One of the cool things I get to do when I come back home to Taiwan is visit w/ some of my parents’ more accomplished friends. There’s one that’s in manufacturing like us, Mr. Y, who didn’t have kids so they have always viewed my sister and me as their own. He’s an avid squash player and every time he sees me I would go play w/ him and get my ass whooped. I’m meeting w/ another one, Mr. L, tomorrow that’s an advance photography amateur who was CFO at a company that supplies parts to Apple. One of the more intriguing guys though, Mr. C, has become somewhat of a connoisseur in the art world. He particularly likes Asian art and the ones that exemplify Asian culture or values.
To me, it’s a fascinating world. Not just the art itself but the world of these auction houses like Sotheby’s and Christie’s: the business model, the economics behind it (it’s supply and demand… uh, on demand?), and just about every little facet. Not to down play the art aspect, b/c it is really cool expensive. I think it’d be rude of me to disclose the amount of some of these pieces cost in his house and all together how much he invested stored away elsewhere. To me, art is a form of communication, albeit a rather abstract one sometimes. It’s like a game of detective w/ clues everywhere. Who is the artist? What was his personality like? What kind of time or background was he brought up in that could’ve layed seed to his point of view? What was he thinking when he made this piece?
I asked him a lot of questions. Much to my surprise these auction houses charges a 25/10 percentage commission. Think about real estate, which is 6% w/ the buyer and the seller’s agent both getting 3%. He told me that Sotheby’s charges 10% of final sold price from the seller and 25% from the bidder. HOLY CRAP! Some of these pieces go for $3-7 million easily. Say if it’s $5 million, 25% commission is $1.25 million. Even just the crate that they ship it in is couple of hundreds of dollars.
What I didn’t have time to get into is whether the auction houses are essentially the ones creating supply and demand or collectors like himself influences the market more. Are we all to assume that all the art collectors out there know the proper valuation for each piece, or is the prices much more at the whim of Sotheby’s who in turn tells art collectors which piece is valued more than the others? If an artist suddenly passed away and many collectors are looking to cash in, would the auction house intentionally withheld some of the art works, hence curbing supply? I know for some of the artists’ works he’s practically cornered the market himself. He has told me how he did it but again, I don’t think it’s something I can disclose here.
As a side note, he asserted that Sotheby’s stock (BID) is a leading indicator for the stock market. He contended that this is where 20% of the world’s population controlled 80% of the wealth. If all the cashflow from this pool dries up, something’s wrong. The big fall auction in 2008 did not meet expectation and soon followed the Lehman Brothers bankruptcy. Looking at the chart, I think many companies were already showing signs of weakness prior to Sept 2008, so the data from just that year is inconclusive. However, if you look at 2007, you can see the sharp drop in BID’s price in the fall. Perhaps many of the world’s super rich were already preparing for the rough road ahead by tightening their wallets??
The art auction world is most active in the spring and fall. Hopefully I can go w/ him on a trip to New York or Hong Kong after I get done w/ the GMAT.
