BIDDINGTON'S GALLERY & SHOPPING BIDDINGTON'S
APPRAISALS & VALUATIONS
CUSHIONING A STOCK MARKET FALL:Updated July 2002. The stock market collapse has nearly everyone distressed and depressed. While tangible assets are not the complete solution to a troubled portfolio, they do offer a reasonable addition--and give dividends in the pleasure of holding them.
Portfolio Diversification with Tangible Assets
Background: Flows of investment monies are global.
To explain: Saudis receive oil payments in dollars. These Saudis buy dollar-denominated assets only if they believe the value of those US assets will rise. If they see the US returning to an economic slump, they will avoid all assets related to the US. So, upon receipt of payment in dollars, they--along most other foreign investors--will sell those dollars and buy a currency and related assets in an economy they believe to be on the rise. The result here in the USA is annoying: the dollar drops in value, stocks drop in value and, with the need to finance our looming deficit, even bonds may drop in value (albeit a bit less precipitously than stocks.)
Why are tangibles considered an asset diversification?
The reason is three-fold:
- Tangible assets are not currency specific.
Named works of transportable art, antiques and fine objects enjoy a global marketplace:
EXAMPLE: Since it can be sold in an established marketplace in nearly any G8 country, a quality painting by a known artist with an auction track record doesn't fall victim to a declining dollar.
- Inflationary expectations raise the price of tangibles.
The fall in the currency means that imported goods cost more;
this is inflationary. What increases with inflation? Hard assets such as metals. So art objects and jewelry made with silver, gold and platinum tend to go up as inflationary fears increase, even in a foundering economy:
EXAMPLE: If you don't wish to transport your tangibles abroad to sell them, you can sell (trade) your Verdura gold jewelry or Zuni inlay silver here at home for more dollars because their intrinsic materials value will have appreciated.
- Long term profit potential of tangibles persists.
Fine collectible objects retain the potential to increase in value as they become more recognized and valued by a broader audience:
EXAMPLE: If an artist of modest renown receives a museum retrospective or other major exhibition, the value of the artwork usually enjoys and often sustains a sharp increase in value.
Diversification: Don't Put All Your Eggs in One Basket
When structuring an investment portfolio, received wisdom declares it prudent to diversify. In a diversified portfolio, by definition, the various categories will out-perform or under-perform depending on the market environment. So, a diversified portfolio never truly maximizes on any given market; its structure is designed to perform modestly well in nearly all circumstances. Keeping 10-15% of total holdings in hard, transportable assets seems like a reasonable hedge against the deeping stock market correction or--in a different reality-- an overheating inflationary boom.
Short of having been positioned entirely in shorter maturity US government fixed-income securities, there was little to be done on the long side to compensate for this recent bursting of the stock market bubble. But at least I am enjoying what I perceive to be a modest appreciation in my 18th century Austrian writing desk and my walls of contemporary paintings as I watch the continued erosion of my increasingly modest equity portfolio.
ABOUT THIS FEATURE
Jake Biddington works on The Street and is responsible for the
opinions & information in INVESTING. Young Jake, as he is known
within the virtual BIDDINGTON clan, views tangibles such as fine art, antiques and jewelry as stores of value as viable as stocks or foreign currencies. He sees these
items as another asset class in which to place one's money. To that
end he keeps price histories and charting information on various
categories of objects. He views some items as long term investments,
others as items for a quick trade--and he even sees some as short
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