"Same Sh*t, Different Asset"
Whether it's stocks, bonds, collectibles or property, the underlying mechanics are the same
Background Context
I know the US Presidential election is next week and I imagine you’ve been inundated with information around this so I won’t add to that noise. Worst case scenario the vote counting process could drag on until mid-December so plenty of time to get bombarded if you haven’t already.
Instead I wanted to draw your attention to some conversations I’ve been having recently. I’m always thinking about ways to deploy cash, diversify investment exposure and hopefully generate decent returns. I was contemplating investing in some art pieces (not my specialism at all) and therefore had to do a ton of research and due diligence to understand the basics of the playing field. It’s been a while since I explored a completely new asset class as a novice so it was actually quite enjoyable. Interestingly, I found that at the simplistic core, the fundamental mechanics of art as an asset class is just like all the other asset classes spanning from stocks to property. A friend of mine is an art and luxury watch investor so naturally I sought his counsel.
Photo by Christian Fregnan on Unsplash
Fundamental Mechanics
My art investor friend highlighted that some of the most important considerations for choosing a works to invest in are:
the quality and status of the artist
the series of the artists’ works
the exclusivity
the valuation
Ultimately the overall demand/supply profile both currently and expected in the future dictates everything. Although the nitty gritty details of these elements are more complex and as such require specialised knowledge, the structure is the same as all other investment asset classes. For example, for property it may look something like:
the condition and value add potential of the property (akin to the quality of the artist)
the type of property (akin to the an artists series)
the location (therefore the exclusivity)
the valuation (buy low sell high)
I could overlay this basic structure (which also helps determine the overall risk profile) again and again for numerous asset classes because when you strip it down to the bare bones, demand and supply dynamics determine where the price will go and consequently the likelihood of success of the investment.
Best Fits
With that said, one could make the logical extension that a successful investing journey does not require participation in specific asset classes. Granted, some routes are much more suitable for beginners than others (always stick to your risk appetite) and have a lower barrier to participation. Personally, I built up exposure to the basics (pension, passive index funds) before branching out to less traditional more risky asset classes. Having said that, my strategy is most definitely not the only way. I have seen people whose sole portfolio consists of one asset class, be it art or luxury watches or property or stocks. Each person is successful in their own right, the only difference is they each have specialist knowledge of their chosen asset class which gives them an edge against novices trying to play the same game. Alas, the main point is this:
All asset classes fundamentally operate the same, specialist knowledge and overall risk profile may differ but with the right setup success is attainable regardless of the route chosen.
Some people like to pull levers they can somewhat control so will perhaps select one asset class to invest in while others prefer a more diversified approach and therefore pull levers in their specialist area but use advisors or invest in others to pull levers in other assets classes. Standing on the shoulders of giants is a phrase that comes to mind.
I’ll leave it there for now and will catch you in November !
Peace ✌🏾
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[ Online Masterclass Essential Finance Basics for High Earners ] 31 Oct
Covering simple tools, checklists and hacks to ensure you make the right financial decisions. Finance is simple when you know.
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