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For the past seven years, I worked in contemporary art. Four months ago, I left galleries for a financial institution. I expected to discover a world governed by fundamentals rather than stories. Instead, I found different stories being told with greater precision.
Many people classify art as “speculation” while assuming publicly traded securities are “investments.” But numerous financial assets—meme stocks, cryptocurrencies, SPACs, and even highly sought-after private companies like SpaceX—derive a substantial portion of their value from narrative, scarcity, expectations, and social coordination rather than discounted cash flows. The distinction between investing and speculation is often much blurrier than people admit.
It’s far from my conviction here to state that art as an alternative asset may prove to be safer than any of the aforementioned vehicles, although I’ve been curious about the practicality of collecting, in juxtaposition with contemporary methodologies of investment. In a nutshell–risk does not always come from whether something hangs on a wall or trades on an exchange. More likely, risk tends to be related to how prices are formed. So, if markets are irregular, and each of them follow an underlying set of logics, then why is collecting as an investment such a niche?
To provide a bit more context, in terms of the moment we’re all inhabiting to varying degrees, it’s hard to argue with the idea that everything in the planet has never moved as quick as it does now. Accelerationist philosophy (such as writing by Nick Land, Laboria Kuboniks and Armen Avenessian) feels almost like a set of predictions that continue materializing more and more every day, and markets are just a few of the examples of how speed directly influences value – and whatever might fail to catch up, will eventually dissolve.
This matter on quickness, is quite palpable in how the prices of things – from groceries to stocks – become so irregular, and adequately explains volatility in markets. The phenomenon of acceleration might – for instance – make it more difficult to follow a value-investment methodology. Benjamin Graham famously described the stock market as a business partner named Mr. Market, who offers you a different price every day. His lesson wasn’t that Mr. Market was intelligent. Quite the opposite. Investors succeed by ignoring his emotional swings. But today’s Mr. Market isn’t merely emotional. He’s algorithmically amplified. He reads Reddit before breakfast, watches TikTok during lunch, and by dinner he’s repriced an entire asset class. If Mr. Market was riding a car, he’d be speeding down the highway while riding a cybertruck, rushing, because he’s late on his way to board a rocket to the moon.
If it was already difficult to beat the market, by finding securities with value and real opportunities since Graham’s time, today it might be even more complex.
As an investment vehicle – and more generally as a whole industry – art is experiencing the same thing, albeit in different ways. To make my point in the simplest way possible, let’s look at Art Fairs. You’ve probably heard of Art Basel in Miami, Frieze in London, or New York. A few years ago, these were marquee events that happened sparsely every year, and had interesting ties to the fiscal calendar of collectors who needed to liquidate some cash in order to deduce more of their income. Twenty years ago, a collector might have waited months before encountering another major opportunity to buy. Today, Basel ends, and Seoul begins. Seoul ends, and Mexico City opens. Hong Kong follows. The market scarcely pauses. Like financial markets, art has become continuous. To a lesser degree, auctions are experiencing similar things, as there used to be a couple of evening sales every year in the same cities, with new houses opening, and more “democratizing” models appearing all over.
Which takes me to a couple of interesting aspects of artworld inclusion, which are: social advantages of attending events and the potential to improve critical thinking. Unlike a corporate office, which may force one to mold his or her human individuality into a preconceived version of a worker bee, working at a museum or a gallery can deeply foster one’s sense of self. In that sense, anyone who belongs to a creative field can testify to feeling proud of their differences and reject any urgency to be part of “the crowd”. This is why social events for someone new to the field may feel so jarring, because art professionals get rewarded for being different, or at least they used to. Strangely though, the tacit advantage that attending art events may generate, are financial opportunities. If artistic events used to be more experimental and rebellious, they are starting to feel more like any other sort of corporate event.
Is finance becoming more like art, and is art trying to become more financially structured? Perhaps this is more perennial– it’s often said that when bankers go to lunch, they talk about art. When artists go to lunch, they talk about money. If art as an investment continues to crystalize as a less liquid, yet alternative vehicle, how long will it take for it to gain more traction? Perhaps this is already happening, and if everything is moving quick, then maybe it’ll happen sooner rather than later.
The big advantage of acceleration, and given the amount of things happening, means that there are several artworlds, just as there are several investment vehicles. If in finance there are banks, brokerage houses, mutual funds, ETFs, Venture Capitals, and Private funds – all with their corresponding dinners and social occasions; the artworld has auction houses, galleries, public and private collections, museums biennales, fairs. Each parallel following it’s particular logic.
