Invest in art or stocks? Keynes has an answer (well, sort of)


JOHN Maynard Keynes was an economist, an investor and an art patron. In the aftermath of the global financial crisis, his eponymous flavour of economics has become fashionable again. After a faltering start losing money in the currency markets, Keynes enjoyed a glorious run as a stock picker, building an endowment that still benefits his alma mater King’s College, Cambridge.

For those wanting to emulate his prowess collecting paintings, a new study attempts to calculate how his art investments have fared compared to the market returns.

The good news is that the study, published on the Oxford Academic website, suggests wealthy collectors can potentially enjoy the “emotional dividends” of owning art without missing out on returns.

The bad news is that they’ll have to be either pretty astute in picking winners, or damned lucky in the artworks they buy. Keynes probably benefitted from both.

Keynes started building his collection in 1918, buying works by Paul Cezanne and Eugene Delacroix.

In the following years, he added pieces by Cezanne, Edgar Degas, Henri Matisse, Amedeo Modigl iani, Pablo Picasso, Pierre-Auguste Renoir and Georges-Pierre Seurat. The latter purchase, at a price of £400, was a preparatory study for the pointillist artist’s most famous work, “A Sunday Afternoon on the Island of La Grande Jatte”.

He resumed purchasing artworks between 1935 and 1937, including spending £3,500 on Cezanne’s “L’Enlevement”, the most Keynes ever parted with for a single piece. By the time he bequeathed his portfolio to King’s College at his death in 1946, he had spent a total of £12,847 (RM68,731) amassing 135 pieces.

(I sit on the King’s College investment committee that manages the endowment.)

While the report says it found no evidence that Keynes ever sold a painting he’d purchased, he wasn’t sentimental about his collection; in his will, Keynes gives permission for its executors to sell parts of his bequest if needed to maintain his widow’s income. The study values the collection over time by using various insurance appraisals conducted over the years, as well as estimates commissioned by the authors from specialists in 2013 and 2019.

If the combined works had kept pace with inflation, they would have been worth about £500,000 last year. Instead, they were worth £76.2 million, not too far short of the £90.2 million the authors calculate Keynes would have generated in the UK stock market.

“The long-term returns from the Keynes collection are substantial,” according to the report’s authors, David Chambers and Elroy Dimson of the University of Cambridge’s Judge Business School and Christophe Spaenjers of HEC Paris.

But there’s a catch. The 10 most valuable items of the works he amassed account for 88% their total value — and just two of the works account for almost half of the entire collection’s valuation.

While the study doesn’t identify which works they are, I’m pretty confident that the Seurat study I mentioned earlier, which currently hangs in Cambridge’s Fitzwilliam Museum, is one of the blockbusting pair. The other, which the study says Keynes acquired for the princely sum of £1.50, was worth £20 million in the most recent valuation. That’s quite a return.

If Keynes hadn’t been lucky or skilled enough to have bought those two stellar performers, the value of his collection would fall far, far short of what the stock market has delivered. “Extreme idiosyncratic positive returns — or the absence thereof — will matter a whole lot for the total return of any art portfolio,” the authors of the study write, with masterly understatement.

So, the lesson from Keynes — if there is one — seems to be that in buying art, those emotional dividends stemming from the joy of ownership are probably a more reliable motivation than the prospect of turning a profit. — Bloomberg

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