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Why You Should Diversify



Why You Should Diversify


"Your currency is likely to become my problem"    Former Chinese Vice Premier Zeng Peiyan in a speech, July, 2009



The list of shaky, dollar holding creditor nations continues to grow.  Surplus countries like Russia, China, Kuwait, Brazil, Switzerland, and as of July, India, are openly revealing their intention to diversify their nations' currency reserves out of the U.S. dollar, in light of the U.S.' rapid accumulation of debt in just the past six months.  "The major part of Indian reserves are in dollars - that is something that's a problem for us." (Suresh Tendulkar, Chair of India's Economic Advisory Council, July, 2009)

Meanwhile, the S&P 500 stock Index is now trading at a record P/E ratio in the 120's, not only because of a run up in stock prices over the past few months, but because of a dramatic diminution of corporate earnings. Emphasize dramatic. What accounts for the fall? Well, when spending by consumers accounts for 2/3 of a nation's economy and those people suffer not only declines in the value of their homes, their largest asset, but also rising levels of joblessness, that spending can come to a sudden stop, as it has in the U.S. Given the fundamental source of the spending reduction, it would be foolish to expect a resumption in anywhere near the short-term. 

As a result, the majority of businesses are unable to reliably forecast a return to former levels of sales and profitability, meaning that these reduced levels of corporate earnings are neither one-time nor short-term, and in most cases, changes in corporate strategy won't solve the problem. Instead, corporate leaders will address earnings shortfalls with more layoffs, compounding the spending and production conundrum,  further elevating the price/earnings ratio,  and rendering the datapoint even more irrelevant as a way to gauge value. 

As unattractive as current bank rates of return are, the stock market by comparison is today loaded with unacknowledged risks.  Tangible assets like art are far more transparent with a degree of stability that many financial institutions, and even some AAA-rated government debt, can only dream about.


Capucines Boulevard

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Posted by Original Fine Art Gallery at 7/3/2009 7:08 PM | Add Comment

PRESS RELEASE - "Put Your Assets on the Wall™"



FOR IMMEDIATE RELEASE

Contact: Capucine Price    cappyart@gmail.com

312.203.0644

Put Your Assets on the Wall™

How Buying What You Love Can Get You the Return You Need

By Capucine Price

“Put Your Assets on the Wall™” details art’s unique history as an alternative for growing and preserving wealth. 

Today, art inspires a significantly higher degree of confidence than many of the nearest AAA-rated financial instruments.

“Put Your Assets on the Wall™” is a must read for anyone who is grappling with the quandary of how to invest in an era witnessing the ongoing dramatic decline in fortunes of traditional investments.  “Put Your Assets on the Wall” presents the timely analysis that demonstrates art’s superior investment performance during inflationary and other periods of financial upheaval throughout history. If investment methodology has one fundamental truth to tell, it is that proper asset allocation is the most important single investment decision an investor can make.  




In the midst of the current financial crisis, it’s clear that most savers and investors are overweighted in equities, despite recent experiences of the highest levels of volatility ever recorded. It may seem strange that a 14-year veteran small-cap value fund manager would say that, but in “Put Your Assets on the Wall™” Capucine Price uses the metrics of traditional investments to teach people about art as an alternative asset class, and a way to diversify one’s portfolio and hedge against volatility. 

In “Put Your Assets on the Wall,” former small cap value investor turned art entrepreneur Capucine Price helps people to gain an understanding of: 

Strategies to optimize portfolio performance

The role of alternative assets in a portfolio

How to inveset regardless of portfolio size

Why less expensive art outperforms

ABOUT THE AUTHOR

The writer is a veteran portfolio manager, co-owner of CapucinesBoulevard.com, and the author of “Put Your Assets on the Wall.” The author applies her background and expertise in investment management, specifically in small capitalization value stocks, to the world of art. Before heading into cyberspace, Capucine helped spearhead William Blair & Co.'s development of a value investment discipline and related products for institutional and mutual fund investors. 