Just as the financial world continues to digitize and democratize, so do the arts and its markets mechanics. Think of a digital broker, a notably easier vehicle than a corporate, physical outpost in terms of inclusion and minimal investment.
Art possesses something almost no financial asset can offer: utility independent of price.You can’t hang the purchase of a stock in a wall in your house, or commission a company to build a beautiful sculpture that may appreciate in value in the hallway. Investors often ask whether art belongs in a portfolio. Perhaps the better question is why we’ve become comfortable allocating money to assets whose value depends on narrative, momentum, and collective belief—provided they happen to trade on an exchange—but remain skeptical of an object that can enrich our daily lives even if its market price never changes.
One analyst estimated that SpaceX’s IPO implied a forward price-to-earnings ratio exceeding one hundred. Investors accepted that valuation because they believed future growth would eventually justify today’s price. A Jackson Pollock purchased for $181 million (which happened this year in the May auctions in New York) makes no such promise. It produces neither earnings nor dividends. Yet the collector is making a remarkably similar judgment. He is betting that scarcity, institutional recognition, historical importance, and cultural demand will continue to compound over time. One investment discounts future cash flows. The other discounts future cultural significance. Both attempt to put a present price on an unknowable future.
Finally, there is one last big merit to which art in general deserves immense recognition, and that is, it’s ability to predict the future. I learned about AI, by reading Philip K Dick. First heard of Quantum Computing, from an artist I met during my MFA (Master’s in Fine Art), who did his dissertation on non-binary computing. Could it be possible to get ahead of greater market trends, by paying attention to artists, philosophers, and thinkers? Could it be a way to anticipate Mr. Market?
what a masterpiece, bridging the perceived gap between art and other established asset classes.. Ricardo has said everything that i always wanted to say and more.. to quote “In a nutshell–risk does not always come from whether something hangs on a wall or trades on an exchange. More likely, risk tends to be related to how prices are formed. So, if markets are irregular, and each of them follow an underlying set of logics, then why is collecting as an investment such a niche?”.. while Ricardo moved from art to finance, i followed the reverse trajectory.. from my 11 years in finance (and taxation) followed by 18 years in art (and finance), i have come to exactly the same conclusions.. to add my 2 bits, since i have professionally valued equity and realty in my former role (at Andersen/ EY) and now value art (at Aura Art), i can say (with many real instances to back) that there is just as much method in the madness to valuing art as equity and realty (and much more then some other asset classes, like crypto, commodities etc).. thanks again for this piece..
My mother was a professional artist, and my daughter is highly talented in that area. I have a number of pieces done by each of them. No cost. They are priceless, and give me great pleasure. They get preferential placement.
I also now collect fine art. I follow auction notices I receive through the site called Invaluable, and have favorite artists and favorite forms of art. I research what I like. I bid at auctions and have built quite a good collection. While I can tell you what pieces I paid too much for and what pieces I got at a bargain, the totals I’ve spent are not especially high. And I don’t really care about whether my collection appreciates.
What really drives me is a work that I know I will love to look at every day, and that I will never grow tired of. I am patient. I know every art owner’s preferences are different. So I often see bidding on things I don’t care for at all, and sometimes am surprised that there is little competition for things I really want. I tend to appreciate highly real artistic skills that are evident. Not everyone can accurately reproduce a specific human’s face. Not everyone can throw a tall wide pot with a very thin wall. Not everyone can carve realistically in three dimensions. All of these things and more make art collection a special form of ownership. It may be worth a dip in the art auction market – it is far more fun than gambling or speculation.
My career was the flip side of yours: MBA and 40 years in the investment business to make money and 40 years making bespoke pieces of wooden furniture for myself, family and friends.
Like a painting, there is something ineffable about a well made piece of bespoke furniture. The particular wood used, the design, its utility and especially the quality of construction. And, if you know woodworking, like art, a beautiful example of the craft by a well known artisan can be enormously expensive.
In the investment business, we sold our services based on not only our skill and track record in order to help our clients manage their wealth and generate mostly predictable returns over long time periods. And, while art does not generate income (and, in fact, can be costly to own, store and/or insure), the gains in value that have attached to certain artists is undeniable.
