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Who’s the joke here? Sotheby’s just sold a banana titled “Comedian” duct-taped to a wall. Crypto entrepreneur Justin Sun bought Maurizio Cattelan’s artwork for $6.2 million, including fees.
San said he would eat a banana.
People with traditional tastes in art will joke about Sun for wasting their money. But from Mr. Sun and Mr. Cattelan’s likely perspective, that also means the joke is on you. Exasperating the hidden bourgeoisie is the traditional pursuit of artists. Crypto Brothers is now participating.
What better way to engage Old Masters aficionados and fans of investment-grade corporate bonds than to evoke the fear of missing out? Cattelan’s Duct Taped Banana “Edition” (exchangeable and comes with a certificate of authenticity) previously sold for $120,000 to $150,000.
I found my own price results to be surprising because I had fallen victim to the “endowment effect,” the tendency for owners to overvalue their personal possessions.
But if you view art as an investment, you’ll go bananas yourself. That’s my conclusion after selling much cheaper artwork. I clung to it for 20 years believing it was steadily appreciating. My return on capital was expressed in donuts (zero), not bananas.
The real takeaway for me was the lesson on behavioral finance, the subject of this column.
There are no objective standards to measure the quality of a work of art. To have significant value, it must meet three interdependent criteria: exclusivity, authenticity, and popularity. I had an old oil painting. This made it unique and exclusive. But was it real?
I took it to the auction house.
“There are so many imitators who imitate this artist,” experts say.
My heart sank into my boots as she studied the brushstrokes.
“This is real,” she said.
My heart welled up from the footwear.
“But this is a terrible picture,” she concluded, leaving my ticker floating at knee level.
Her judgment was not very good in terms of desirability. This is determined by expert opinion and fashion. Trends develop unpredictably, depending on the whims of wealthy collectors and dealers. They decide which works of art are status symbols.
The fame of the artist who painted my picture is fading. I sold it 20 years ago at about the nominal price quoted, which means a real loss.
No complaints. A kind relative gave me a photo. It was fun to watch. The only expense I had was the insurance premium.
Price discovery is much more fun in a West End auction house than on a Bloomberg screen. Just like in the movies, there was an auctioneer with a gavel and an assistant bidding on the phone.
After finishing the auction, I realized that my price result was just a surprise. Because I was a victim of the “endowment effect.” This is the tendency of owners to overvalue their personal possessions.
I was also deceiving myself into thinking that my paintings were valued highly, as art auction prices have steadily increased over time. This promotes the idea that art can be viewed as an asset similar to stocks.
That’s also wrong. But that hasn’t stopped some dealers from touting “art as an investment.” Some people cite auction price increases and the index derived from them as if they were investment returns. One brochure claims that contemporary art has outperformed the FTSE 100 by 400 per cent in recent years. A typical “return” figure for contemporary art is 7.5 percent per year.
Auction prices rise depending on the financial condition of wealthy people. However, auction houses and dealers only sell art that they think will sell, accepting new and popular artists and eliminating artists who have lost their luster. They get the top slice of available inventory.
Art indexers may be even more selective by excluding rarely traded names from the auction price data they use. The level of survivorship bias in art price indexes is much more extreme than in major stock indexes. Naturally, you cannot buy them directly.
Transaction costs for individual works of art are much higher than for securities, and returns are correspondingly lower. Unless you’re good at haggling, expect to pay 20 percent or more in buyer fees at art auctions. The seller pays about half that amount.
In an oft-cited 1986 paper, William Baumol described investing in art as a “floating shit game.” So it seemed quite similar to the business model of British water utilities. What the American economists were actually saying was that prices are highly unpredictable and trading is unregulated.
I buy it because I like art. Congratulate yourself when the value of your great skill increases. If the price goes down, curse your bad luck
We tracked the price performance of a set of artworks and calculated a median annual return of 0.85 percent. This is 2 percentage points lower than the risk-free return offered by U.S. Treasuries.
“The most important message is that you should buy art because you love it,” says Peter Stanier, co-author of How to Invest. As a former investment director at Railpen, a pension fund that sold art, he offers further advice: Curse your bad luck if the price drops. ”
So what happens to all the works of art that collectors are continually purchasing? The depressing truth, according to Stanier, is that most of them are eventually destroyed, either intentionally or through neglect. Art is more than just a luxury consumer product. Like margarine, it is a consumable product that is only used for a long period of time.
My own attempts to break into the art business didn’t last as long as the non-dairy spread. I used sellotape to stick celery to my kitchen wall and created an artwork titled “Sticky Situation 1.” I wanted to challenge Cattelan’s monopoly on vertically arranged ingredients.
My wife took down the celery and put it in the stew. Some were comforted by the setbacks.
Jonathan Guthrie is a journalist, advisor, and former head of Rex Corporation. jonathanbuchananguthrie@gmail.com
