HN Books @HNBooksMonth

Don Thompson gets after this from another angle in "The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art". The particular thread I'm thinking of is the purchases of Charles Saatchi. It looks externally like there's a positive feedback loop where he collects you, which makes you famous, which makes your work valuable, which he can then sell. But ... if you look at the average value of work in Saatchi's collection, it asymptotically approaches $0. The man buys a lot of art. Warehouses full of stuff that hasn't been seen. Similarly, there are a lot of poor writers in New York. Is there a positive feedback loop? Try measuring it.

https://www.amazon.com/dp/0230620590

⬐ antiterra

That’s indeed the art game, but missing one step: loaning the art to a gallery and gifting them a piece or two. Adding the gallery to the system is what creates legitimacy and inserts discretion. That discretion is then subject to all the effects of ‘who you know.’

Reposting an old comment. The art world obeys supply and demand - where demand has no relation to the real world. Damien Hirst is a marketing genius. He needs a factory to build his art, much like Porsche.

If you are more curious about the contemporary art world market and why $29M is not that expensive[1], I recommend "The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art". In general, brand (in this case Christie's and Sotheby's) ranks supreme above all else. Once you are branded, you can pretty much sell anything as expensive art. Also, an interesting factoid - when we hear of Far East/Middle East buyers bidding tens of millions (or more) for a painting, we naturally tend to think - who buys that without seeing it - but as the book points out - the painting has most likely gone to see the buyer already (e.g. Dubai/Hong Kong pre-auction private tour).

Excerpts from the book:

"Money itself has little meaning in the upper echelons of the art world -- everyone has it. What impresses is ownership of a rare and treasured work such as Jasper Johns' 1958 White Flag. The person who owns it (currently Michael Ovitz in Los Angeles) is above the art crowd, untouchable. What the rich seem to want to acquire is what economists call positional good; things that prove to the rest of the world that they really are rich."

Jasper Johns' White Flag

http://michaelovitz.blogspot.com/2011/04/weve-featured-this-...

http://www.metmuseum.org/toah/works-of-art/1998.329

Estimates on the artist economy: "40k artists resident in London (about same number in NYC)

For London and NYC each: 75 superstar artists (>$1M/yr income)

300 mature, successful artists (>$100k/yr income)

5,000 part time artists (need to supplement their income)"

https://www.amazon.com/The-Million-Stuffed-Shark-Contemporar...

[1] "If a great apartment costs $30 million, than a Rothko [big deal famous contemporary artist] that hangs in the featured spot in the living room can also be worth $30 million - as much as the value of the apartment. But no one could envision a $72.8 million apartment to use for comparison..."

Dead sharks are worth a lot of money in the art world: http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...

⬐ TheOtherHobbes

Perhaps a dead unicorn would have been even more noteworthy.

The original shark fell apart and had to be replaced, which added an amusing patina of involuntary performance art to that famously iconic work.

It's not known if the piece now includes an ongoing shark-replacement maintenance contract.

⬐ None

None

⬐ justinator

Yeah, he made one of those, too[0]

[0] http://www.damienhirst.com/the-dream

Look at finance for more data.

I personally know many successful traders and managers who live very quiet, middle class lives despite having the means to do much more (usually because they get their kicks off business success, not consumption). Cf stereotype of the Swiss billionaire in jeans driving a beaten up Volvo. The head of a derivatives desk in the London HQ of a global bank used to drive a 10 year old hatchback to the office and lived in Zone 2 or 3 in the same house he bought as an immigrant with his first years' savings. Obviously, these guys don't appear in press releases. I would argue they are also relatively rare.

However, on the work hard play hard side, you can name literally hundreds of Gordon Gekko types like S. Cohen who bought Hirst's famous $8m stuffed shark or S. Schwarzman who likes to put his name on entire museum wings around the world. Some very driven people have more intense fun on the side and the only thing that matters to the VC/FOF is a. the possible ROIs under different scenarios and b. the probability of each happening; to calculate the NPV and therefore desirability of the investment. Some of the more extreme characters from this world are documented in "Richistan" [1] and "The $12m stuffed shark" [2]. The common trait amongst the "nouveau riche" is that they are intensely focused and good at their work, not letting their fun permeate.

If I had spare capital right now, I would happily take the other side of your trade; I'm pretty sure that spending behaviour (hard fun, tendency to consumerism, whatever you want to formalize it as), all else being equal, is not predictive of success, just as with race, gender and maybe even education or age (adjusted for experience).