Website: http://www.bestartinvestments.com/



Capucines Boulevard

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Posted by Original Fine Art Gallery at 7/1/2009 2:35 PM | Add Comment

The Case for Tangible Assets Becoming Overwhelming


In an article in Bloomberg today, it was revealed that the country's third largest insurance company, Northwestern Mutual Life Insurance Co, is diversifying into gold for the first time, EVER. Diversifying to the tune of $400 million in gold, to date, because of gold's history as a store of value.  The Company's CEO stated, "In the Depression, gold did very, very well...we have stocks in our portfolio that lost 95 percent."  



If an enterprise as conservative as an insurance company is jumping into tangible assets, isn't it time you did too? Art has a proven history as a store of value, especially during wars and recessions, and doesn't have to sit in a safe!



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Posted by Original Fine Art Gallery at 6/2/2009 8:49 PM | Add Comment

Art Is and Always Has Been an Asset

  Salmon Re-Writes Art and Financial History - Art Is and Always Has Been an Asset


In his blog of April 2nd, Felix Salmon interprets UBS' decision to shutter its art-advisory division as a positive presager of the death of the idea of art as an asset. Specifically, he writes:

UBS was always well placed to be the last man standing in the inevitable shakeout of art-advisory departments in investment banks. It had the most rich clients, and it invested by far the most money in pushing itself as the only bank which could manage both dollars and Diebenkorns. So this announcement is pretty shocking — but also a little heartening, to those of us who love art for its intrinsic rather than its monetary value.

Salmon's position flies in the face of centuries which have witnessed the happy coexistence of art's aesthetic and financial benefits and begs the question: Since when did intrinsic artistic value negate intrinsic economic value?

Today, art inspires a significantly higher degree of confidence than many of the nearest AAA-rated financial instruments. Salmon's argument seems more in tune with that sector of the art world cognoscenti intent on keeping those economic benefits from accruing to anyone outside of a tightly prescribed buying and selling circle. Such a stance contributes to keeping art at the level of a discretionary whim, a Saturday afternoon indulgence rather than an economic or any other necessity.

Let's take a look at what actually unfolded at UBS. To date, the bank has posted six consecutive quarters with tens of billions in asset writedowns, watched its stock price decline from $36 a year ago to $10 today, and has had its debt placed on credit watch by at least one of the major credit rating agencies. UBS' efforts to sell some of its major assets carry more than a whiff of desperation, it's cut thousands of jobs, and the bank itself has been rumored to be for sale. 

All of the above combine to leave little in the way of the reputational capital required for the inspiration of confidence in wealth management clients. So the announcement of UBS' exit from the art-advisory business is really not shocking at all. Salmon's imputation of his own agenda onto the actions of a diversified financial institution in the current economic climate is amateurish at best. Art as an asset didn't implode, UBS did. 



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Posted by Original Fine Art Gallery at 4/7/2009 10:37 AM | Add Comment

Emerging Artists Are the Best Place to Put Your Money

Emerging Artists Are the Best Place to Put Your Money


In the past fifteen months, pension funds have suffered approximately $2 trillion in losses. Over the past five years, the S&P 500 has lost 5%, and is flat for the past ten. With analysts continuing to revise their earnings expectations downward on an almost everyday basis because, despite the daily trickle of negative economic news, the modeled implications of the negative impact on our consumer society of this loss of wealth is almost too much for the popular business press to publish. 

David Dreman and Eric Lufkin produced a study in 2000 titled "Investor Overreaction: Evidence That Its Basis is Psychological" which examined just why it takes so long for a stock to make a new low once negative information is out. Less favored, or known, stocks often get penalized despite favorable fundamentals. It's the classic Growth vs. Value phenomenon. What Dreman and Lufkin concluded is that the facts are far less important than peoples' perception of a company when it comes to stock performance.  It's all about the psychology. Not so far from the results outcome reported recently by the real estate website Zillow.com which found that, despite widely reported year-on-year declines of 16% in average home prices, residents in the Northeast U.S. continue to overestimate their homes' value.  


What, you may ask, does any of this have to do with art? Well, in the same way that stock market investors get into the habit of attaching too much worth to their favorite stock despite all fundamental evidence to the contrary, artificially upholding its value 'til the very end, art enthusiasts too often 'place their bets' based upon name, or brand, recognition, when it is more often than not the lesser-known artists who are the better value.

