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* Newsletters * The Daily Cut * Experts * Products * Library * About * LOG IN * Search * LOG IN * The Daily Cut * Experts * Products * Library * About * Contact -------------------------------------------------------------------------------- * Casey Research * Rogue Economics * Palm Beach Research Group * Brownstone Research THE DAILY CUT SIDESTEP INFLATION WITH SHARES OF BLUE-CHIP ART Chris Lowe, Scott Lynn | Sep 22, 2022 | The Daily Cut | 4 min readPrint -------------------------------------------------------------------------------- Chris’ note: Inflation is the biggest threat to your wealth right now. It’s sent stocks and bonds tanking. It’s also sent the Fed into rate hiking mode. That’s pushing up the risk of recession. To fight back, colleague Teeka Tiwari recommends scarce assets such as collectibles and art. The government can “print” as many dollars as it wants. But it can’t print a 1960s Ferrari 250 GTs or a Pablo Picasso painting. This, plus their enduring desirability, makes them great stores of value. Yesterday, I showed how you can now buy shares in artworks by Picasso and other iconic artists through a platform called Masterworks. It’s the brainchild of tech entrepreneur and art collector Scott Lynn. I spoke with Scott about how owning shares in artworks can help you build a higher-return, lower-risk portfolio… and how you don’t have to be a wealthy buyer to take advantage. It’s all in the Q&A below… -------------------------------------------------------------------------------- Q&A With Scott Lynn, CEO, Masterworks Chris Lowe: Buying shares in iconic artworks is a game-changing idea. What’s the origin story of Masterworks? Scott: For about 20 years, I’d been starting technology companies across different segments – from gaming to FinTech. And I was collecting art throughout that time. Masterworks takes my passion for art collecting and combines it with my finance and technology skills. It takes this asset class – art – that has been available only to wealthy buyers. And it opens it to everyday investors through securitization. Chris: Walk our readers through how that works. Scott: It’s the same thing private companies go through to go public. We take a work of art… file it with the SEC [the U.S. Securities and Exchange Commission, the main stock market regulator]… and sell shares in that work of art. Chris: I was calling it fractionalization, because it allows you buy a fraction of a Picasso. You call it securitization. But it sounds like it’s the same thing. You take a painting, turn it into a company, and sell shares in it. Scott: Exactly. Chris: What advantages does art as an asset class bring for investors? Our readers may own stocks, bonds, cryptocurrencies, and private shares in regular companies. Why add contemporary art? Scott: It’s down to diversification. Investors with a traditional 60/40 portfolio split between stocks and bonds are susceptible to volatility like we’re seeing right now. That portfolio is down about 17% this year. It isn’t diversified enough across other asset classes. Take a step back and ask yourself what you’re trying to do as an investor. You’re trying to generate the highest returns at the lowest volatility. The way you do that is to diversify across a bunch of different asset classes that don’t move in lockstep. When one goes down, another will go up or stay flat. This smooths out the overall volatility in your portfolio. Art is a great way to do that. The correlation between art and the S&P 500 is between 0 and 0.2. A correlation of zero means the two assets move independently of each other. So that’s a very low correlation. Plus, the Masterworks portfolio has appreciated at roughly 15% to 15.5% a year since it got going in 2018. So you also have these great returns. Chris: What about inflation? How does that affect art prices? Scott: There are two things to understand about art prices… First, they’re linked to the growth in the global top 1%. The folks buying and trading these $10-, $20-, $30-million paintings tend to be the wealthiest people in the world. And generally, they behave differently during inflationary cycles than regular investors. Second, the art market is global. The U.S., China, and Western Europe account for roughly 75% of the global art market. You can buy a painting in New York, put it on a plane, and sell it in Hong Kong. They aren’t as susceptible to country-specific issues as other asset classes. So I would say art prices are mostly neutral to inflation. Inflation doesn’t really change how art prices appreciate. It’s not like a bond that’s going to go down in value as inflation rises. Chris: Do I buy shares in that painting through my broker like how I buy shares in Microsoft or Ford? Scott: At Masterworks, we do something called “issuer direct.” We sell shares directly through our website. You don’t need a brokerage account to invest in them. Just go to the Masterworks website, create an account, and speak with one of our financial advisors to get started. Our minimum for each painting is $15,000. But if that’s not suitable, we lower that for investors. That’s something I’d encourage your readers to discuss with our financial advisors. They’ll give you advice on how to get started in a way that makes sense for your needs. Chris: What does your client base look like? Are we talking mom-and-pop investors, family offices, or big institutional players? Scott: All the above. We don’t work as often with investors who want to invest $500 on the hopes of it turning into $50,000. It’s more about building a higher-return, lower-risk portfolio that allows you to build steadier wealth over time. Chris: Thanks, Scott. Scott: My pleasure. WANT MORE STORIES LIKE THIS ONE? 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