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When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017

Social Security
Issue #450, December 26, 2016

My Outlook for 2017: Part II of II
Issue #449, December 19, 2016

My Outlook for 2017: The Market
Issue #448, December 12, 2016

Medicine in 20 Years
Issue #447, December 05, 2016

Higher Interest Rates
Issue #446, November 28, 2016

Trump and the Markets: The Bad and Ugly
Issue #445A, November 23, 2016

Trump and the Markets: The Good
Issue #445, November 21, 2016

Negative Trends: The Suits aren’t Makin’ Steel
Issue #444, November 16, 2016

The New DOJ Fiduciary Rule
Issue #443, November 07, 2016

Barron’s Conference, Part IV of IV
Issue #442, October 31, 2016

Barron’s Conference, Part III of IV
Issue #Interim Bulletin #441A, October 26, 2016

Barron’s Conference, Part II of IV
Issue #441, October 24, 2016

Barron’s Conference, Part I of IV
Issue #440, October 20, 2016

This Newsletter
Issue #439A, October 12, 2016

Memoirs of US Grant: Vol II
Issue #439, October 10, 2016

More Points on Collecting, Investing and the Economy
Issue #Interim Bulletin #438A, October 05, 2016

Personal Memoirs of US Grant
Issue #438, October 03, 2016

Ideas for a High School Part-Time Job
Issue #Interim Bulletin #437A, September 29, 2016

Collecting, Investing, and the Economy
Issue #437, September 26, 2016

Free College
Issue #436A, September 22, 2016

A Military Commitment to Pay for Med School
Issue #436, September 19, 2016

When a CD isn’t a CD
Issue #435, September 12, 2016

I Made a Mistake
Issue #Interim Bulletin #434A, September 07, 2016

What is Your Spare Time Worth?
Issue #434, September 05, 2016

Credit Cards and Bonus/Loyalty Points
Issue #433, August 29, 2016

The Write-off of Student Loans
Issue #Interim Bulletin #432A, August 25, 2016

412 Retirement Plans
Issue #432, August 22, 2016

Join the Club
Issue #Interim Bulletin #431A, August 18, 2016

The Case for Precious Metals and Hard Assets
Issue #431, August 15, 2016

When the US went off the Silver Standard
Issue #430, August 08, 2016

Why NOT to Open a Restaurant
Issue #429, August 01, 2016

Some Tips on Life Insurance
Issue #428, July 25, 2016

More Observations on Negative Interest Rates
Issue #427, July 18, 2016

Issue #426, July 11, 2016

Is a PhD Worth It? Part II of II
Issue #425, July 04, 2016

Is a PhD Worth It? Part I of II
Issue #424, June 27, 2016

Avoid Part-time real Estate Agents
Issue #423, June 20, 2016

Issue #422, June 13, 2016

The Problem with Auction Reserves
Issue #421, June 06, 2016

Make Full Use of Your Capital Investments
Issue #420, May 30, 2016

The Fed’s Announcement
Issue #419, May 23, 2016

Quit While You’re Ahead: A True Story
Issue #418, May 16, 2016

The Precious Metals
Issue #417, May 09, 2016

Negative Secular Trends: Part Ii of II
Issue #416, May 02, 2016

Negative Secular Trends: Part I of II
Issue #415, April 25, 2016


By Robert M. Doroghazi, M.D., F.A.C.C.

Buying Art and Collecting: Part II of II

Issue #481, July 31, 2017

    This is the 2nd of two parts of a discussion about buying and selling art, and collecting in general, based on Art Collecting Today: Market Insights for Everyone Passionate About Art (Woodham, Allworth Press).
    There is a detailed discussion of the pros and cons of buying at a gallery, at auction, or from a dealer.
    RMD comment: the pros of buying from a gallery or dealer is that they have access to material that never comes to auction, and they can devote full-time to scouring auction catalogues and attending auctions. Likewise, a good amount of their material of non-living artists is purchased at public auctions. They purchased something last month at auction for $50,000 that now sports a price tag of $95,000. I prefer auctions as the best way to determine a fair price. Also: always bid for yourself.
    Woodham notes that wherever there is money, there are scoundrels. 1) Always deal with reputable people. Unfortunately, even people with a sterling reputation may be crooks (they are just very good ones). 2) The best way to avoid being jipped is rely on your own judgement. 3) Provenance is everything. “Beware of newly discovered works”. This is the same scenario as in The Billionaire’s Vinegar (Wallace, Crown Publishers, 2008), where pop-band manager turned wine collector Hardy Rodenstock “discovered” a trove of rare wines, including a bottle of 1787 Chateau Lafite Bordeaux, supposedly owned by Thomas Jefferson, in a bricked up Paris cellar. It was all a hoax.   
    There are full-time art advisors that can help with every aspect of buying, assembling, and disposing of a collection.
    RMD comment: For the serious high-end collector, this is a requirement. For someone starting out, go to art shows and galleries, read, study, and talk with collector friends or someone at your local museum. As with everything, knowledge is power.
    The book provides an excellent discussion of the tax consequences of selling and donating art, and leaving it to your children.
    One point I should have made at the beginning of this discussion last week is that art, in and of itself, is useless. A hammer, a table, your lawn mower, has a function. The only use of art is to be looked at. It’s one of the things that makes us human. 
    This discussion allows me to make general points about collecting.
    1) The title of Chapter 6 is ‘Buying is easy, selling is hard’. RMD comment; that’s great advice for collecting, and just about everything else in life.
    2) You must start small, because you have less knowledge and because your tastes will change as time goes along. It is unlikely that pieces purchased initially will be in your final collection.
    3) Don’t buy something just to fill a space in your collection. When the item appears that you really want, you will realize a significant loss on the previously purchased inferior item.
    4) You are better off buying a quality item of a lesser artist than the inferior work of a more famous artist just for their name. The people you want to impress won’t be.
    5) A variant of this: better quality works are more desirable. One $100,000 painting is worth at least double 10 paintings worth $10,000. 
    6) In general, large works are more valuable than small works.
    7) You can’t “flip” art for a quick profit. Considering buyer’s premium and selling commissions, there are round-trip costs of 25-33% or more you must overcome. Art needs to be held for many years, like your adult lifetime, to realize a profit. This presumes you have a good work that appreciates in value.
    8) Just as art is a discretionary purchase, it is also a discretionary sale. Aside from the 3 “Ds” that force a sale (death, divorce and debt), a collector will bring their material to market when it is best for them.
    9) When discussing art, I must always remind you never to buy art at a charity auction, because all you can claim as a deduction is that above the fair market value. You pay $800 for something you don’t like but want to look like a big shot in front of your friends. Fair market value = $1,000. Sorry Charlie, no deduction. If you want to make a donation, give cash. You can deduct the entire amount, and there will be no complaints.
    RMD final comment: I have my own definition of art: it is something I can’t do. I could never sculpt Michelangelo’s Pieta, or paint Gilbert Stuart’s breakout portrait “The Skater”. Compare this to the works of Christopher Wool, which are black and white letters (sometimes of quite vulgar content) stenciled on canvas. Some have sold for more than $3.5M. To be truthful, I’ve seen more original, clever and better executed material on the bathroom walls at Granite City Steel. It will be interesting to see if Modern and Contemporary Art is still considered desirable 100 years from now. The really great art, like the great literature, is eternal.
    Did you see the action in copper on Tuesday? It was +4.43%, a huge move for a commodity in one day. Copper miner Freeport-McMoran (FCX) was +14.74% on about 5x normal volume. There was good follow-through, with copper up another 3.75% on Wednesday, and FCX was +1.28% on 3x normal volume. Copper ended up more than 7% for the week. That is very strong action.
    RMD comment: Part of this probably represents strong industrial demand, but I also believe the weakening US Dollar is important. Commodities are priced in US Dollars. The dollar was down again last week. This is not lost on gold (or oil), which had another good week. The dollar closed the week at 93.34. If it below 93, there is a lot of room to fall. Gold will certainly spike. Much more when this happens.
    This is from an MGH buddy about art.
    “I have been collecting art for decades and it took a long while to convince my wife that this was not frivolous. I have never regretted buying any of the pieces. All part of the fabric of our family, and, you are right, a legacy for our kids, who grew up with them.”
    This is from a long-time subscriber, noting last week’s World Series of Poker winner took home $8.1M. “I don’t play, but would ask how difficult it is? Can you compare this to anything in Medicine? I know there is Lady Luck, but is this a “skill” one can learn, or are there too many variables involved”?
    RMD comment:
    1) as noted in many newsletters, gambling can help teach you how to manage risk.
    2) The cards are dealt by chance, but are played by skill. There is an on-going legal debate about this topic. I think it will eventually be agreed it is a game of skill.
    3) There are sharks and fish. Out of 10 people who play Texas Hold’em, one will win a lot, the 2nd person will win some, the 3rd will be lucky to break even. Everyone else are fish.
    4) Can you learn it: of course. Will you be good? Hard to say.   

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