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  • June 8-June 12, 2020

a look back at this week’s essays…

 

The End of Intimacy, Trust, and Love

 

I’ve been thinking about how the world has been coming apart lately…

 

Click here to read more.

 

 

The End of Real Knowledge

 

“When I take over the world the first thing I’m going to do is abolish social media,” I announced.

 

“Yeah, right,” my sister said.

 

“Not funny!” my niece shouted.

 

“You can abolish Facebook, but don’t touch my Twitter,” my daughter-in-law warned.

 

We were joking. Sort of.

 

Click here to read more.

 

 

Fine Art As a Long-Term Investment

 

In my first essay in this series, I made the broad case for why you should consider investing in art…. Today, I’m going to explain why so many ordinary, “amateur” art lovers – people who are not necessarily financially savvy – have, nevertheless, seen their art holdings appreciate amazingly, leaving them and their heirs immensely rich.

 

Click here to read more.

 

 

quick quiz

 

  1. How much do you remember about this week’s “Words to the Wise”? Use each of these words in a sentence:

 

*  anagnorisis (6/8/20)

*  cursory (6/10/20)

*  acumen (6/12/20)

 

  1. Fill in the blanks in this week’s quotations:

 

* “When I got my first _____, I stopped caring so much about having close relationships.” – Andy Warhol

(6/8/20)

 

* “The simplest thing cannot be made clear to the most _____ man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.” – Leo Tolstoy (6/10/20)

 

* “There’s something to be said about the art-industrial complex, the collectors who recognize that your work has some sort of future _____ value.” – Kehinde Wiley (6/12/20)

 

  1. Are these statements True or False?

 

*  The 2nd Law of Thermodynamics states that for every action, there is an equal and opposite reaction. (6/8/20)

 

*  According to James Clear, author of the book Atomic Habits, social connection can actually be more helpful to your daily life than understanding the truth of a particular fact or idea. (6/10/20)

 

* Michael Jordan makes more money from Nike each year than all the Nike factory workers in Malaysia combined. (6/12/20)

 

 

 

recommended links from this week’s blog

 

* If you don’t approve of the looting, but are horrified by the murder and want to do something actionable that is consistent with your moral and political views, you might want to contribute to this guy. (There are hundreds more like him. You can locate them if you look.) Here

 

* “How to Change the World by Doing This One Thing Every Day” by James Altucher – a good thought piece. To read it, click here.

 

* This short WSJ video reports on what some believe schools will be like in the future. I don’t believe it…Here

 

 * “Full Bore” – a quick, amusing read by one of my favorite essayists in Taki’s Magazine. Click here.

 

* I’ve watched 50+ interviews with doctors and scientists on COVID-19 and the lockdown. This doctor does the best job in explaining the facts in a way that anyone should be able to understand. Here

 

Q&A

 

Your Question:

 

I liked your “Free Is Bad” essays.  What you said in Part 1 of this series is a reminder of what we learned in direct mail and have forgotten as we’ve moved into the electronic age. A buyer’s list was always worth more than an enquirer’s file. Also, you can cross-sell much more to a file that bought an expensive product, than you can to buyers of a cheap product. You just have to work harder to get the first sale.

The current trend to get a “small purchase first and then build on this,” I believe has been invented by people with very little direct-mail experience and never fully tested.

I don’t have any experience running charitable foundations, but all your comments in Part 2 made sense.

Will there be  a Part 3?

 

My Answer:

 

To your comments about free offers, I would add this: When the direct-response industry shifted from snail mail 20 years ago, there was a five- to six-year window when anyone could make a killing using the free-to-paid model. The Agora, my primary client, was probably the world’s leader of this model back then. Many people still call it the “Agora” model.

But even back then it was clear to my partner and me that those days of easy pickings were not going to last. Because the barrier of entry was so very low, thousands of new companies were flooding into the market and steadily pushing up the cost of acquiring “free” names.

