Aesthetic Investments

Are illiquid assets competitive as investments with liquid financial assets over the long run? In his March 2016 paper entitled “The Long-Term Returns to Durable Assets”, Christophe Spaenjers summarizes long-term returns for three types of illiquid assets since the start of the 20th century:

1. Houses and farmland.
2. Collectibles (art, stamps, wine and violins).
3. Gold, silver and diamonds.

He focuses on capital gains but comments on ancillary costs and potential associated income where relevant. Using available monthly price indexes for these assets from a variety of sources during 1900 through 2014, he finds that: Keep Reading

Is an art collection a good investment? In the August 2015 version of their paper entitled “Art as an Asset and Keynes the Collector”, David Chambers, Elroy Dimson and Christophe Spaenjers study the performance of an actual buy-and-hold art portfolio, the collection of economist John Maynard Keynes. “Keynes purchased artworks through various channels between 1917 and 1945, and bequeathed his entire art collection to King’s College in Cambridge upon his death the following year. This collection consists of over a hundred pieces by various artists, including Modern Masters such as Braque, Cezanne, Matisse, Picasso, and Seurat, but also friends and acquaintances of Keynes such as Spencer Gore, Duncan Grant, and William Roberts. It has remained intact to the present day.” Using purchase prices/dates, insurance valuations, auction estimates and terminal expert appraisals at the end of 2013 (maximum holding period 96 years), they find that: Keep Reading

For an illiquid asset class such as art, many individual assets do not trade within commonly used return measurement intervals (such as a year). When a relatively few works of art account for most of the trading, measured returns derive mostly from these few works. If the returns for frequently and seldom traded art differ, there would be a disconnect between measured returns and overall asset class performance. In the October 2013 version of their draft paper entitled “Does it Pay to Invest in Art? A Selection-corrected Returns Perspective”, Arthur Korteweg, Roman Kraussl and Patrick Verwijmeren examine such sample selection bias for art (paintings) as an asset class. Using a sample of 20,538 paintings sold 42,548 times at auction during 1972 through 2010, they find that: Keep Reading

How does wine perform as a long-term investment? In the September 2013 version of their paper entitled “The Price of Wine”, Elroy Dimson, Peter Rousseau and Christophe Spaenjers examine the performance of wine as a long-term investment, with focus on the impact of aging. They employ long price histories for five long-established Bordeaux wines constructed from auction and dealer prices. They account for vintage effects via annual data on production yields and weather. They also consider the costs of storage and insurance. They calculate real returns based on UK inflation. Using 36,271 prices for 9,492 combinations of sale year, chateau, vintage and transaction type (auction of dealer) during 1900 through 2012, they find that: Keep Reading

Are collectibles good long-term investments? In their September 2013 paper entitled “The Investment Performance of Emotional Assets”, Elroy Dimson and Christophe Spaenjers estimate long-term returns for selected collectibles and review the risks associated with such investments. They focus on art, stamps and violins, and also consider wine and diamonds. Using repeat sales histories and catalog prices for aesthetic investments, along with contemporaneous returns for UK equities, UK government bonds/bills and gold, during 1900-2012, they find that: Keep Reading

In the prologue of their 2013 book entitled Happy Money: The Science of Smarter Spending, authors Elizabeth Dunn and Michael Norton state: “When it comes to increasing the amount of money they have, most people recognize that relying on their own intuition is insufficient, spawning an entire industry of financial advisors. But when it comes to spending that money, people are often content to rely on their hunches about what will make them happy. And yet, if human happiness is even half as complicated as the stock market, there is little reason to assume that intuition provides a sufficient guide. …trying to uncover the causes of your own happiness through introspection is like trying to perform your own heart transplant. You have some idea of what needs to be done, but a surgical expert would come in handy. Consider us your surgical experts.” Making liberal use of anecdotes to illustrate findings from an array of happiness research projects, they conclude that: Keep Reading

Are high-grade diamonds competitive with conventional asset classes as investments? In his April 2013 paper entitled “The Returns on Investment Grade Diamonds”, Luc Renneboog examines secondary market returns and risks of investment grade gems (white diamonds, colored diamonds and other gems such as sapphires, rubies, and emeralds). He compares their investment performance metrics to those of stocks, corporate and government bonds, gold and real estate. He ignores trading frictions. Using data for 4,750 transactions at gem auctions during 1999 through 2012, he finds that: Keep Reading

How should investors view illiquid assets? In the January 2013 draft of his book chapter titled “Illiquid Asset Investing”, Andrew Ang summarizes the characteristics of investments in illiquid assets. Illiquid investments typically exhibit infrequent trading, small trades (in terms of number of units) and low turnover. Examples are hedge funds (to some degree), real estate and aesthetic investments such as art and jewels. He does not address the largest illiquid component of an individual’s wealth, human capital. Based on available research, he concludes that: Keep Reading

Are diamonds useful as investment portfolio diversifiers? In their draft papers entitled “An Examination of Diamonds as an Alternative Asset Class: Do They Have What it Takes to Make a Portfolio Sparkle?” of June 2012 and “The Return Characteristics of Diamonds” of July 2012, Kenneth Small, Jeff Smith and Erika Small investigate diamonds as an asset class (returns and correlations of returns with other asset classes). They consider price histories of an aggregate diamond index and of indexes for several classes of diamonds segregated by quality and size. They relate diamond index returns to those for U.S. equities, world equities, emerging markets equities, long-term U.S. corporate bonds and precious metals. Using weekly levels of diamond and other asset class indexes during 2001 through 2011, they find that: Keep Reading

How do fine wines fare recently against stocks as investment vehicles? In the June 2012 version of their paper entitled “A Study of the Evolution of High-End Wines in Switzerland”, Philippe Masset, Jean-Philippe Weisskopf and Vincent Deboccard construct the recent evolution of fine wine prices in the Swiss market (among the world’s largest for fine wines). They define fine wine as “wine with a secondary market value, ability to improve in a bottle, a strong track record [and] critical acclaim.” They compare performances of an index comprised of 225 fine wines (post-1969 vintages, mostly red) and a high-end (first growth) fine wine segment to those of equity market indexes. Using secondary market prices from a leading wine auction house in Switzerland during March 2002 through December 2011 (22,711 observations from 46 auctions), and contemporaneous stock index returns, they find that: Keep Reading