There are four things (I think) you should never invest in. Gold, Diamonds, Fine Art and Bitcoins. They are just so impossible to value. Gold is pretty and diamonds are a girl’s best friend, art looks nice and Bitcoins are all the rage, it’s true. The problem is, none of these things provide you with any form of current or future potential income. If you do invest in them, you do so in the sole hope that someone in the future will be willing to buy them off you at a higher price.
Before you get all snarky, yes, hoping you can sell something at a higher price in the future is the reason you invest in anything, I get it. The difference with these four though is that their value is impossible to estimate. When you invest in shares, you effectively own a portion of a company and therefore its profits. When you own a house, you receive rental income. Bitcoin, art, diamonds and gold? Zero. Zip. Zilch. Nada. Nothing.
Anyway, the point of today is to let you know, yet again, I have been proven spectacularly wrong.
A short back story
Some time back in the early 1500’s, Leonardo, in between one of his many duels with Shredder, painted “Salvator Mundi”, a portrait of Christ giving benediction. It’s not particularly anything, but like Gucci, its got good brand recognition. As with most pieces of art from that era, its changed hands a few times, been lost, rediscovered and restored. Then, in 2013 it was bought by a Russian aristocrat for 127 million dollars. That’s some serious cash son. For something you hang on the wall. For something you can only hang on the wall.
Don’t invest in art.
Or maybe you should…
Yesterday, someone with significantly more money than sense, bought Salvator Mundifrom the Russian fella for over 450 million USD dollars. That is more than half a billion dollars when converted into AUD. Come on man. That is ridiculous. It would cost you less to buy an Airbus A380.
You want to know the craziest part. There is not even consensus as to whether this painting was in fact painted by Leonardo Da Vinci in the first place. The propeller heads of the art world “think” it was, but it is impossible to prove. There is a chance it could be a fake. So why did the anonymous buyer buy it? I can think of three reasons:
- Because they can. Not many people can easily lay down a cool 450 million dollars for, well anything. The buyer could, and more than likely, this wad of cash was just a drop in the ocean for them. The Russian guy who bought it previously is worth 7.3 billion FYI…
- Because is prestige in owning such a piece (assuming it is in fact a real Da Vinci).
- Because they believe at some point, they will be able to sell it at a higher price to someone else.
450 million is a lot of money to spend for points 1 and 2, so you have to assume they are doing it at least in some part to make money as well. To do that, they’ll need to find someone in the future who thinks that someone else further in the future is going to be willing to pay considerably more for it. That is how it works for art. And bitcoins. At some point, the music has to stop.
Like I said though. I continue to be spectacularly wrong.
Small side note: There is a big difference between investing, speculating and buying for usage. I have no issues buying diamonds (for you babe) or gold. And if you want to speculate on bitcoins or art, then more power to you. But when it comes to investing, it’s a totally different ball-game. Just make sure you are clear, which of the three you are doing.
Anyway, that’s 5 minutes. Hope it helped.
Categories: General Finance