We read an article, today, in the new York times that talked about sales of art, art markets, and the value of art.  In their attempt to make analogies with other investments, the Times says several things that seem wrong.  It said that some collectors keep art in vaults.  Well, all securities companies, keep their stock and bonds in vaults, as do jewelers, coin collectors, and others.  They seem to imply that art is not a real investment, like other real investments.  I suppose, houses that eventually deteriorate and have to be torn down, or stocks in companies that go bankrupt, are more real.  The say that art is not like gold bullion, so, I suppose that I should appreciate the gold chains, around my neck (sorry, kidding, I'm not that kind of Italian; button my shirt to the second-from-top, too), more than I should appreciate a beautiful sculpture or a painting created by a really good artist.  Then, the rest of the article goes on to talk about corporate takeovers, which is also just perfect for me.

I used to be a merger arbitrageur, back in the 1980's and early 1990's.  Back then, people, like institutional investors, would not even consider investing in merger arbitrage because it was too risky.  They pointed out the fact that since we were making returns on hundreds of millions of dollars (which was real money, back than) of between 25% and over 100% per year it had to be too risky.  By the late-1990's when everyone and his neighbor thought that they could be arbitrageurs and hedge fund managers, too, and returns in the business had dwindled to around 10% or less, then, all of those institutions bought merger arbitrage funds because it was explained to them that those funds were funds of "absolute return".   Then, they found out that the returns were not so absolute, any more.

Of course, if we should not invest in canvases, why, then, should we buy paper that has messing printing all over it?  We invest in other paper, like stocks, bonds, options and futures.  We make investments in companies with little or no physical assets.  We buy old cars, coins and furniture as investments.  What talent should I pay for?  Should I pay a teacher who teaches me a lot about investment or an author who wrote a good book or an artist who created a beautiful piece of coinage, furniture, sculpture, or painting?  At least the artist makes only one, while the author and the teacher have not given me exclusive rights to the fruits of their talents.

The Times says that one certain art index and the high priced paintings bought at bubble prices have not been as good inflation hedges as other investments.  Personally, I have invested in securities, commodities, options, futures, art, real estate, and other things, and, while I have lost money in securities and commodities, I have always made money on art , even a very good annual return over the three decades in which I have invested in art.

Frankly, I am happy for the Times misconceived article.  I have been investing in inefficient markets for over two decades.  What screws up any market the most is the "discovery" of the market by the general public.  It happened with merger arbitrage.  it happened with stocks, in the U.S., in general, in the late-1990's when every one could buy stock on-line with pennies for commissions, just like it always had been for broker-dealers, and without taking to an adviser or even a broker for advice.   Surely, the new rich have discovered art and have bid up prices for the wrong reasons, but, if you want to talk about overvalued paper and losing money, then, you had better talk about securities, too, especially when so many people have lost money in those over the past 2 years.

Even Dow of Dow Jones recognized the reality of markets back in the 1800's with his Dow Theory that says the professionals are investing when everyone else is crying and running scared. The Baron de Rothschild said, "don't buy until there is blood on the streets."  Dow also pointed out that the professionals are "quietly" selling just when everyone else hops on the band wagon.  I advised people to sell the Chinese stock market almost two years ago after hearing every former student telling about how they were "playing" the stock market and they wished they had learned more about investment in my finance courses.  The doormen, in my apartment build were also quitting their jobs to sit at home and trade stocks, on-line.

Personally, I have bought a lot of art over the last six months, and the art that I have sold has been done at good returns on investment, so, I am happy to hear the New York Times tell you that art is not a good investment.

In the past, I have both made and lost money due to shoddy reporting, ill-thought-out analysis, or the media not getting its facts right because they had to rush to beat out the competition.  This time it's plus.  I love how the press was all over the fact that AIG paid some people bonuses, and then thye had the people and the government worked up into a lynch mob, and everyone started to call for return of the money.  Turns out that some of those bonuses were being paid to people who actually made money for the company. so that the company didn't lose as much so they didn't have to borrow more from the government.  Here is a link yo an open letter sent by one such person to the editior of the NY Times: http://www.nytimes.com/2009/03/25/opinion/25desantis.html .  I can empathize: I too have been screwed out of bonuses of that order of magnitude by a past employer.  But the press does not care; they just want to write a quick story.  I love, even more, how some of the talking heads from business TV have written books about investment.  It's easy to be an armchair quarterback, and perfect hindsight is not a special talent.  A good general fights in the trenches along side his men.

I love ignorance: after all, I am a teacher, and other peoples' ignorance earns me money!

If you like, you can also read some of the recent things that we have written about art markets and investment:

1. Investment Aspects of Art http://www.articlesbase.com/investing-articles/investment-aspects-of-art-788446.html 
2. Several articles on the In Country Analysis page of our website.
3. Contrarian Investment Strategy as PE Arbitrage http://www.articlesbase.com/investing-articles/contrarian-investment-strategy-as-pe-arbitrage-845377.html 
4. Information - the Most Important Thing in Investing http://ezinearticles.com/?Information---The-Most-Important-Thing-in-Investing&id=2233807 
5. The Antique Yixing Teapot Market Analysis http://ezinearticles.com/?Antique-Yixing-Zisha-Teapot-Market---Analysis&id=2295015 

Craig Mattoli, CEO, Red Hill Capital Corporation, Delaware, owner of Leona Craig Art www.leonacraig.com