tc presentation tefaf
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TRANSCRIPT
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Market risks Liquidity risks The future Conclusion
Prices went up and down…
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The past
Sources: Tutela Capital SA
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Market risks Liquidity risks The future Conclusion
Prices will go up and down…
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The future
Sources: Tutela Capital SA
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Market risks Liquidity risks The future Conclusion
Prices will go up and down…
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The future
Sources: Tutela Capital SA
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Market risks Liquidity risks The future Conclusion
Prices will go up and down…
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The future
Sources: Tutela Capital SA
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Market risks Liquidity risks The future Conclusion
Prices will go up and down…
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The future
Sources: Tutela Capital SA
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Market risks Liquidity risks The future Conclusion
Uncertainty = risks
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The future
Operational risks
– Fire, destruction, flooding, theft, etc. – One can (and should) be insured fort these ones
– Forgery/misattribution risks – Can be mitigated (e.g. : by buying at TEFAF and not at ……)
– Transaction management: buy well, sell wisely
Financial risks
– Losing money on an investment (or market risks)
– Being unable to sell when you need to (or liquidity risks)
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Market risks Liquidity risks The future Conclusion
How much a collector can possibly gain/lose?
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Measuring market risks
– Prices sometimes behave erratically
– The more volatile is a market, the riskier it is
– “Volatility” is a sure feature of prices
– “Volatility” is more or less constant through time
– “Volatility” is common to many artworks
Idea: extract volatility and project it onto the future
Market risks
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Market risks Liquidity risks The future Conclusion
How much a collector can possibly gain/lose?
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Example: Canaletto
– Yearly volatility of returns of an investment in Canaletto: ~21%
Market risks
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Market risks Liquidity risks The future Conclusion
How much a collector can possibly gain/lose?
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Example: Andy Warhol
– Yearly volatility of returns of an investment in Warhol: ~34%
Market risks
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Market risks Liquidity risks The future Conclusion
How to minimize risks/maximize returns ?
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1. Compare
– Quantitative tools needed at professional level
– Pen and paper will already help collectors and amateurs
– Estimate risk and return of targets, write them on paper
– Compare and discard the bad profiles
Market risks
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Market risks Liquidity risks The future Conclusion
How to minimize risks/maximize returns ?
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2. Diversify !
– Collectors have difficulties diversifying
– Art market prices co-move for the same artist and within the
same movements
– A drop in Warhol will likely open path to a drop in Basquiat
– Warhol is unrelated to Canaletto !
– Diversification leads to same rewards, with less risks
– Overcoming current needs to collect can help achieve more
“collecting power” over the long run !
Market risks
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Market risks Liquidity risks The future Conclusion
How to minimize risks/maximize returns ?
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Optimality across the art market: choice of a fixed risk
Market risks
Sources: Tutela Capital SA
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Market risks Liquidity risks The future Conclusion
How to minimize risks/maximize returns ?
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Optimality across the art market: choice of a fixed risk
Market risks
Sources: Tutela Capital SA
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Market risks Liquidity risks The future Conclusion
How to minimize risks/maximize returns ?
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Optimality across the art market: choice of a fixed risk
Market risks
Sources: Tutela Capital SA
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Market risks Liquidity risks The future Conclusion
Diversification is also interesting to manage liquidity risks
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Liquidity risks
– The probability of not being able to sell an artwork
– Part is due to the artwork
– Part is due to brokers/intermediaries
– Part is due to the market
Liquidity risks
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Market risks Liquidity risks The future Conclusion
Diversification is also interesting to manage liquidity risks
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Liquidity risks
– The probability of not being able to sell an artwork
– Part is due to the artwork
– Part is due to brokers/intermediaries
– Part is due to the market
– Reward: buy illiquid artworks at discount !
Liquidity risks
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Market risks Liquidity risks The future Conclusion
Diversification is also interesting to manage liquidity risks
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Top liquid artists at auction, 2012
Liquidity risks
Sources: Tutela Capital SA, arnet
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Market risks Liquidity risks The future Conclusion
Diversification is also interesting to manage liquidity risks
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Liquidity is time-dependent
Liquidity risks
Sources: Tutela Capital SA, arnet
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Market risks Liquidity risks The future Conclusion
Financial Risks and Rewards of Investment in Art.
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– Prices go up and down
– Operational risks can be mitigated: insurance, etc.
– Financial risks can be managed:
– Compare, diversify to manage market risks
– Time your selling to manage liquidity risks
– Invest confidently, the art market is the only one immune against
bankruptcy !
Conclusion
Financial Risks and Rewards of Investment in Art.