors. So when one sees prices that have appreciated it could very well be that you are looking at cigars with a known provenance being sold buy people who have a good reputation in the business. If you are looking at prices from big auctions like those in London, don't for get that there are auction premiums to be paid, probably at around 20%.  So, if you have five or ten boxes of COROs and you hold them for five years you might get some profit, but you won't make what the big guys make.