That’s ancient history now. But there are still countless internet marketing gurus out there in cyberspace promoting this antiquated notion. And, yes, it still works – but barely.

The competition has returned to product quality and salesmanship, where it should be.

What many don’t understand about free-to-paid marketing is that amassing a huge free file today is not a meaningful marketing event. It is not a sale. It is merely a digital version of renting a direct-mail marketing list.

As JSN told me a hundred times when I worked for him: “The business doesn’t start until you’ve made the first sale.” Persuading a prospect to sign up for a free product is not a sale. It’s a marketing expense.

The magic happens when the sale is made. And making a sale today is not easy.

Re your question: Yes, there will be a Part 3… and probably a Part 4.

 

 

Your Question:

 

In reading your June 5th blog, you state that “last year there were 41 deaths of unarmed people by police.  Of that group 20 were white and 9 were black.”  I can’t find that statistic anywhere on the web.  Can you send me the source?

 

 

My Answer:

 

The numbers came from The Washington Post’s Police Shooting Database. (Since 2015, the Post has created a database cataloging every fatal shooting nationwide by a police officer in the line of duty.)

Following are some additional numbers. Note that the ratio of black to white deaths has been getting smaller every year since 2015. Next week, we will be publishing a longer essay on this issue.

 

201594 Total

32 White

38 Black

19 Hispanic

5 ‘other’

 

2016 – 51 total

22 White

19 Black

9 Hispanic

1 ‘other’

 

2017 – 70 Total

31 White

22 Black

13 Hispanic

3 ‘other’; 1 ‘unknown’

 

2018 – 58 Total

25 White

23 Black

8 Hispanic

1 ‘other’; 1 ‘unknown’

 

2019 – 55 Total

25 White

14 Black

11 Hispanic

5 ‘other’

 

2020 – 24 Total

10 White

7 Black

3 Hispanic

1 ‘other’; 3 ‘unknown’

 

Totals (2015-2020)

352 Total

145 White

123 Black

63 Hispanic

16 ‘other’; 5 ‘unknown’

 

Have a question for me? Submit it on our Contact Us page.

 

 

For a look back at the stock market, click here.

 

 

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Fine Art As a Long-Term Investment* 

“There’s something to be said about the art-industrial complex, the collectors who recognize that your work has some sort of future economic value.” – Kehinde Wiley

 

In 1989, a triptych by Francis Bacon sold for $7 million.

In 2013, a similar piece by Bacon sold for almost $140 million. Assuming the two pieces are roughly the same (a fair assumption), that amounts to a profit of more than $130 million in 24 years.

In terms of compound annual growth, it equates to a bit more than 13%. And that’s better than the stock market’s annualized return (just over 10% annually) for that same period.

In my first essay in this series, I made the broad case for why you should consider investing in art: If you invest wisely, you can do very well by earning a return on your money that is about as good as stocks but with a lot less volatility.

Today, I’m going to explain why so many ordinary, “amateur” art lovers – people who are not necessarily financially savvy – have, nevertheless, seen their art holdings appreciate amazingly, leaving them and their heirs immensely rich.

Let’s begin with this…

 

A Fundamental Difference 

There is an important difference between the psychology of the usual stock investor and that of the usual art collector.

The stock investor is motivated by a desire to build wealth. He buys stocks hoping they will grow in value and thereby contribute to his net worth. The art collector is motivated primarily by an emotional attachment to art and art collecting. She may hope to see her art collection appreciate in value, but her motivation in buying art is more complicated.

When I started buying Coca-Cola stock, for example, I didn’t buy it because I liked the taste of Coke. And I certainly didn’t ask for a stock certificate so I could hang it on my wall. I bought shares in Coca-Cola because I believed they would appreciate in value while paying me good dividends for as long as I held them. I bought them to help me grow my wealth.

When I bought my first watercolor by Diego Rivera, I was aware that I was buying the work of an important 20th Century modernist painter. But my motivation for buying it wasn’t its potential for appreciating. It was the desire I had to own it, to have it and keep it, and to display it and look at it.

