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"The fluid and opportunistic marketplace that exists for rare books is a market in which underachievers can
suddenly grow wings."

An avid reader and longtime rare book collector, Thomas J. Healey is a senior fellow at Harvard’s Kennedy School of Government and a retired partner of Goldman Sachs. He served as assistant secretary of the Treasury under Ronald Reagan.

I recently conducted a study that indulged my long-standing passion for rare book collecting. I examined price changes over the past 20 years of nearly 250 books regarded as literary classics to see how they performed versus other types of investments, particularly stocks and bonds.

Like many former English majors, I’ve never lost my passion for great literature and rare book collecting, even though the bulk of my life since college has been framed by the language of Wall Street. I recently hit upon an idea that allowed me to indulge in both worlds. It involved uncovering how the great modern literary classics—works like James Joyce’s Portrait of the Artist as a Young Man and Ulysses, Dashiell Hammett’s The Maltese Falcon and J.D. Salinger’s Catcher in the Rye—had fared over the past two decades asinvestments. Had original copies of these works appreciated in the hands of collectors? And how did they perform against other major investment vehicles like stocks and bonds?

The findings are heartening news for anyone who has ever thought about swapping stock certificates for literary classics. Over the 10-year period ending December 31, 2002, the titles examined appreciated, on average, 12 percent annually, which was better than the average annualized return of the S&P 500 and 10-year Treasury notes, and four times the increase in inflation. For the 20-year period ending in 2002, the findings were much the same: The literary titles appreciated an average of 12.3 percent annually, making them clear winners over stocks and Treasury notes.

How about the true royalty books that garnered national literary awards? I was curious to know if they could beconsidered the highfliers of their investment genre. What the study found was interesting. Classics that had won the Pulitzer Prize for fiction exhibited the highest percentage returns over the 20-year period (12.5 percent versus 11.1 percent for Hugo Award winners and 9.9 percent for National Book Award winners). The real highfliers, as it turns out, were the 32 literary classics on the list that, over the 10-year period ending in 2002, won multiple literary awards—books like Harper Lee’s To Kill a Mockingbird, Graham Greene’s The Power and the Glory, F. Scott Fitzgerald’s The Great Gatsby and Herman Wouk’s The Caine Mutiny. These exalted titles showed significantly greater average returns (17 percent) than those on only one awards list (11 percent).

Which specific books, then, are the greatest finds for collectors with an eye to capitalizing on their hobby? The study shows that over the 20-year period, the best-performing book in dollar returns was The Great Gatsby, which fetched $71,000 for a mint version, and the best performer in percentage terms was To Kill a Mockingbird, which rose by 29 percent. For the period 1982 to 1991, the highest return book in dollar terms was Ulysses ($20,000), while in terms of percentage gain, it was Sue Grafton’s ‘A’ Is for Alibi (51 percent). The biggest winners for the decade ending in 2002 were The Great Gatsby ($70,000) and Portrait of the Artist as a Young Man (43 percent).

Yet another interesting phenomenon for investment-minded collectors to consider is the appreciation potential of first books by emerging authors, which tend to have relatively small print runs. There are no better examples than ‘A’ Is for Alibi and Tom Clancy’s The Hunt for Red October, first-time books that appreciated more than 50 percent each year from 1982 to 1991.

There is another way to measure the investment value of rare books, and that is by literary genre. In the 1980s, the books with the best returns were adventure (20.4 percent), mystery (19.4 percent) and black literature (19.1 percent). In the 1990s, the best-performing genres were mystery (14.5 percent), black literature (13.9 percent) and children’s (12.6 percent). Taking the broad 20-year sweep, the biggest winner by genre was black literature (17.5 percent), followed by mystery (16.4 percent) and children’s (13.8 percent).

The study’s results—limited though they may be—are interesting food for thought. Additional research by others might help further illuminate the investment potential of this medium, much like the attention that has been given to great works of art as putatively shrewd investment vehicles. - Thomas J. Healey, 02/01/2007

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