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Portfolio Diversification with Tangible Assets

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.

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:

  1. 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.

  2. 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.

  3. 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.

Richard Mock pink shredded currency Money Lure Richard Mock shredded currency Money Lure

Richard Mock's "Money Lures" from:
"Show Me the Money, The Dollar as Art"
Exhibition 2002-2003 organized by
Board of Governors of the Federal Reserve System

In-depth fixed-income analytics & strategies see:
Kidder Reports

Jake Biddington's Collecting Series:
What's It Worth? Appraisals and Valuations
Investment Grade Contemporary Art
MORE Jake on Investing in Tangibles:
PPP Test: Judging Quality in Contemporary Art
Art, Time and Technology
American vs. European Paintings
Jake Biddington's Art as Entertainment
Jake Biddington's Vetted Antiques & Art Shows
Jake Biddington's Patent Numbers as a Dating Tool
Jake Biddington's Hard Assets as Portfolio Diversification
Jake Biddington's Buying Fine Jewelry at Auction
Jake Biddington's Long Term Investing
Jake Biddington's Short-Term Investing
Jake Biddington's The Craft of Art

Jake Biddington's BENTLEY Connoisseurs' Travel Series:
Art Tourism New York City 2005: Christo's Gates
Art Museums, Neighborhoods & Dining in Buenos Aires
Art and Touring along Italy's Amalfi Coast
Art Museums & Restaurants in Amsterdam
Cultural Touring along Spain's Costa del Sol
Art Touring in Lisbon
Art Touring in Milan
Art Touring in Antwerp
Art Touring in Barcelona
I-80 Park City to New York City Art & Antiques
Art Tourism New York City 2003 (Archive)
Art Tourism New York City 2002 (Archive)
Art & Wine in the Finger Lakes of New York State
Art & Antiques in Hudson, New York (Columbia County)
Art & Restaurants in Rome 2002 Update
Hartford & Wilton, Connecticut
San Francisco Jackson Square
New Hampshire Route 1A
Morris County, New Jersey

Contact Jake


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 sales.

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BIDDINGTON'S BENTLEY--Travel for the Art Connoisseur.  MY ART--Art for Kids.