S. . 2023. Arthur Cifuentes and Ventura Charlin. Columbia University Press.
“I’m sorry, but we don’t have a magic equation to predict which artists will be hot next year or whether Andy Warhol’s Marilyns will outperform the S&P 500 in the next five years.”
So write Arturo Cifuentes And Ventura Charlin What then can readers achieve with the financial tools for navigating the art market that the book’s subtitle guarantees? The answer: goals which might be actually achievable, akin to determining how the market arrives at values for various works by a selected artist and estimating the return on the artist’s body of labor. There isn’t any more reliable option to predict the short-term price movement of a painting than that of a standard stock, the authors claim.
The quantitative techniques described by Cifuentes and Charlin, research associates at CLAPES-UC (Catholic University of Chile), also based in New York, provide fascinating insights akin to the next, which relate to the work of Pierre-Auguste Renoir:
- Had the artist’s auction been 10% larger, the 1985 auction price of $2,865,892 would have been 6.5% higher. Auction prices for a painter’s work generally increase with size. However, once a certain variety of square meters is reached, prices drop because extremely large works can only be exhibited in museums or palaces, which limits the variety of potential bidders.
- All else being equal, the inclusion of a number of people within the composition has a positive effect on the worth of a Renoir, whereas the inclusion of nudes and landscapes lowers the worth per square centimeter (cm).2) – the “rough but useful” metric used throughout the book.
- A Renoir landscape in a vertical frame sells for more per inch2 as one in a horizontal frame format (also sarcastically referred to as “landscape”).
- A Renoir will likely fetch the next price if sold in New York relatively than elsewhere. According to the authors, this finding violates the law of 1 price and implies a certain inefficiency within the Renoir market.
For artworks, which generally rarely change hands, estimating returns is tougher than for securities, for which each day transaction prices are sometimes available. Quantifying the diversification effect of art inside a portfolio consisting primarily of securities and commodities also presents a frightening challenge. Cifuentes and Charlin address the difficulties of sophisticated mathematics. They acknowledge that terms akin to “heteroskedasticity-consistent covariance matrix estimates” are outside the knowledge base of many readers, but provide a “poet’s appendix” that explains the concepts underlying their methodology.
also deals with secured art loans and the chance of guaranteeing minimum prices at auctions. Separately, Cifuentes and Charlin report that artificial intelligence (AI) has not outperformed experienced appraisers in predicting auction prices. However, they see potential for AI to assist museums and scientists classify artworks by style or movement. Finally, the authors show how their quantitative techniques may also be applied to certain other collectibles, namely violins, wine and vintage cars.
I discovered each insightful and compelling, but I actually have one criticism. The authors write: “If you have never been touched by a painting. . . This book is not for you.” It is okay for people to base their purchases on their aesthetic preferences, in the event that they so select. However, such behavior wouldn’t be appropriate for a trustee. A wealth manager tasked with investing in art on behalf of a client may profit from reading this book as it should help them make objective decisions aimed solely at maximizing risk-adjusted returns. The manager can be no more disadvantaged than a commodities trader who has never seen a bushel of wheat or a barrel of oil.
Furthermore, even investment professionals who don’t plan to ever delve into art or collectibles would do themselves a favor by addressing Cifuente and Charlin’s criticisms of traditional securities evaluation. They indicate, for instance, that the usual calculation of diversification advantages is dubious given the pronounced time dependence of correlations, “a dirty secret in financial analysis that most financial textbooks and almost all scientists are reluctant to acknowledge or even discuss.” In the humanities, they report , depending on which rolling seven-year period from 2004 to 2020 you select, the return correlation between Old Masters and the Case-Shiller House Price Index is between -20.54% and +27.98%. Asset allocators more common asset classes could also be surprised by the instability of the correlations on which they base their decisions.
The authors also reject the widespread practice of equating risk with the usual deviation of return when calculating risk-reward ratios. They argue that such exercises should as a substitute consider value in danger, which is defined as the utmost possible loss inside a period at a confidence level. Furthermore, Cifuentes and Charlin criticize that standard reports on the historical performance of assets don’t adequately address real relatively than nominal returns.
No text of just 241 pages could do justice to all facets of art investment. The authors very responsibly state that detailed explanations of certain topics they address are beyond the scope of the book. One point that perhaps deserves greater attention, nevertheless, is the frustration that may be experienced by investors who purchase the work of a recent artist while keeping in mind Warren Buffett’s favorite holding period (endlessly). The price trends over the many years presented by the authors for the works of assorted artists should not all the time representative.
For example, in 2015, analyst and writer Zac Bissonnette reported that Jean-Louis-Ernest Meissonier (1815–1891) was described by fellow artist Eugène Delacroix as “the undeniable master of our era.” . . . Of all of us, he is definitely the one almost certainly to survive,” said James Grant in “Attention, Larry Fink,” from the May 15, 2015 issue. Meissonier’s painting was sold in 1876 for the “then astronomical” sum of $60,000 ($1.7 million in 2023), in keeping with the Metropolitan Museum of Art, the painting’s current home. Unfortunately, says Bissonnette, “the market devalued the most admired artist of the 19th century” to the purpose where he sold in 2012 for the insignificant sum of $1,075.50. With the appearance of modernism, tastemakers concluded that his historically precise work was pedantic and the nationalism it displayed was problematic.
All in all, nevertheless, it is crucial for anyone latest to exploring art as a vehicle for wealth creation. His techniques and insights may even be latest to many experienced art investors. The reader can have to choose for themselves what appeals to them from an inventive perspective, but this book will fill within the stubborn financial a part of the image.
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