By Tony Samson
PRIVATE BANKERS have included investment in art (paintings and sculptures, and now installations) as an asset class. Diversification of the investment portfolio beyond fixed-income securities and equities may include art pieces as a component. The dynamics of art as an investment, with its characteristics of scarcity and greed, can best be observed at an art auction.
This is the parallel of the stock trading on any given day, except that the stocks are called “lots,” and they are sold only in volumes of single pieces. Thus, the art auction is a display of market forces and how they value art pieces on offer.
An auction is a form of economic theater, more emotionally driven than the stock market. The objective of the auctioneer and the seller and broker he represents is to get the highest price for a lot by encouraging a furious bidding war. The buyer wants to get the lowest price he can for a work he desires.
Before the actual auction, the pieces are available for viewing and a catalogue of the lots (a nice unemotional word) is presented in coffee-table book quality printing with the size of the piece (It’s not just property that is paid by the square meter), along with the expected minimum bid (or reserve price). This last information defines the target market for the lots.
The auctioneer acts as the host of the show as he introduces the artworks, rattling off the starting bid with designated increments getting progressively bigger. He glances around the room and waves a hand to a general direction (a new place, bidding 800,000 — that’s 100,000 for each bird, a painting of eight parrots sitting in a row) and glances to his left at the phone bank where principals are directing their reps to place bids — I have Elizabeth’s caller at 900,000, against you, Sir in the room at the back…Thank you, a million. (The currency in this observed auction is not Philippine Pesos.)
When the numbers slow down or stop, the auctioneer surveys the room and doesn’t say, “going, going, gone.” There is a brief silence, “fair warning” (I’m going to sell this lot now at a million) as he gives another bidder three seconds to jump in — a million two hundred, to the gentleman at the center. When there are no more raised paddles, he brings down the hammer. He asks for the winner’s identity — your paddle sir, number 230, thank you.
An assistant quickly approaches the winning bidder for his signature to acknowledge the purchase.
Legitimate bidders are provided with paddles, the size of a ping-pong racket. They affect the blasé indifference of a reluctant participant. The bids, all visible to the auctioneer, are signaled with the most discreet of movements, touching a paddle to the side of the head, nodding.
Even when the process is repeated a hundred times, each lot provides its own drama. Some lots can go unsold for not meeting the minimum price (let’s move on). What do they do with these unsold lots? The paddle numbers help the auction house track down the winning bidder to send the invoice to and settle payment within a few days.
Auctions, even in ancient times when slaves were the lots being bid out to interested masters, seem the fairest method of matching supply and demand. The process presents the goods in question (look at those well-formed teeth) to a market ready to buy. And if the bidder is lucky, the piece may invite only limited interest and go for a price just slightly above the buyer’s minimum. As for the seller, he too can get a better-than-expected price if there are five interested bidders to ratchet up the price.
The auction is the perfect model for pricing goods. The element of sentimentality (this piece has been with the artist’s family for five generations) is discounted and there is the simple dynamic of buyers and sellers meeting at a certain point.
The auction combines economics and theater. Even without a paddle, one can be moved to applaud a record price for an artist after the hammer is brought down, especially if he is the anonymous seller.
The business of art does not always involve the artist. After all, Van Gogh never sold a painting during his lifetime. It was the frenzied auctions that drove up the prices, much later after his death to benefit early believers and the estates of collectors.
Tony Samson is Chairman and CEO, TOUCH xda