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Art Shop


Courtesy of qthomasbower

Courtesy of qthomasbower

Celebrities and social climbers collect Warhol but what did Warhol collect?

“Keep the coffee tins—aluminum might go up!”

“Keep the batteries—copper might go up!”

According to Bob Colacello who worked with Warhol as the editor of Interview magazine and as his unofficial sales agent, “Warhol was not a collector; he was a hoarder.”

Back then a Warhol portrait started at $25,000. The key was to lure socialites to commission them. Trouble was, Warhol was not a social success. Cue Colacello who was a right charmer. “Pretty society women wanted their portraits done but it was their stockbroker/private equity husbands who were going to pay, so Andy would tell me to play up my Republican side,” says Colacello.

It was society “walker” Jerome Zipkin who amped Warhol’s fortunes. He gave subscriptions to Interview to all of his ladies—party circuit regulars like Betsey Bloomingdale, Nan Kempner, and Carolyn Roehm. The magazine had switched from covering film criticism to doing Q&As with famous people. Society types tripped over each other to land on the magazine’s cover. Colacello pocketed a small commission for each portrait he sold. Once, when a client paid for her’s with a large, uncut Colombian emerald, instead of cash, Warhol offered Colacello his own portrait. “He told me he knocked $3,000 of the price,” says Colacello.

Despite Warhol’s tightfistedness, Colacello managed to amass a small collection of his work. “I wish I hadn’t sold because it kept going up in value. Still, it did buy a place in East Hampton.”

Today, buying a Warhol is like buying shares in Microsoft. Solid, not sexy. But that’s where the similarities end. Art investing is a high-stakes game. Many people think they can clean up but survivorship bias distorts market returns. For every Frank Auerbach painting bought for $1.1 million in 2005 and sold for $2.3 million in 2006, there are hundreds of artists whose careers die a silent death. We only ever hear about the winners.

Unlike the major stock markets, the art market is insular and lacks transparency. Amazon and eBay may sell fancy pictures but the real deals are made privately. Price manipulation is the name of the game because dealers are expected to nurture artists’ careers. To do so, collectors are discouraged from selling works in the open market, and if they do so, gallery owners will bid up prices to keep the mystique alive. Because buying art is aspirational, not selling at auction could be career-ending for an artist.

Liquidity is another issue. Even more than in real estate, sometimes there’s absolutely no demand for a work of art. Like other ‘alternative’ investments such as hedge funds, returns from art are all over the map. However, due to high transaction and commission costs, realistic net returns over a 5-year holding period hover between 1%-5%. Not great shakes.

So why invest in art? Well, it’s pretty. What you lose in financial return you potentially gain in everyday pleasure. It’s doubtful that gazing at your investment statement provides the same spiritual uplift. Being an art collector also raises your social capital. There are art openings, cocktail parties, meet-the-artist powwows and so forth. It’s a special club—particularly at the upper echelons—that provides a global passport to hobnobbing.

But if the art market is a little too rich for you, then follow Warhol and invest in physical commodities. Aluminum, copper, iron…demand is bound to pick up one day.


Blue Period

Courtesy of Mertim Gokalp

Courtesy of Mertim Gokalp

With tax-loss selling behind us, it’s time to contemplate 2015 and what the markets may have in store. Pundits predict a generally robust year, albeit with increased volatility. Despite the blather about the market being rational, it’s as zany and fickle as the people who trade in it. How else to explain seasonal effects like the “Santa Claus Rally”, “January Effect”, and the fact that years ending in a “5” give positive stock markets? (The number 5 was certainly lucky for Coco Chanel who named her first perfume Chanel No. 5. Its financial success has made the brand the juggernaut it is today.)

Despite attempts to explain these effects as expressions of rational behavior, I think it’s best not to overwork the dough, so to speak. Is the January Effect, when stock indices get a bump, the result of investors buying back stocks after December’s tax-loss selling?  I say, when Nature gives you a boon, just say ‘thank you’ and shuffle off before She changes her mind.

Pablo Picasso said, “If I don’t have red, I use blue.” This is great investment advice.

The latter half of the year saw a lot red. When the price of West Texas Intermediate dropped through the floor, the share valuations of many senior, mid-, and junior-oil and gas companies went along for the ride. Of course, some are now in oversold territory and may attract investor interest next year. Others, particularly those with overly-leveraged balance sheets, high production costs, and unhedged contracts, will find the capital markets unobliging, forcing them to slash dividends, put themselves up for sale, or simply close shop. Until sentiment towards this sector changes, best to put down the red brush and pick up the blue.

In 2015, it’ll be blue skies over the country the world loves to hate, America. Lower fuel costs will be a boon for consumers— and Americans do love to spend their way to happiness. Hence small-and mid-cap companies that sell within the domestic economy like Coach, Nordstoms, Home Depot, and TJX Cos., as well as those who typically spend a significant chunk on transportation, like Fed Ex and Amazon, for example, are sure to see fatter margins in 2015 and beyond.

Another ‘blue’ area is luxury products. According to a recent special report in The Economist, shares of public luxury companies have outperformed those of other companies since 2005. Hermes, LVMH, Prada, Burberry, Swatch, Kering, Richemont, and Diageo are doing smashing business. Avid consumers in Asia are more than compensating for lower demand in Europe and North America. But don’t cry for Europe. Its luxury industry sold $726 billion of covetable mercy in 2013 and has 70% of global sales. So, while its citizens have cooled it on luxury spending, the continent is still running the show and reaping the rewards through employment, exports, and increased GDP.

Bernard Arnault, the sharp-eyed LVMH honcho was once asked by the late Steve Jobs for his advice on retailing. “I’m not sure we’re in the same business,” replied Arnault. I don’t know that we will still use Apple products in 25 years, but I am sure we will still be drinking Dom Perígnon.”

So, let’s raise a glass of Dom to next year’s most promising sectors: U.S.consumer goods companies, U.S. financial institutions (the regional ones too), small-and mid-cap U.S. domestic companies, and U.S. pharma and technology companies. Russia is a dud but India is looking interesting, and if monetary policy loosens up in Japan, that region may be worth a gander. Higher interest rates in the U.S. and, by extension, Canada, will put a damper on the allure of high-dividend paying stocks. But don’t be blue because steady growth in the U.S. economy will more than off-set this. And, for those going long, you could do worse than investing in luxury goods. No red ink in sight.

Here’s to good health and good fortune to all in the year that ends in “5”.