Avoid inflation with blue chip art stocks
Note from Chris: Inflation is the biggest threat to your wealth right now. It caused stocks and bonds to fall. It also sent the Fed into rate hike mode. This increases the risk of recession.
To retaliate, his colleague Teeka Tiwari recommends rare assets such as collectibles and art. The government can “print” as many dollars as it wants. But it can’t print a 1960s Ferrari 250 GT or a Pablo Picasso painting. This, added to their enduring desirability, makes them great stores of value.
Yesterday I showed how you can now buy shares of works of art by Picasso and other iconic artists through a platform called masterpieces. It’s the brainchild of tech entrepreneur and art collector Scott Lynn.
I spoke with Scott about how owning art stocks can help you build a higher-return, lower-risk portfolio…and how you don’t have to be a buyer rich to enjoy. It’s all in the questions and answers below…
Chris Lowe: Buying stock in iconic works of art is a game-changing idea. What is the origin story of Masterworks?
Scott: For about 20 years, I launched technology companies in different segments, from gaming to FinTech. And I was collecting art throughout that period.
Masterworks takes my passion for art collecting and combines it with my skills in finance and technology. It takes that asset class – art – which was only accessible to wealthy buyers. And it opens it up to everyday investors through securitization.
Cris: Explain to our readers how it works.
Scott: It’s the same thing that private companies have to do to go public. We take a work of art… file it with the SEC [the U.S. Securities and Exchange Commission, the main stock market regulator]…and sell shares in this work of art.
Cris: I called it splitting, because it buys a fraction of a Picasso. You call it securitization. But it looks like it’s the same thing. You take a painting, make a business out of it, and sell shares in it.
Cris: What benefits does art as an asset class bring to investors? Our readers can own stocks, bonds, cryptocurrencies, and private equity in ordinary companies. Why add contemporary art?
Scott: It’s a matter of diversification. Investors with a traditional 60/40 portfolio between stocks and bonds are susceptible to volatility as we are currently seeing. This portfolio is down about 17% this year. It is not diversified enough in other asset classes.
Take a step back and ask yourself what you are trying to do as an investor. You are trying to generate the highest returns with the lowest volatility.
To do this, you need to diversify into a set of different asset classes that don’t move in parallel. When one goes down, another goes up or stays flat. This mitigates the overall volatility of your portfolio.
Art is a great way to do this. The correlation between art and the S&P 500 is between 0 and 0.2. A correlation of zero means that the two assets move independently of each other. So it’s a very weak correlation.
Additionally, the Masterworks portfolio has appreciated around 15% to 15.5% per year since its launch in 2018. So you have those excellent returns as well.
Cris: What about inflation? How does this affect art prices?
Scott: There are two things to understand about art prices…
First, they are linked to the growth of the world’s richest 1%. The people who buy and trade these $10, 20, or $30 million paintings tend to be the richest people in the world. And generally, they behave differently during inflationary cycles than regular investors.
Second, the art market is global. The United States, China and Western Europe account for approximately 75% of the global art market. You can buy a painting in New York, put it on a plane and sell it in Hong Kong. They are not as sensitive to country-specific issues as other asset classes.
So I would say art prices are mostly inflation neutral. Inflation does not really change the appreciation of art prices. It’s not like a bond that will go down in value as inflation goes up.
Cris: Do I buy stocks from this chart through my broker like I buy stocks from Microsoft or Ford?
Scott: At Masterworks, we do something called “direct emitter”. We sell shares directly through our website. You don’t need a brokerage account to invest in it. Just go to Masterpieces websitecreate an account and speak to one of our financial advisors to get started.
Our minimum for each board is $15,000. But if it’s not suitable, we reduce that for investors. This is something I encourage your readers to discuss with our financial advisors. They will give you advice on how to get started in a way that suits your needs.
Cris: What does your clientele look like? Are they family investors, family offices or large institutional players?
Scott: All the foregoing. We don’t work as often with investors who want to invest $500 with the expectation that it will turn into $50,000. It’s more about building a higher return, lower risk portfolio that allows you to build more stable wealth over time.
Cris: Thanks Scott.
Scott: My pleasure.