Is the real estate bubble about to burst?

I tend to agree with Michael that there is a difference between "Memorabilia" vs. "Art"....

However, I do think that certain pieces of art have cultural significance, and will retain and increase their value due to that. But - I ain't no expert!

I did re-read J. Paul Getty's essay on buying fine art (and using art as an investment) in his book, "How to Be Rich". My memory was right - he essentially bought many pieces of priceless art - often for lower than their owners paid for it - during the depression. These subsequently went up in value, many times what he paid for them.... Many of these art pieces he later donated to museums.

The main drawback of art as an investment, it seems to me, is that you have to be willing to wait. It can take time for the value of art to appreciate. Also, it helps to be rich already to even be "in the market" for many pieces of fine art.

- Dien Rice

dno
> I tend to agree with Michael that there is a
> difference between "Memorabilia"
> vs. "Art"....

> However, I do think that certain pieces of
> art have cultural significance, and will
> retain and increase their value due to that.
> But - I ain't no expert!

> I did re-read J. Paul Getty's essay on
> buying fine art (and using art as an
> investment) in his book, "How to Be
> Rich". My memory was right - he
> essentially bought many pieces of priceless
> art - often for lower than their owners paid
> for it - during the depression. These
> subsequently went up in value, many times
> what he paid for them.... Many of these art
> pieces he later donated to museums.

> The main drawback of art as an investment,
> it seems to me, is that you have to be
> willing to wait. It can take time for the
> value of art to appreciate. Also, it helps
> to be rich already to even be "in the
> market" for many pieces of fine art.

> - Dien Rice

> The main drawback of art as an investment,
> it seems to me, is that you have to be
> willing to wait. It can take time for the
> value of art to appreciate. Also, it helps
> to be rich already to even be "in the
> market" for many pieces of fine art.

When I think about valuation and an item's worth, I think about two main types of valuation an investment can have:

1. Value in Use
2. Value in Exchange

Value in Use is essentially the value derived from an investment from its ongoing use. From a purely financial viewpoint (that is, ignoring any personal or psychological benefits of owning an investment, such as the pleasure of looking at fine art if you're an art lover), the value in use is simply the present value of all of the future cash flows a particular investment will generate.

So if you're looking at an investment property, the Value in Use would be the present value of all of the expected future cash flows from the property -- so essentially your rent received minus costs forever.

When looking at listed companies, fundamental analysis and valuation is basically all about looking at their intrinsic Value in Use.

Value in Exchange, on the other hand, ignores any "inherent" value in the item due to future cash flows and simply looks at what other people are willing to pay for it.

When looking at listed companies, technical analysis and trading is more about Value in Exchange, in that it focuses on what others may pay for it in the near future, rather than any underlying fundamentals.

In other words, Value in Exchange is -- as Michael puts it -- a value based on the greater fool theory. And art definately does fall into this category.

And thus the main drawback of art as I see it is that you're really relying on others to pay more for it later, rather than counting on any cash flows arising from the art itself.

Items of this nature, in my view, are what I'd call speculative investments. :)

> I don't care what the so-called experts say.
> They can't even agree anyway. BUT... I do
> pay attention to the man on the street. I
> listen to the joys and pains they express. I
> see their spending habits. I listen to
> business owners - who only ever seem to
> complain with only the degree changing.

> These non-scientific indicators give me a
> better "take" than some $200,000+
> a year analyst on the 37th floor of downtown
> Manhattan, who plays golf three times a week
> at the $10,000 a year membership golf club.

> The man on the street might be a sheep -
> even without realising it. And so it's good
> to watch him. Hey, the analyst is also a
> sheep - following whatever the other
> analysts say, like lemmings.

I couldn't agree more.

Your own groundwork research is very important. :)

Hi,

All this talk of profitability and positive cash flow makes me mad. I want to start a company with a catchy idea, sell a bazillion dollars worth of stock and buy an island. Generating cash flow is too much frikkin' work! /satire

Best,

- Boyd

dno
> Become an actor...