I bought it because I had fallen in love with Rivera’s artistry and his place in art history. I wanted to show my friends – by hanging his work on my walls – that this master painter was, in some way, a part of my life.

 

The Sorry Psychology of the Individual Investor 

Although investors buy stocks for the clear and single purpose of increasing their wealth, they don’t do nearly as well as you might think.

According to countless studies, individual investors – even the “sensible” ones who buy serious companies like Coca-Cola – make far less on stocks and bonds than they should. This is also true of mutual fund investors and even of people who invest in index funds.

Index funds are mutual funds that track the market. So how can investors do worse than the market if they are investing in the market?

The reason, these studies show, is in their psychology.

Individual investors have a tendency to sell their stocks when  prices are dropping and buy into the market when prices are rising. This, everyone knows, is not the way to optimize a stock market portfolio. These investors violate good sense because of their emotions. But they are not attached to the stocks per se; they are attached to the fluctuations of their pricing.

In other words, they are no different than art collectors in their tendency to let emotional attachments rule them, but they attach their emotions to the wrong thing.

 

Art Collectors Are the Same but Different 

That explains why so many stock investors generally do so poorly. But why is it that some art lovers – even those who have, as I said, no financial acumen at all – often make gobs of money collecting art?

To answer that question, we must first understand something about the value history of fine art.

According to Kyle Sommer of JPMorgan Chase, “Art tends to move in slow and long-term cycles. Looking at performance on a risk-adjusted basis [returns divided by standard deviation] over the last 50 years, the Mei Moses World All Art Index matched that of the S&P 500 index. On a 25-year basis, the Mei Moses World All Art Index looked relatively strong, outpacing the MSCI EAFE as well as the S&P 500.” [The MSCI EAFE is an equity index that measures the performance of markets outside the US and Canada.]

So, one answer is that the ups and downs of art markets tend to be less dramatic than those of stocks. As a result, there is less opportunity for art collectors to overreact to price fluctuations, buying when they should be selling and selling when they should be buying.

But a more important answer is that art collectors are fundamentally less likely to make irrational buying/selling decisions when there happen to be fluctuations.

And that is because, as I said above, they form emotional attachments to the art itself. Their core desire is  to hold and keep the art object so they can enjoy it. Profiting from it is, at best, a secondary consideration.

If you know any art collectors, you have seen the truth of this in action. Art collectors love everything about collecting art. They love buying it at auctions, in galleries, and at exhibitions. They love putting it up on their walls and showing it to their friends. They love learning about it. And they love looking at it.

But if and when an opportunity to sell it comes up… that, they do not love.

I discovered this truth about yours truly when I opened my first art dealership – Morgan Fitzgerald Fine Art – nearly 30 years ago.

The first piece I put up for sale was a landscape by a mid-18th century French painter. I had bought it years earlier for $2,500. Its market value had doubled and I was offered $5,000 for it by a fellow collector. I should have been happy to complete my first sale at this price, but I was mortified. I told him my asking price was $7,500… and he quickly came back with a $7,500 offer. That convinced me that I should never sell the piece. It hangs on the wall of my library today.

No, art collectors don’t like selling their art. If the value of a particular piece goes up, they feel vindicated in their decision to buy it and their attachment to it becomes stronger. And if the price goes down, they feel upset not with the object or their decision to buy it but with the art market! (“These idiots don’t realize how great this painting is!”)

We collectors of art like the idea that the pieces we buy will appreciate because it makes us feel smart and it justifies our spending habits. But we don’t like selling our paintings and drawings and sculptures because we value the pride and pleasure they bring, and we don’t want to give that away.

That is our saving grace. And that is why so many amateur art collectors see the value of their collections rise so high. Our attachment to the thing rather than its price makes us natural  long-term investors. And long-term investing is always the smart, safe way to build real wealth.

 

* This series of essays gives you an advance look at a new book that I’m working on, based on my experiences over the past 40+ years as a collector and investor in fine art.  

 

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