As for the original subject, I think a lot of people who grew up well off or have had a few years to build some security do not realize how valuable those early marginal dollars are to someone without connections and a rich daddy. A "normal" person might well take 5 years to save the $100-200k necessary for a safe bootstrap; if they fail, they're back to the grind for another 5, delaying kids and life accordingly. It is perfectly rational for the founders to attempt to circumvent that if the market generously offers the opportunity, by taking out enough cash for a few trials should this one not work out.

[1] http://www.amazon.com/Richistan-Journey-Through-American-Wea...

[2] http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...

⬐ numair

Excellent reply, thanks for this. A lot of people in SV/SF are upset that "the finance guys" have shown up and changed the economics of the game; I say, thank God they finally showed up. (And the Chinese, of course!)

I don't know if you've ever watched the "Trader" documentary that profiled the life of thirtysomething Paul Tudor Jones, but it provides an 80s-era glimpse into world you talk about. Legend has it that PTJ bought every VHS copy and had it destroyed.

⬐ crdb

Various pieces are on YouTube, I think PTJ's life was relatively sober compared to what's going on in Stamford/Greenwich, CT or London these days let alone Dubai or Asia...

But yes. The 2 of the 2 and 20 is there because no fund manager can get the best talent without paying competitive market rates including a large part in cash to traders. Not just traders - I met a HR head in New York who told me he was taking home $440k... It's not standard of course, but I did feel (several years ago mind you) that funds raising with only the 20 part and foregoing the 2 were perceived as scammers or sub-par somehow.

The best books on the history of funds/great traders are Steve Drobny's [1] for this generation and Schwager's Market Wizards series if you want something a little further back [2]. There's a decent mix of stories - from "intrapreneurs" later backed by their own former bosses, to bootstrapping with their own capital, not everybody started with a big raise. It's also a good history of the industry and its gradual increase in sophistication.

[1] http://www.amazon.com/Steven-Drobny/e/B001JSFKO8/ref=sr_ntt_...

[2] http://www.amazon.com/Jack-D.-Schwager/e/B000AR7ZM4/ref=sr_n...

⬐ Enzolangellotti

The Market Wizards series is great. I've just finished Hedge Fund market wizards. Niederhoffer's the education of a speculator is another great read.

If you find this guy interesting, you should read the $12 Million Stuffed Shark: http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...

For anyone who thinks they might ever own art, first, I highly recommend it. I love art. I don't even know why. But it makes me happy. I think what it comes down to is pride and satisfaction that in some way, my society has makers, one of whom made this thing to put it in the world, ultimately. That's the only reason it was made. Art is art. And everything else, is everything else.

Second, read Don Thompson's The Twelve Million Dollar Stuffed Shark.* He's an economist who took a deep dive into the very dysfunctional world of expensive art. What he leaves you with is a better understanding of the situation: screw investment. Saatchi buys art because he loves art. Yes, he's built a fortune on it, but he also has the largest collection of undisplayed art, and it's estimated the average value of any piece in his collection may be no more than the world-wide average. But he plays his role well, and his role, an ad man, integrates very well with the scene.

If you want art, buy it. But I recommend buying local. Art is the ultimate buy-local situation. My brother is an artist. That's as local as it gets. And his is the best art I own.

I'm starting to realize a little of Saatchi's situation: if you want to show, really show, those favorite pieces, then you have to give them a lot of wall space. Which means a lot of stuff, good stuff, ends up in crates. You realize you're willing to sell it just because it breaks your heart for it to not be shown. But you'll be damned before you let it hang on a wall where it wouldn't be appreciated at all.

If you don't know many artists (if it wasn't for my brother's inside access, I would know none), I think this Amazon Fine Art thing is a fine place to start. Check the under $200 category. There's some really great pieces in there.

The other things are craigslist and gallery mailing lists. Sign up. You'll learn if your city tends to do openings on Wednesdays, Thursdays, etc. The whole scene tends to get into sync. Meet some artists. If you have something particular, a desk, a portrait, I don't know many artists who are unwilling to work on commission. Guaranteed money is hard to come by in the art world.

----------

*http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...

Reposting an old comment. The art world obeys supply and demand - where demand has no relation to the real world:

If you are more curious about the contemporary art world market and why $29M is not that expensive[1], I recommend "The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art".

