Compare + Contrast
While I can’t pass a day without at least one moment of paranoia about Twitter’s long term effects on my cerebral wiring, occasionally a legitimate insight springs out of the frantic, schizophrenic way it forces me to process competing streams of information. Yesterday, the sky cracked open and revealed one of those Halley’s Comet flashes.
First, I caught a retweet from one of my art world follows about a Wall Street Journal piece headlined “China’s Young Art Collectors Come of Age.” While the story itself contains more nuance, the key point for today’s purposes makes up the subtitle: “Millennials urge their parents to buy foreign contemporary works.” Not surprisingly, those works tend to be created by names that will make most contemporary art aficionados lapse into a coma from exhaustion: Jeff Koons, Yayoi Kusama, Tracey Emin, et al.
Just a few tweets later, Patrick O'Shaughnessy, the author of Millennial Investing (which I recommend to anyone with their money collecting nothing but cobwebs and mouse droppings in a savings account) and one of my handful of finance world follows, put up a link to his latest blog post: “Why the Grandpa Portfolio Will Crush the Millennial Portfolio.” And that’s when the stardust began sprinkling down.
O'Shaughnessy’s core point is that, due to a lack of knowledge about the financial market, investors with the youngest median age tend to buy stocks they’re most familiar with and/or most excited by–Apple, Facebook, Tesla, etc.–and lose millions of dollars in opportunity cost as a direct result.
Why? Because over the long run those stocks are too expensive relative to their returns. In contrast, a portfolio that makes you want to sip a Metamucil and fall asleep watching Wheel of Fortune–one that includes companies owned by investors with the oldest median age, like Honeywell, Dow, and Kraft–massacres the millennial portfolio because it provides dramatically more value.
With my usual caveats in place about the fallacy of art as investment, especially when it’s accompanied by an active trader’s mindset, you can see where I’m going here. I wouldn’t say that anyone motivated to collect because of possible financial returns should avoid contemporary art entirely (although I have made that argument from a value standpoint before). But I would say that buying into the obvious postwar names and over-publicized rising stars is risky in the same way as filling your investment portfolio with familiar Internet giants and “exciting” tech companies, without first asking if the numbers make sense. As usual, the safety of the herd isn’t really safety at all.