In the end, I suppose its a matter of perspective and wealth. It takes significant wealth to own certain art, or to amass a collection of valuable art, whereas for mere mortals, one good piece of art would violate every rule of diversified investing and generate no income. Art is certainly a legitimate asset class, but not necessarily for everyone.
Thanks, UofODuck, collectible art has zero place in this humble reader’s portfolio.
Thanks for your lively writing. Christian philosopher Francis Schaeffer would agree with at least part of your last paragraph. He argued at the end of the last century that artists live on the leading edge of cultural change. To the extent that the financial markets follow your assertion of the importance of narrative in determining price and value, art may indeed offer some advantage to the astute observer.
Ricardo, fun read, but I think there’s a big hole in the “it’s all narrative” argument worth poking a rather large stick at. Even speculative stocks eventually have to answer to something — earnings, cash flow, some number that reality checks them against. That’s why meme stocks crash back to earth eventually. Art doesn’t have that mechanism. A Pollock’s price isn’t tethered to anything that produces revenue, it’s just belief about belief, indefinitely. So it’s less “speculation with extra steps” and more its own category, closer to gold or rare watches than to SpaceX stock.
Hi Mark, you’re right that they have something to be checked against, and I agree that Art is a different asset class, though there needs to be more regulation around it so that it can be more comparable to gold.
An interesting question remains though; given the financials of Space X, Tesla and other companies of the sort, why is the stock price so inflated? How come regulation was changed in order for new companies to be more quickly accepted into publicly traded markets?
Ricardo, well that’s the million dollar question, or multi-trillion dollar question nowadays. I don’t have any special insight here, but my guess is that these valuations are priced for near perfection. Baking in not just future profits but the promise of genuine structural change to society. For whatever reason, people keep showing up to the party. I’ve personally pulled back, shifting part of my equity allocation into other markets, since I’m not convinced it ends well and I’m in the lucky position that I don’t need that level of risk.
As for the regulatory shift, I have a more cynical opinion on that: the indices simply wanted the business. Look at SpaceX’s Nasdaq 100 fast-track versus the S&P 500 holding off entirely, same as it did with Tesla. The more traditional index is happy to wait for actual profitability rather than chasing the listing.
Hi Mark,
The pricing for near perfection is exactly what auction houses in art do with lots, by pricing in the guarantees from clients before the auction even starts. It’s somewhat similar to the valuations of a company, where the evaluating party has an interest involved (JP Morgan, and the rest of the banks that helped SPACE X with the IPO).
The parallel is interesting, because the macroeconomic impact, of as you said, something that may change society. In a lot of ways, the change is already tacit, only generating profits to tiny parts of society, whilst affecting the rest by proxy. The true effect though is not innovation, but a degenerate economy where investing is mostly understood as betting.
More traditional indexes may wait, but surely SPACE X will find itself there soon. The question about TESLA remains though; it’s a Stock that to this day is overvalued by all financial standards and still depends on speculation about its future projects and their potential profitabilities.
I’m pretty new to this, but it seems everything is changing and the rules are constantly being re-written, not just in terms of regulation, but more importantly, in speed.
If one learns to work with that quickness, there may have never been a time with more opportunities to generate wealth.
What are the positives that you see?
I’d probably use “uneven” over “degenerate” — degenerate implies the whole thing is rotten, and I don’t think it is. That guarantee/underwriter parallel you drew is interesting; I’m not familiar enough with the auction industry to give a meaningful reply. My only thought, for what it’s worth, is that an auction price is a bet on a single item hitting a price on one occasion, while an IPO price has to hold up to price scrutiny over much longer time frames. I think that’s a genuine difference.
As for the positives, I think a real one is access. The catch is that frictionless trading doesn’t just give people access to good decisions, it gives them access to bad ones just as easily. Some of what we’re calling overvaluation is probably a real liquidity premium: markets you can exit easily might deserve a higher price. But take away the friction that used to slow people down, and you also strip away the cooling-off period before someone acts on a headline. So speed cuts both ways: faster up, faster down, resulting in greater volatility.
I’ll admit my own bias here: I like to be able to look at a business and roughly understand why it’s worth what it’s worth. When I can’t do that, it bothers me, even if the majority say the market is correct. I’m also aware I can afford to be old-fashioned about it. My portfolio isn’t dependent on these names working out, so it’s easy for me to tilt away and be skeptical. Someone earlier in their accumulation years doesn’t have that luxury, and might reasonably look at the same numbers and decide the risk is worth taking.