Two economists at NYU's Stern School of Business, Jiangping Mei and Michael Moses, have developed one of the most respected art indices. Their work centers around an examination of the auction results of over 11,000 sales transactions. Interestingly, in research reported in the magazine Registered Rep, they found that in over 4,500 cases it was not the most expensive paintings which provided the most return for investors, but those at the lower end of the pricing scale.

As society grows more comfortable with the idea of art as a legitimate investment vehicle, the necessity of appropriately guaging the potential posed by emerging artists versus the few known, hot commodities increases. Emerging artists lack the price premium, and therefore the risk, of the more established, "growth" artists. Notwithstanding his works' aesthetic appeal, the time to have bought Damien Hirst was when he was relatively unrecognized, or in investment parlance, when there was actually alpha relative to the art market.


Like any other inefficient market, the opportunity exists in the art market to realize outsized gains via active management of a portfolio. When it comes to value investments, the greatest gain is always realized by buying the stock whose price is the furthest below its intrinsic value. As a group, emerging artists fit squarely in the value camp, with equally strong prospects. Why assume that a tiny minority of artists, blessed with the impremateur of a small pool of art dealers, would produce the only art worthy of collectors attention and investment?

 

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Posted by Original Fine Art Gallery at 10/30/2008 2:38 PM | View Comments (2) | Add Comment

Why Art is the Best Place to Put Your Money

Why Art is the Best Place to Put Your Money


Volatility in Equity  Markets

Hedge funds lost a total of $43 billion in September, and ongoing client redemptions are causing these funds' continuing liquidations of equity positions. As a result, the man who in 2006 first predicted the current worldwide economic recession, Nouriel Roubini, is now forecasting the near-term closure of equity markets for as long as a week in an effort to stem sharp losses. 


In a sign of the stock market's widening impact upon the real economy, consider the fact that over the past fifteen months thru October 7th, Pension funds lost $2 trillion in value, while the agency that guarantees that these funds will have the dollars they need, the Pension Benefit Guarantee Corp, thru August has lost $2.2 billion on its investments. 



The CBOE Volatility Index is currently at levels never before reached since its inception. And as any money manager will tell you, it's not the bad news that is most jarring to a stock's performance, but rather uncertainty, and prospects for near or intermediate term stock market performance remain anything but predictable. If, as some have predicted, the market as represented by the S&P 500 posts $50-$60 in earnings next year, then applying a recession-level multiple to that number would yield an S&P at 500-600, nowhere near today's level near 900. 


Also consider the fact that the Dow Jones Industrial Average, having lost 37% year-to-date, cannot have fully discounted the full effects on our consumer-driven society of almost daily downsizing announcements from corporate America. There is little reason to expect the stock market to quickly resume an upward trajectory when consumers, who have for many years provided the fuel to our economy, can no longer rely upon refinancings to fund their spending, and are in fact declaring bankruptcy at almost unprecedented rates. One million jobs have already been lost this year and economists' estimates are for another million to disappear going forward. Continuing the trend, yesterday's report of jobless claims came in at a higher than expected 15,000 last week . 


All of the above facts point to a need for investors to employ a risk-reducing, diversified investment strategy, incorporating alternative assets. Even absent the conditions present in the market today, making the deliberate decision to be fully invested in the stock market inherently implies acceptance of a degree of risk. In that case then, the decision should be made to diversify with the inclusion into the portfolio of assets which have no or little correlation with the market, in order to minimize risk and maximize return potential.


As a real and tangible versus a monetary asset, art's low correlation with the stock and bond markets makes it an excellent diversification vehicle -- enabling reduction in overall portfolio risk and enhancement of overall risk-adjusted return. The relative strength in art's performance over the past decade is, at least in part, attributable to the broadening collector base; sixty percent of Sotheby's clients over that time period are new to the auction house. 


