The Mona Lisa was a relatively obscure portrait in the Louvre until it was stolen in 1911 by an Italian carpenter, who tried to sell it to an art gallery in Florence. The French were outraged, while Italy hailed the thief as a patriot who wanted to bring the painting home. Newspapers around the world put the Mona Lisa on their front page, insuring its global fame. The image came to represent Western culture itself.
There’s a certain subjective quality to what makes something a classic. Mark Twain’s definition—a book everyone wants to have read, but no one wants to read—rings true. People go to art shows or listen to music or read books because other people think the work has value. After all, who can really tell the difference between the composers Rameau and Couperin?
This has implications for investments, at least in the short run. John Maynard Keynes likened equity pricing to a beauty contest, where we don’t choose the most beautiful contestant, but the one we think other people will think is the most beautiful. So some investors look for “momentum plays,” where a stock is gaining favor and becoming more popular. Eventually, the equity becomes priced to perfection, and falls at the first sign of trouble.
In the short run the market is a voting machine. Sentiment can shift with the winds of fashion. But in the long run, it’s a weighing machine. Quality eventually wins. After all, to become famous, the Mona Lisa had to get into the Louvre in the first place
Douglas R. Tengdin, CFA
Chief Investment Officer