I take the term “Degenerate” from Howard Lindzon, who made (from what I understand) a tracker called the Degenerate Economy, which has outperformed the S&P 500 in the last few months.. It’s quite interesting, here’s a link: https://www.gothematic.com/index/degencom
In terms of the auction houses and their strategies, it’s quite interesting, they operate with methodologies which few really understand, I’d guess even people who work there aren’t so familiar. Fair point on the single item difference, although I disagree that it must hold its price for linger time frames, since there are artworks that in-themselves are much older than many publicly traded companies. Perhaps the comparison has less to do with time, but with volume of operations. Stocks are traded daily, while artwork sales are far from that.
Absolutely agreed on access, and it’s double-edged sworded nature in today’s world. It’s very easy to experience a 10% upswing in minutes, just as it is to experience it towards the opposite direction.
Now, your bias sounds something that I’m tempted to be jealous of, since my generation (like you say) doesn’t have that luxury. Natural selection is much harsher now a days, but if one manages to capture an upswing and get out on time, perhaps retirement can become possible since a very early age. I’ve learned to insist on the positives, and be weary of being too pessimistic; it’s too easy to notice the negative aspects of the present.
Ricardo, a few questions, if you don’t mind my asking.
Have you been trading like this for a while?
You mentioned the necessity of capturing an upswing and “getting out on time” — to my mind, that would require near-flawless execution. In a market moving at the algorithmic speed you describe, have you actually managed to escape the volatility unscathed so far, or have you already had to stomach the kind of paper losses that usually come with riding these waves?
And is the end goal here an early exit from the workforce altogether?
I’ve been trading for a short amount of time Mark, but to answer your question: yes, but with crypto.
The conclusion that I arrived at is that gains were made when I was watching the computer all the time, and as soon as I took a day off; losses took place. I do not want to live my life stuck in front of a computer, so I desisted.
The long term plan would be to start my own venture, but not leave the workforce all together, again, that lifestyle seems lonely and harsh.
Paying $181 million for a Jackson Pollock where the value is based on nothing but other people’s willingness to go along with popular opinion based on some critics hype which is trendy opinion is either being gullible or smart and betting on the continued willingness of others to be influenced by opinions, even the fashion of the day.
I disagree with you there R Quinn, there is something called “Provenance” in art. In a nutshell, it’s the transaction history of the past sales of the artwork.
There is definitely hype, sure, a similar type of hype that propels a stock with dubious financials to be overvalued.
I understand provenance. My point was about the person who determined in the first place that dripping and splashing paint on canvas was art. Much like the “art” of Rothko.
Once somebody praised that work, once they created a story and analysis of each drip and depressing color pattern, value was created and then it goes on up from there especially when the artists are disturbed and die tragically of their own doing.
As I’m sure you know, not even the Mona Lisa was a big deal until someone stole it.
If enough people have a vested interest in something, the value of something can be determined. Your Rothko example can be quite illustrative; in the sense that there is tangible evidence of the US Government (through the pentagon) being invested in the careers of various abstract expressionists including Rothko.
Like any relational network, if there is sufficient leverage between players, then it stands to reason that emergence will likely take place – in this case the market of abstract expressionism.
Art goes beyond stories, just as stocks do. It’s ultimately the ones who get in early who end up benefiting the most.
More than one person saying it’s “worth” something, there has to be a complex network of interconnected interests.
Ricardo, your post reminded me of an economics professor I had years ago. He was from India and described how his country was shifting from producing English majors to producing engineers. His view of art in an economics context was that, however inspiring it may be: “You can’t eat it.”
Perhaps one way people distinguish stocks from art is that stocks ultimately represent ownership in businesses that create goods and services, hire people, generate earnings, and can return cash to shareholders. But maybe it’s time for a shift in perception. After all, artists like Taylor Swift and Beyoncé do much of the above when they go out on tour.
Thanks for reminding us that art offers its own return.
Hi D.J., Your professor is so right. Art as an asset is notorious for being illiquid, especially on a rainy day.
The interesting dynamic which makes owning art more tangible in terms of wealth, is that if a collection is positively valued (one which a bank or an auction house assigns to be worth millions), then people can take out loans with the collection as collateral.
Even if an artwork is not liquid in itself, a collection of artworks can produce liquidity through leverage.