When I was younger, I used to love watching Bob Ross on TV. For those not old enough to remember, he was the middle-aged hippie with the big brown afro who painted like a hypnotist. To draw inspiration while writing this, I popped on Netflix and started watching an episode.
As Bob was painting one of his happy little trees, he mentioned one of his famous mantras “We don’t make mistakes, just happy little accidents”. I couldn’t help but laugh at how simple his idea was. If only I could repeat that mantra every time I made an investing mistake, life would be much better.
At this point, you’re probably wondering why I’m talking about OG Bob Ross. It’s not because I’ve been growing out an afro and coloring in my adult coloring book while under quarantine. But rather, before the market went into free fall the past month, I had already begun looking into alternative asset classes to diversify my portfolio. I started looking into rental properties, physical gold, guns, and then inadvertently stumbled into the world of fine art.
Last week, I had a virtual happy hour with a hedge fund buddy of mine. While toasting White Claws, I showed him some of my woodworking pieces and told him about my curiosity in art—btw memes are considered art. Obviously, he knows that I’m mostly into stocks so he recommended checking out the company Masterworks.
This got my attention so I dug a little deeper into the company. Masterworks provides the every day (retail) investor the opportunity to invest in blue-chip art from the likes of Andy Warhol, Jean-Michel Basquiat, Banksy, and countless others. Previously, only a handful of billionaire private collectors (read: Stevie Cohen, Oprah, Diddy) had access to this type of artwork, but Masterworks has opened the door to everyone.
Art Outperforms the Market
Over the past 19 years, blue-chip artwork from the top 100 artists has significantly outperformed the S&P 500. As stated on their website:
Blue-Chip Artwork (Artprice100©) (teal) vs. S&P 500 (orange)
Source: Artprice (via Masterworks)
According to Artprice, blue-chip artwork (defined as those paintings by the top 100 artists in terms of sales volume) has outperformed the S&P 500 by more than 250% from Jan 1, 2000–Dec 31, 2018. Additionally, it only declined 26% during the financial crisis of 2008-2009, when the S&P 500 declined by 58%. This is why we believe that fine art is one of the best risk-adjusted asset classes available.
The average annual return since 2000 from blue-chip artwork is 8.9%, and it has little to no (and negative) correlation to other asset classes according to the Citi report below.
Art vs. Gold vs. Real assets
I set up a call with their CEO and asked him about what role art should play in my portfolio—for a young and handsome but relatively conservative investor. He explained to me a few interesting dynamics. Real asset performance generally reflects capital appreciation over time rather than an expected earnings or dividend stream. Specific types of real assets are sensitive to different types of economic forces.
Gold tends to be a hedge against changes in inflation expectations.
Commodities, such as oil or agricultural goods, tend to reflect demand as a factor of production (e.g., oil consumption by the transportation sector).
Bitcoin…yeah I got nothing.
By contrast, art is an asset with scarcity value that tends to reflect the increasing purchasing power of ultra-high-net-worth individuals, which has been growing steadily for decades (thanks to the Federal Reserve). As a result, art tends to be less sensitive to the economic factors that impact other real assets.
Here’s how it works (as stated on their website):
Masterworks sources paintings and commits its capital to purchase them.
Masterworks files an offering circular with the Securities and Exchange Commission to offer it publicly.
Investors can invest in the painting by purchasing shares.
Masterworks sells the painting and proceeds are distributed accordingly.
Unlike certain alternative investment classes, you don’t have to be an accredited investor (rich) to invest with Masterworks. Just recently, Masterworks introduced their trading platform, which allows investors to sell their shares prior to sale of the painting should they wish. No infinite leverage allowed, I asked.
When I reached out to the team at Masterworks, we discussed ways in which we could help my followers gain access to their art ASAP, as they have a 25,000+ person waitlist. They hooked us up and if you sign up through this link, you can skip the line—influencer status secured. While there is no minimum investment amount, their sales team told me it can range anywhere from $1-5K depending on how much you are willing to invest. Full disclosure: I won’t be adding a piece of art to $WERAMP so don’t even ask.
Once you apply for membership online, Masterworks sets up a call with you to complete your account. The phone call was very helpful for me to learn about both the investment process and what to expect as far as returns. Generally speaking, art is a misunderstood investment tool, and Masterworks helps simplify it and educate people about the value it can present in your portfolio.
After jokingly purchasing a very beautiful piece of art last December, I can now get into the real art world with Masterworks. Now, if only I can convince Masterworks to make a happy accident by investing in some Bob Ross paintings.
The views expressed are my own and not those of Masterworks. My experience might not be representative of those of other Masterworks customers, and past performance does not guarantee future results. Masterworks is currently a sponsor of the weekly Ramp Capital LLC newsletter.
This is post #57. You can follow me on Twitter or Instagram or sign up for my free newsletter here. Also please check out my Amazon page for a full reading list.
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