The Froth Fallacy
During a recent episode of Marion Maneker’s excellent (for wonks like myself, anyway) Artelligence podcast, New York Times art market columnist Scott Reyburn presented an analogy that I thought was worth publicizing and unpacking a bit.
As we all know by now, one of the most feverishly debated topics in the fine art industry continues to be whether or not the market–especially the contemporary sector–has entered the dreaded bubble phase. I’ve written before about why saying so feels like too blunt an analysis to me, but Reyburn managed to do it in a more elegant and compact way (emphasis below mine):
“The image that comes to mind when it comes to the contemporary market is it’s like the top of a glass of champagne. There are thousands of bubbles and some of them are just dying and dropping away. The froth is there all the time, but the individual bubbles change… particularly with some of the younger artists.”
I think Reyburn is right on about this. Look at some of the most prominent examples of retroactively agreed-upon bubbles–Japanese real estate in the late ‘80s/early 90s, tech stocks at the turn of the 21st century, US housing in the lead up to the Great Recession–and the reality is that select assets among the fizz became legitimately strong long-term investments after the market got crushed by an asteroid.
This is true even if we set aside Greater Fool opportunities (which I wrote about vis-à-vis the art market here). Suppose you’d bought equity in tech companies like Amazon, IBM, and Microsoft (let alone Apple) at their most bubblicious prices before the NASDAQ cratered in 2000. If you held onto those shares through the bloodshed, they would have hoisted you onto a mighty throne of money bands today.
The point is this: In any market, guilt by association is only temporary. A sector can be in an overall bubble, but legitimate assets that look overpriced during the swell may still turn out to be bargains 20 years later. The question, as always, is whether you can pick your way through the toxic froth to the sweet nectar buoying it. Bottoms up.