Even more important, however, is the fact that many view art not as a discretionary luxury, but instead as the store of value that it has always been, especially during economically trying times. Art has often been one of the most stable, not to mention profitable, investments during uncertain economic times. In fact, when the stock market took a swoon in 1987 and again in 2001, outperformance by the art market was notable.


Two NYU economists, Jianping Mei and Michael Moses, developed the Mei Moses All Art Index. The index analyzes the repeat sales of over 12,000 works of art at auction since 1950 to generate precise return data. The pair reported in an article in Forbes that "during the armed conflicts of lengthy duration of last century, art indexes outperformed major stock indexes." When stock markets fell during World Wars I and II, art outperformed the S&P during most of those years, and by 1920 had risen to 125% of its 1913 value (versus 94% for the market). Further, while the S&P 500 increased 67% during the Korean War (1949-1954), art was up 108%, and during the Vietnam War (1966 to 1975) when the S&P 500 fell 27%, art rose 256%.


However, art's outperformance of the equity markets is not confined to times of war, but surpasses the more traditional investment vehicles as well when the markets are roiled by a troubled economy, exactly the situation we find ourselves in today. In an article in InvestmentU, Mei/Moses analysis of data from the 27 recessions since 1875 reveals that art does quite well in tough economic times. Investors want and need to invest their money but when confronted with volatility-producing uncertainty, the foundation of the bellwethers becomes rocky, and investors turn to art.


For example, in 2000, the U.S. economy was facing many of the same conditions as it does today: declining retail sales, reduced capital spending and tightening bank credit standards. The peak in the Dow Jones Industrial Average that occurred on March 10, 2000 was followed by a loss of almost $3 trillion in market value and an overall loss for the year above 10%. Results for art were much different however with the Mei/Moses Index gaining 16%. In addition to its outperformance, art has a low correlation with the stock and bond markets which makes it an excellent way to diversify a portfolio, and reduce overall risk. Far from being a luxury, it can be argued that art is an essential component of any portfolio.



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Posted by Original Fine Art Gallery at 10/27/2008 9:53 AM | View Comments (1) | Add Comment

Art Provides the Best Investment Return


Art Provides the Best Investment Return


"Nonfinancial assets form the greater part of world wealth and have been more stable in value during periods of financial and social turbulence" Roger Ibbotson and Gary Brinson

Interest in reliable alternative investments is always heightened when the foundations of the bellwethers become rocky. And if history is a reliable guide, art values will continue to be favorably impacted as credit and equity markets lose their luster. I would argue that now is the time to go for the non-traditional investments and to look to instruments that over time will, and have, served as true stores of value, such as ART.


When making asset allocation decisions, especially in such economically challenging times as these, just consider the fact that Thru early October, investing in the S&P500 earned a 0% return for the past ten years - that certainly was not the case for investors in art, in fact those fortunate or smart enough to have bought and held art over ten years ago would have a realized a phenomenal relative gain.

Going forward, given that the consumer sector makes up 2/3 of the economy, and in light of growing unemployment, non-existent credit and sharp declines in the value of the housing stock, and people's retirement and investment accounts, it's safe to say that the consumer will continue to rein in spending, making it increasingly difficult for companies to realize earnings gains. In such a scenario, the stock market becomes an even dicier place to expect to reap positive returns.

And finally, remember that art has a low correlation with the stock and bond markets which makes it an excellent way to diversify a portfolio and reduce overall risk. Far from being a luxury, it can be argued that art is an essential component of any portfolio.
 

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Posted by Original Fine Art Gallery at 10/14/2008 4:43 PM | Add Comment

Asia Bond or Art?


Asia Bond or Art?

Today, the former prime minister of Thailand, Thaksin Shinawatra, proposed that a new Asia bond should be established by the nations of Asia with the goal of reducing participating countries' dependence on U.S. dollar investments. These countries generate an annual combined balance of trade surplus of around $400 billion versus the U.S'. annual deficit of $800 billion (averaged over the past decade).  Specific U.S. rescue packages launched just in the past two months, combined with today's announcement of the rescue of the commercial paper market, put the U.S. on the hook for at least another $2 trillion in emergency spending, none of which is likely to actually dampen the current recession. 


