byrone
06-20-2012, 06:27 AM
Emotions Rule Collections
By Richard C. Morais
This column was written with Penta reporter, Christiana Cefalu.
When Edvard Munch’s “The Scream” went for a record $120 million in a 12 minute auction last month at Sotheby’s (BID), Penta began to wonder whether the art market had again been hitting the opium pipe, the intrinsic value and beauty of an objet d’art weirdly distorted by the fast-money crowd seeking a return on their investments.
To answer this and other existential questions, Barclays (BCS) surveyed 2,000 high net worth individuals around the world with upwards of 1.5 million in investible assets, defining “treasure assets” or collectibles as jewelry, fine art, antiques, classic cars, and precious metals. Their findings were recently published in Barclays’ report, Profit or Pleasure? Exploring the Motivations Behind Treasure Trends.
High net worth investors in the American West hold 9.7% of their total wealth in treasures; in the South, that share falls to 7.9%. Barclays found that 23% of the survey’s U.S. respondents say they hold treasure assets ”purely for investment purposes;” 21% hold their treasures “as protection in the event their conventional investments fail.” Less wordy folk would call that a hedge.
In 2011, the monster “Sun-Drop Diamond” sold for $12.4 million. Christie’s Elizabeth Taylor auction hammered down $157 million and created a new world record for vintage jewelry, three times the value of the Duchess of Windsor sale in 1987.
It’s all part of a financial trend. “People are buying jewelry because it’s a safe haven that continues to increase in value,” said Elizabeth Von Habsburg, managing director of the Winston Art Group, the largest independent appraisal company in the U.S.
But Barclays says that’s an incomplete picture of what is going on. A full 71% of all respondents – even those who aren’t collectors – stated that emotions play a role “in their overall financial decisions.” In other words, even when trading stocks, their decisions to buy or sell a holding are influenced by emotional factors. Not surprisingly, the emotional barometer jumps off the charts when collections are involved: 98% of respondents insisted emotional decision-making was at the core of their own personal treasure chests.
Wine and cars incited the most passions. (Curious. We would have thought a piece of jewelry or even a painting would have trumped a drinkable vintage.) Neat, too, was how Barclays deconstructed the range of “emotions” behind such acquisitions: enjoyment (82%), heritage value (76%), social motivations (59%), rareness (28%), and monopolization (7%).
“Monopolization” suggests the rush a collector gets from knowing he or she has cornered the market in a certain genre produces an emotional high. A tad creepy, n’est-ce pas? Makes us think of the Hunt brothers and what happened to them in the 1970s when they developed an unwholesome attraction to silver.
But here’s the point of all this: Daniel Egan, the Behavioral Finance Specialist at Barclays, says, “collectibles should be regarded as part of a wealthy individual’s personal holdings rather than as a separate asset class in their investment portfolio.”
In other words, while a quarter of the market is buying “treasures” for financial reasons, it’s probably wiser to treat any financial benefit of a collection as a pleasant byproduct, or, at most, a family “reserve” that might provide a bit of security for future generations. With emotion rather than cold pricing driving the market for treasures, Egan insists “caution should be exercised in viewing [collectibles] as an alternative to traditional asset classes.”
Sounds wise to us, even though there are wealth managers who will disagree. The private bank push to turn art collectibles into an asset class is moving ahead on the force of its own logic (and fees) – Barclays words of caution notwithstanding.
But whichever side you come down on, know that as soon as you have passed on to Valhalla, your heirs will probably dump that rare collection of Victorian taxidermy you lovingly assembled. According to the Barclays study, “Respondents who inherited treasure are much more likely than those who acquired it through other means to say they have sold it or plan to do so in the future.” Stamps are the first asset to get dumped; 62% of the stamp buff’s inheritors sell the collection in what is politely called “decluttering.”
Still, we find the Barclays report oddly comforting. Watch kids at recess huddled in a circle with their baseball card collections – proudly, but cautiously displayed – and you can see in their faces that emotions run deep in their decisions to trade, retain, or cash-in on their precious collectibles. Turns out, it’s no different for wealthy investors and their baubles.
