Who buys these paintings?
Ram Samudrala
the tens of millions of dollars, with a recent Rothko ("White Center
(Yellow, Pink and Lavender on Rose)") selling for $72.8 million
dollars. See:
http://www.nytimes.com/2007/05/16/arts/design/16auction.html?_r=1&oref=slogin
Even though I'm not a big fan of most paintings except for surrealism
(Dali, Escher) and impressionism (Monet, Manet) I think still this is
an insane price to pay. My question though is, who can afford it and
how come this keeps happening? My guess is that it'd have to be
limited to people with very high net worth. According to Forbes, there
are only a few hundred (500+?) people in the world with net worth >=
$1 billion and most of it is on paper (i.e., Bill Gates couldn't sell
all his MS stock in one day). I'm venturing that someone with a few
hundred million dollars of net worth (less than $500 million say) is
unlikely to spend so much on a painting, but who knows?
Or when these paintings are sold, do they have to be paid in cash?
That is, can Bill Gates just exchange this for $72 million worth of MS
stock?
What's wrong with this picture? Are there more billionaires in the
world than we know of (and if so, how many are there)? Or are they
institutional buyers?
I definitely see value however in buying stuff like this once you
reach a certain level of wealth. My own preference are natural
diamonds (well, my wife loves to wear them but I'm a big fan of near
flawless, perfect diamonds--it's hard to get anything above two carats
for this though). This should be an okay investment until they can
create artificial diamonds that are as good as real ones.
--Ram
cam...@earthlink.net
wrote:
> Lately, I've been reading about the sales of paintings which are in
> the tens of millions of dollars, with a recent Rothko ("White Center
> (Yellow, Pink and Lavender on Rose)") selling for $72.8 million
There are hundreds of famous artists each who painted hundreds of
paintings. They have to be somewhere. It's kind of logical that
rich people would own them and it would take a significant portion of
their net worth to do so. Once you have taken care of food, clothing
and shelter you can do whatever you want with the rest of your money.
In a competition for the irreplaceable the wealthiest will win.
Collectors have a burning desire to possess.
Taking possession of a piece of art is actually quite a problem. if
it is valuable it is a major target for theft. It can also be
destroyed by fire, flood or stupidity. This is a pain in the neck for
individuals, but bread and butter for museums. So individuals donate
the paintings to museums and name the room after the donor. The donor
gets all the prestige and doesn't have to deal with security. I
believe that capital gains on collectibles are taxed as ordinary
income, not long term capital gains. So selling a painting that has
appreciated millions of dollars is brutal. There are very generous
tax write offs for donating appreciated collectibles, so there is
another reason that museums end up with this stuff. People just love
that "my legacy lives on after me" stuff.
Diamonds? Have you ever sold a diamond and cashed out? It has been
said that diamonds are neither rare nor valuable, they just have great
marketing. Go out and buy a 2 carat diamond retail. Go out and buy
10 ounces of plain vanilla gold coins at a reputable coin shop. Sell
both the next day to a different person. Guess which one is going to
return more of the original value?
joetaxpayer
Ram Samudrala wrote:
> Lately, I've been reading about the sales of paintings which are in
> the tens of millions of dollars, with a recent Rothko ("White Center
> (Yellow, Pink and Lavender on Rose)") selling for $72.8 million
> dollars. See:
>
> http://www.nytimes.com/2007/05/16/arts/design/16auction.html?_r=1&oref=slogin
It's not too hard to go to Forbes.com and find 946 Billionaires as of
this past March's "The World's Billionaires" story. But don't let that
one resale throw you off, it's not as though there are hundreds of such
paintings of such value. The story you referenced said 65 lots sold for
$254.8 Million Total. Wiki already shows the sale on their list of most
expensive paintings at
http://en.wikipedia.org/wiki/List_of_most_expensive_paintings
Given that billionaire list totals $3.5 Trillion dollars, it's almost
logical that a mere $2 Billion might cover the top 25-30 paintings.
You ask about billionaire's liquidity. Great question, tough to answer.
I recall stories of Michael Jackson being worth a huge sum, but so
illiquid he was defaulting on loans. Which is why here we recommend 3-6
month's of living expenses in liquid assets, more if your income is
erratic. And access to relatively low sources of liquidity such as a
401(k) loan or HELOC, to smooth some bumps along the way.
JOE
Ram Samudrala
it is relevant in that people with large amounts of disposable income
tend to "invest" in collectable that are of a more speculative
nature. For example, this painting was bought by Rockefeller I believe
for tens of thousands of dollars a few decades ago.
So in my view, if you have a love of paintings, or comic books, or any
other collecticable, you'll never know how much they're worth. I do
recommend collecting such items if you love them and if it becomes an
investment, that's icing on the cake. I do not recommend doing so for
the sake of investment.