In general, brand (in this case Christie's and Sotheby's) ranks supreme above all else. Once you are branded, you can pretty much sell anything as expensive art.

Also, an interesting factoid - when we hear of Far East/Middle East buyers bidding tens of millions (or more) for a painting, we naturally tend to think - who buys that without seeing it - but as the book points out - the painting has most likely gone to see the buyer already (e.g. Dubai/Hong Kong pre-auction private tour).

Excerpts from the book:

"Money itself has little meaning in the upper echelons of the art world -- everyone has it. What impresses is ownership of a rare and treasured work such as Jasper Johns' 1958 White Flag. The person who owns it (currently Michael Ovitz in Los Angeles) is above the art crowd, untouchable. What the rich seem to want to acquire is what economists call positional good; things that prove to the rest of the world that they really are rich."

Jasper Johns' White Flag

http://michaelovitz.blogspot.com/2011/04/weve-featured-this-...

http://www.metmuseum.org/toah/works-of-art/1998.329

Estimates on the artist economy:

"40k artists resident in London (about same number in NYC)

For London and NYC each:

75 superstar artists (>$1M/yr income)

300 mature, successful artists (>$100k/yr income)

5,000 part time artists (need to supplement their income)"

http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...

[1] "If a great apartment costs $30 million, than a Rothko [big deal famous contemporary artist] that hangs in the featured spot in the living room can also be worth $30 million - as much as the value of the apartment. But no one could envision a $72.8 million apartment to use for comparison..."

⬐ philwelch

This is the kind of conspicuous consumption that used to get people beheaded or shot in revolutions. It's an obscenity.

⬐ mjn

Isn't that true of just about anything relating to the very rich? Maybe excluding the Buffett-style low-key-lifestyle rich. I find it difficult to get more worked up about millions for a painting than millions for a Maybach or ostentatious yacht/mansion/jet. I'm somewhat bothered by the inequality of such concentration of wealth existing in the first place, but if it's going to exist, I guess it's fine with me if they waste it on status symbols.

⬐ philwelch

Jets are actually really useful, and even yachts and cars can be actively enjoyed. Buying shitty ugly art just as a status symbol is nothing like that, and you pretty much deserve a guillotine or a bullet for that kind of bullshit.

⬐ None

None

⬐ rdouble

It's not really conspicuous, since it's usually not revealed who owns the painting, and the paintings are warehoused or displayed in a private home. It's also not really consumption, since it's just a painting.

⬐ aaron695

This is not consumption at all.

A painting is probably a few hundred $ worth of materials perhaps a couple of hundred hours labour tops.

The average person probably wastes/consumes more rubbish in a week or two.

This is a rich person not consuming if anything.

⬐ philwelch

"Conspicuous consumption" refers to the practice of spending money purely to demonstrate your ability to spend money. Don't be obtuse.

If you are more curious about the contemporary art world market and why $29M is not that expensive[1], I recommend "The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art".

In general, brand (in this case Christie's and Sotheby's) ranks supreme above all else. Once you are branded, you can pretty much sell anything as expensive art.

Also, an interesting factoid - when we hear of Far East/Middle East buyers bidding tens of millions (or more) for a painting, we naturally tend to think - who buys that without seeing it - but as the book points out - the painting has most likely gone to see the buyer already (e.g. Dubai/Hong Kong pre-auction private tour).

Excerpts from the book:

"Money itself has little meaning in the upper echelons of the art world -- everyone has it. What impresses is ownership of a rare and treasured work such as Jasper Johns' 1958 White Flag. The person who owns it (currently Michael Ovitz in Los Angeles) is above the art crowd, untouchable. What the rich seem to want to acquire is what economists call positional good; things that prove to the rest of the world that they really are rich."

Jasper Johns' White Flag

http://michaelovitz.blogspot.com/2011/04/weve-featured-this-...

http://www.metmuseum.org/toah/works-of-art/1998.329

Estimates on the artist economy:

"40k artists resident in London (about same number in NYC)

For London and NYC each:

75 superstar artists (>$1M/yr income)

300 mature, successful artists (>$100k/yr income)

5,000 part time artists (need to supplement their income)"

http://www.amazon.com/The-Million-Stuffed-Shark-Contemporary...

[1] "If a great apartment costs $30 million, than a Rothko [big deal famous contemporary artist] that hangs in the featured spot in the living room can also be worth $30 million - as much as the value of the apartment. But no one could envision a $72.8 million apartment to use for comparison..."