The prime minister argues that given the pullback in U.S. consumer spending brought on by the recession, combined with the severe hits to performance that these nations' private and sovereign investment vehicles have taken in the U.S. markets, translates to this need to create just such an alternative investment to U.S. treasury bills. More specifically, their populations are crying out for tangible investments without a hint of derivative product about them. Given the corresponding performance of the art market, particularly Contemporary art, perhaps their most attractive alternative is not another financial instrument, but those on canvas instead.



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Posted by Original Fine Art Gallery at 10/7/2008 2:32 PM | Add Comment

Damien Hirst's Sotheby's Auction Begins the Unwinding of the Hegemonic Gallery/Dealer System - Art, The Safety and Beauty of Real, Tangible Assets



"Non-financial assets form the greater part of world wealth and have been more stable in value during periods of financial and social turbulence." - Roger Ibbotson and Gary Brinson, "Global Investing"  

Between September 15th and 17th, Wall Street and world financial markets were turned on their heads as 158 year-old investment bank Lehman Brothers filed for bankruptcy, followed by the Fed's rescue of the insurance behemoth AIG. Credit markets seized up, stock markets plummeted and gold dramatically reversed its weeks-long downward movement. 

However, it was obvious that no one had though to inform art lovers as concurrent with the carnage on Wall Street, the artist Damien Hirst was busy staging a record auction of work by a single artist, selling $200.7 million of his most recent work at Sotheby's. The game-changing auction of 223 original pieces of art has effectively changed the rules of the game, permitting an art lover to simply walk in off the street, without having to demonstrate their 'seriousness' to a dealer or gallery-owner, bid for a piece of original art and become its owner. Requirement: money. Not required: proper referrals, lineage, documentation of existing portfolio, etc. 


Not only did the sale highlight the juxtaposition between those assets with value (the visual and tangibly creative) and those woefully lacking it (creative financial instruments), but it signals a sea change in the way that artists view their options, as well as the volume of work from which the public can now choose. And in that sense it marks a seismic shift toward a newly democratic artworld. 

The wildly successful auction at which all but five pieces sold marked the first time that original artwork was auctioned without having passed through either a gallery or dealer's hands. With the increased number of venues for marketing and selling artwork, the argument against consigning art first to high-cost (50% or higher) brick-and-mortar galleries and dealers has acquired a new solidity. 

Poverty is not the cost of respect in any other industry or endeavor, however, it has seemingly been inculcated as such within the realm of art. 
Hirst himself refers to the 50% cut taken by galleries as "an extortionate amount of money."


When Claude Monet hosted the first exhibition open to the public of Impressionist artwork in the 1800's, in effect circumventing the prevailing juried system, it's unlikely there were very many cheers from the establishment. However, the exhibition held on the Boulevard des Capucines undoubtedly altered the way that artists' sold their work.

Under the dealer/gallery system, a romantic notion was repeated often enough and allowed to codify as a truth, i.e. that artists must suffer to produce good art and that any state other than perpetual poverty for an artist translated to 'selling out.' Not in any other creative or sports-related endeavor does this fiction exist, and it has survived only because of the prevailing inefficient sales and management structure under which the levers of power were tilted in favor of distributors instead of producers.

In the end, no industry is spared the power of the market - all are eventually mean-reverting. Hirst's auction represents quite a few miles logged on the road to reversion.

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Posted by Original Fine Art Gallery at 9/23/2008 6:25 PM | Add Comment

Chip Mumford - Featured Artist at Capucines Boulevard



about the artist

I’m a citizen of the United States of America, and I’ve lived and worked in China for six years. My family and I run an art business together in China. 


We do not own a sweatshop filled with underpaid workers applying oil paint over photographs printed on canvas. We commission local professional artists with years of experience to produce your portraits by hand in their own homes and studios.



artists' statement

We offer several types of handmade artwork, including high-quality hand-painted oil portraits or charcoal drawings made from your photographs, a specialized Chinese craft known as polished lacquer paintings, and white marble sculptures. 


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Posted by Original Fine Art Gallery at 9/15/2008 2:55 PM | Add Comment
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