This is consistent with a lot of other advice given here about buying
a home for the sake of the personal satisfaction it provides, and not
as an investment vehicle (though people approach it as both).
joetaxpayer <joeta...@nospam.com> wrote:
> Ram Samudrala wrote:
>> Lately, I've been reading about the sales of paintings which are in
>> the tens of millions of dollars, with a recent Rothko ("White Center
>> (Yellow, Pink and Lavender on Rose)") selling for $72.8 million
>> dollars. See:
>>
>> http://www.nytimes.com/2007/05/16/arts/design/16auction.html?_r=1&oref=slogin
> It's not too hard to go to Forbes.com and find 946 Billionaires as of
> this past March's "The World's Billionaires" story. But don't let that
> one resale throw you off, it's not as though there are hundreds of such
> paintings of such value. The story you referenced said 65 lots sold for
> $254.8 Million Total. Wiki already shows the sale on their list of most
> expensive paintings at
> http://en.wikipedia.org/wiki/List_of_most_expensive_paintings
> Given that billionaire list totals $3.5 Trillion dollars, it's almost
> logical that a mere $2 Billion might cover the top 25-30 paintings.
It's not that one resale, but several ones in the last year or so for
different kinds of items (so I'd say I've run across a 1000 of them in
the order of $50 million or more). But these people don't seem to be
among the 946 billionaires unless they're bidding through a front
person.
I think you're right though. I'm not being rigourous in my statistical
analysis and going by my anecdotal observations. I guess what we need
is a list of most expensive collectible items each sold in the last
year for > $50 million, and see what bought them.
It does mean that there is approximately one billionaire for every six
million people. Aren't those better odds than the top prize for most
lotteries? <-:
--Ram
Ram Samudrala
> There are hundreds of famous artists each who painted hundreds of
> paintings. They have to be somewhere. It's kind of logical that
> rich people would own them and it would take a significant portion of
> their net worth to do so. Once you have taken care of food, clothing
> and shelter you can do whatever you want with the rest of your money.
> In a competition for the irreplaceable the wealthiest will win.
> Collectors have a burning desire to possess.
My question though is who can afford $72 million on a painting? That
is, how many people in this world have that kind of disposable income?
I can see that many people (about 10% in this country I believe) are
millionaires, but with cash enough to spend $72 million? I don't
believe there are many in this world, and like I said, I've observed a
large number of these sales recently, more than the Forbes listings
would justify.
> Diamonds? Have you ever sold a diamond and cashed out? It has been
> said that diamonds are neither rare nor valuable, they just have great
> marketing. Go out and buy a 2 carat diamond retail. Go out and buy
> 10 ounces of plain vanilla gold coins at a reputable coin shop. Sell
> both the next day to a different person. Guess which one is going to
> return more of the original value?
I'm talking about rare collectible diamonds too, kind of like the
paintings. Buying stuff at retail for diamonds is a mistake though. I
definitely have had offers for our diamonds which are way more than
what we paid for it since these are really hard to get. Try to get a
two carat FLAWLESS diamond with a great cut, near colourless or
colourless, etc. I've found it close to impossible with the dealers I
work with. I'm ready to buy one of these though.
I also own a lot of comic books which are very valuable. I bought
every one of them for a few dollars maximum, but some are now worth
hundreds more than that (and full serial collections are worth even
more).
All are insured and it costs me a fair amount to insure them.
All this "rare" stuff (art, collectable diamonds, coins, stamps, comic
books, baseball cards, baseballs!, etc.) is an artificial kind of
market which is unpredictable, but since I myself don't do it for the
investment itself (i.e., I admire the intrinsic beauty of
flawless/near-flawless diamonds and I read every comic book I buy even
though they're all in nice plastic books). It is counted by others
who are dealing in some sort of a business with me in my net worth
though so who am I to argue.
--Ram
kastnna
> I believe that capital gains on collectibles are taxed as ordinary
> income, not long term capital gains. So selling a painting that has
> appreciated millions of dollars is brutal. There are very generous
> tax write offs for donating appreciated collectibles, so there is
> another reason that museums end up with this stuff. People just love
> that "my legacy lives on after me" stuff.
Not-so-fun fact of the day: "Collectibles" can be subject to capital
gains, but are taxed at a maximum rate of 28% (not 15%). However, I
have heard talk of a push for legislation that will include
collectibles in the 15% category.
darkn...@yahoo.com
wrote:
> Even though this post is somewhat tangential to this group, I believe
> it is relevant in that people with large amounts of disposable income
> tend to "invest" in collectable that are of a more speculative
> nature. For example, this painting was bought by Rockefeller I believe
> for tens of thousands of dollars a few decades ago.
>
>
> It does mean that there is approximately one billionaire for every six
> million people. Aren't those better odds than the top prize for most
> lotteries? <-:
>
> --Ram
There are actually art funds being started by hedge funds.
Art has a good track record of price appreciation, and is somewhat
uncorrelated with other asset classes. On paper it makes a good
asset-- it's a very good inflation hedge.
However there are a number of issues with regard to art investing:
- illiquidity
- preservation
- costs of storage and insurance
- you might fall in love with your asset
In the case of the British pension funds which held art portfolios, it
became politically sensitive when they were selling great works of art
to foreign buyers.
My own view is that a surge in the art market is a sign of excess
global liquidity. I remember the price of Van Gogh's Sunflowers
reached an all time peak when a Japanese billionaire bought it for
$80m.
This timed almost exactly the peak of the Japanese real estate-stock
market bubble.