A recent article in The Wall Street Journal reported that a number of hedge fund managers have been investing in the art market, often seeking newer or out of favor artists with a view to the traditional trading approach of “buy low, sell high”. This is not surprising, as hedge fund managers have a long history of innovative and aggressive investment strategies.
Trading can be a very successful strategy on its own. However, a closer look at some of the publicized purchases suggests that the interest in art may be something more than just “buy low, sell high”. Paying top dollar for high profile works by very well known artists such as Monet and Picasso may also reflect some concerns regarding the long term purchasing power of the dollar. Activity at the high end of the art market is only part of a broader trend towards record prices for other exceptional and unique collectibles, such as automobiles and diamonds.
Investing in “stores of value” can be a rational hedge against future inflation. While current cost of living data suggests that, at least for the near term, inflation in the U. S. is relatively moderate, recent events in a number of countries, particularly Venezuela and Argentina, suggest that uncontrolled money printing can lead to significant inflation.
Any long term portfolio strategy should consider the potential for inflation and the importance of protecting purchasing power. While this is not always easy, and different investors may have different objectives, inflation has been a material issue in the past.
As they said in “Damn Yankees”, “You Got To Have Heart”.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA