Famous works of art are fetching record prices in 2013…here’s how investors are cashing in on these masterpieces without owning a single one…
To the average person, there’s surely a lot more that could be bought for $692 million.
But that was the extraordinary amount spent at a Christie’s New York auction on November 12th for 63 lots of fine art…the highest amount ever raised in a single auction.
The historic event smashed a string of records, as ten different artists had their pieces sold for all-time highs.
The most remarkable was a Francis Bacon triptych that went for $142.4 million to an anonymous bidder – making it the world’s most expensive work of art ever sold at auction.
This eclipsed the previous record held last year for the much more iconic “The Scream” by Edvard Munch that pulled in $119.9 million in 2012.
The triptych sale was followed up by a 10-foot-tall orange stainless steel sculpture of a balloon dog (yes, you read that right) by Jeff Koons that went for $58.4 million – a record price for a living artist.
Not to be outdone, Sotheby’s (NYSE:BID) in New York held its own auction of post-war and contemporary art the very next night and hauled in $380.6 million — itself a record amount for Sotheby’s.
Their night was capped off by a winning bid of $105 million for Andy Warhol’s infamous “Silver Car Crash (Double Disaster)” painting.
Auction officials at both Sotheby’s and Christie’s have said that recent price spikes were driven in part by wealthy collectors entering what is an increasingly global market.
Sotheby’s reported that 64% of registered bidders that night were from outside the US, with “significant participation” from Asia and Latin America.
In fact, if you had the opportunity to attend either auction, you would’ve found yourself in a room filled not with buyers, but with agents who represented the buyers, as many of the collectors were simply on the phone halfway around the world making the bids.
The demand for contemporary art has soared in the past decade, in spite of the economic calamity that rocked the globe in 2008.
Total estimated sales in the contemporary market were around $850 million in 2002. That amount hit a whopping $6 billion last year, according to intelligence firm, artnet.
One of the biggest catalysts for this is the rise of the ultra wealthy.
Case in point, Forbes’ latest annual report on the 400 richest Americans showed a cumulative worth of some $2 trillion — an increase of $300 billion from last year.
The average net worth of these high rollers are a record $5 billion — an $800 million jump from 2012.
With the rich getting richer still, fine art will continue to remain one of the highest status symbols of wealth.
Now, it’s safe to say that the majority of us aren’t likely to acquire the next $100 million piece of art anytime soon.
Therefore, a company like Sotheby’s provides an incredible opportunity to get a small taste of the good life without needing to win the next Powerball lotto or pull off an Ocean’s 11 heist.
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Sotheby’s (NYSE:BID) is the largest publicly traded auctioneer in the world with a market cap of $3.6 billion, and the second largest behind privately-held Christie’s.
As a one-two punch, no other competitors in the auctioneer business even come close in terms of revenues generated by these two industry giants.
For Warhol’s Silver Car Crash alone, Sotheby’s made a tidy $445,000 in commission for its services.
Assuming a similar commission scale for all 54 lots that were sold on their record-breaking night, Sotheby’s would have pocketed somewhere between $1.5 – $1.6 million…not bad for an evening’s work.
While an art auction in New York typically generates a lot of media buzz, Sotheby’s has its eyes set on markets it believes has the potential to make even more money.
So naturally, it’s turned its attention to China…where auction revenues of $8.9 billion last year exceeded that of the US’ $8.1 billion. Revenues out of China jumped 900% in the last ten years.
In May 2012, Sotheby’s opened a 15,000 square foot auction space in Hong Kong (where the average price per square foot is roughly US$11,000). In its latest auction during Asian Art Week in October, their lots generated US$583 million in value — a 105% increase from 2012’s event.
Based on its track record, and the expectation that the high-end art market has several years of growth ahead, Wall Street is expecting Sotheby’s to achieve 8% earnings growth in 2013, 21% in 2014 and average annual earnings growth of 18% in the next five years, ahead of the industry average of 15%.
Seeing how quickly the mega rich have rebounded from a financial meltdown and are so willing to drop a mint on artwork – such targets do not seem unrealistic at all.
Therefore, a company like Sotheby’s is the perfect stock to take advantage of this incredible surge in ultra-wealth.