By Richard C. Morais
This column was written with Penta reporter, Christiana Cefalu.
When Edvard Munch’s “The Scream” went for a record $120 million in a 12 minute auction last month at Sotheby’s (BID), Penta began to wonder whether the art market had again been hitting the opium pipe, the intrinsic value and beauty of an objet d’art weirdly distorted by the fast-money crowd seeking a return on their investments.
To answer this and other existential questions, Barclays (BCS) surveyed 2,000 high net worth individuals around the world with upwards of 1.5 million in investible assets, defining “treasure assets” or collectibles as jewelry, fine art, antiques, classic cars, and precious metals. Their findings were recently published in Barclays’ report, Profit or Pleasure? Exploring the Motivations Behind Treasure Trends.
High net worth investors in the American West hold 9.7% of their total wealth in treasures; in the South, that share falls to 7.9%. Barclays found that 23% of the survey’s U.S. respondents say they hold treasure assets ”purely for investment purposes;” 21% hold their treasures “as protection in the event their conventional investments fail.” Less wordy folk would call that a hedge.
In 2011, the monster “Sun-Drop Diamond” sold for $12.4 million. Christie’s Elizabeth Taylor auction hammered down $157 million and created a new world record for vintage jewelry, three times the value of the Duchess of Windsor sale in 1987.
It’s all part of a financial trend. “People are buying jewelry because it’s a safe haven that continues to increase in value,” said Elizabeth Von Habsburg, managing director of the Winston Art Group, the largest independent appraisal company in the U.S.
But Barclays says that’s an incomplete picture of what is going on. A full 71% of all respondents – even those who aren’t collectors – stated that emotions play a role “in their overall financial decisions.” In other words, even when trading stocks, their decisions to buy or sell a holding are influenced by emotional factors. Not surprisingly, the emotional barometer jumps off the charts when collections are involved: 98% of respondents insisted emotional decision-making was at the core of their own personal treasure chests.
Wine and cars incited the most passions. (Curious. We would have thought a piece of jewelry or even a painting would have trumped a drinkable vintage.) Neat, too, was how Barclays deconstructed the range of “emotions” behind such acquisitions: enjoyment (82%), heritage value (76%), social motivations (59%), rareness (28%), and monopolization (7%).
“Monopolization” suggests the rush a collector gets from knowing he or she has cornered the market in a certain genre produces an emotional high. A tad creepy, n’est-ce pas? Makes us think of the Hunt brothers and what happened to them in the 1970s when they developed an unwholesome attraction to silver.
But here’s the point of all this: Daniel Egan, the Behavioral Finance Specialist at Barclays, says, “collectibles should be regarded as part of a wealthy individual’s personal holdings rather than as a separate asset class in their investment portfolio.”
In other words, while a quarter of the market is buying “treasures” for financial reasons, it’s probably wiser to treat any financial benefit of a collection as a pleasant byproduct, or, at most, a family “reserve” that might provide a bit of security for future generations. With emotion rather than cold pricing driving the market for treasures, Egan insists “caution should be exercised in viewing [collectibles] as an alternative to traditional asset classes.”
Sounds wise to us, even though there are wealth managers who will disagree. The private bank push to turn art collectibles into an asset class is moving ahead on the force of its own logic (and fees) – Barclays words of caution notwithstanding.
But whichever side you come down on, know that as soon as you have passed on to Valhalla, your heirs will probably dump that rare collection of Victorian taxidermy you lovingly assembled. According to the Barclays study, “Respondents who inherited treasure are much more likely than those who acquired it through other means to say they have sold it or plan to do so in the future.” Stamps are the first asset to get dumped; 62% of the stamp buff’s inheritors sell the collection in what is politely called “decluttering.”
Still, we find the Barclays report oddly comforting. Watch kids at recess huddled in a circle with their baseball card collections – proudly, but cautiously displayed – and you can see in their faces that emotions run deep in their decisions to trade, retain, or cash-in on their precious collectibles. Turns out, it’s no different for wealthy investors and their baubles.