The Da Vinci (Investment) Code

Is art an investment?

“Salvatore Mundi” by Leonardo Da Vinci. Source: Wikipedia

Leonardo Da Vinci didn’t leave many paintings, perhaps only a couple dozen. So when “Salvatore Mundi,” – commissioned in 1500 and later owned by Charles I and the Duke of Buckingham – resurfaced in 2005, the art world went a little crazy. It was cleaned and restored, and exhibited by London’s National Gallery in late 2011. In 2013 a Russian collector bought it for $127 million. It sold on Wednesday for $450 million.

There were gasps in the auction hall when the winning bidder – still undisclosed – made two big jumps in price to shake off any rivals. The price far exceeds the previous record for a painting – $300 million for the abstract painting “Interchange.” The price increase represents a 250% return on the original investment – 23% per year for 6 years. Of course, that doesn’t count auctioneer’s commissions, storage costs, insurance, and marketing. The auction house, Christies, produced a promotional video that plays back people’s reactions to the painting – there are no images in the video of Da Vinci’s work, itself.

Leonardo admiring Leonardo. Source: YouTube 3:08

As assets, paintings are collectible items, similar to old coins, or stamps, or vintage wine. They have their own idiosyncratic returns, and there are sub-classes and indices that group similar items. The returns tend to follow the general economy and the financial markets. After all, who’s going to pay hundreds of millions for an Old Master painting – or any collectible asset – if the economy isn’t strong?

Assets that generate internal cash flow, like equity in a company, or bonds, or bank loans, or rental housing, are investments. Assets that have no cash flow – such as collectibles, commodities, raw land, or Bitcoin – are speculations. There’s no way to realize the asset’s value unless you find another buyer. The market may be liquid, like corn or soybean futures, or illiquid, like art selling at high-profile auctions. If an asset is economically essential, like many commodities, there will always be buyers.

But art is different. It has an aesthetic appeal that can’t be captured by its price tag. Its attraction as an asset class goes beyond basic economics, or the fact that art is highly portable. Most of us have some kind of art in our homes and workplaces, and we celebrate art and artists in special ways. Great art – like “Salvatore Mundi” – can be transcendent.

Orb from “Salvatore Mundi”

Every asset has a price. But the price doesn’t always capture the value.

Douglas R. Tengdin, CFA

By | 2017-11-17T07:09:33+00:00 November 17th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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