You need to be a pretty weird person to get any pleasure from looking at brokerage statements. Looking at a collection of handbags, on the other hand? To a lot of people, that sounds a lot more attractive. And those people got some good news this week, when a company named Baghunter declared that buying a Birkin handbag is a much better investment than putting your money into stocks.
The Baghunter “study” (we’ll get to the purported numbers in a minute) was soon picked up by uncritical sites like Newsweek, which called the bag “a foolproof investment,” and Luxury Daily, which said that “unlike the S&P 500 and gold, the value of Birkin handbags has never decreased and has steadily and consistently increased.”
There are a lot of problems with this, but let’s start with the most obvious one, which is that the mathematics is simply false. Between 1980 and 2015, says Baghunter, the price of a Birkin bag has gone up by 500%, from $2,000 to $12,000. That’s true. But then they say that on average, the Birkin bag has risen by 14.2% a year over 35 years.
The 14.2% number is just 500% divided by 35, and you can’t do that. If you bought a bag in 1980 for $2,000 and that bag increased in value by 14.2% for 35 years, then by 2015 the value of the bag would be $208,614, not $12,000.
So what’s the real rate of appreciation? If the value of a bag goes from $2,000 to $12,000 in 35 years, then it has actually only gone up by 4.7% a year, on average. Far from being a higher return than you see in stocks, it’s much lower.
For proof, just look at what would have happened to your money if you’d invested $2,000 in the S&P 500 at the end of 1980, and then just kept it there, with dividends reinvested, through the end of 2015. You would have ended up with $75,767 – enough to buy you half a dozen $12,000 Birkin bags, with $3,767 left over for all the events you might want to show them off at.
Meanwhile, what would you have if you spent $2,000 on a brand new Birkin bag in 1980? Well, you’d have a 35-year-old handbag, which quite possibly would be worth much, much less than $12,000. Sure, it might cost $12,000 to buy a new Birkin bag today. But that doesn’t mean that there’s a huge number of people wanting to buy the oldest Birkin bags they can find. Some Birkins, to be sure, sell for enormous sums on the secondary market. But that doesn’t mean they all go up in value.
Ultimately, there is nothing all that special about a handbag, as Lady Bracknell knew all too well. Handbags are not a good investment, and never will be. My advice: if you want a Birkin bag, spend a couple of hundred dollars on a high-quality fake replica, and put the rest in an S&P 500 index fund. In 35 years’ time, it’ll be worth much more than any handbag you might have been able to buy.