[intro]Hedge Funds Double their Money in Fewer than Six Months[/intro]

Shares of Sotheby’s fell back toward $15 just before the release today of slightly better results than expected. The stock has more than doubled since it was announced that art collector Steven Cohen and other hedge funds had bought significant stakes near the March lows.

The auction house’s small operating profit came through a combination of aggressive cost cutting and the prevalence of lower value lots that the company did not negotiate away their commissions upon in order to get the consignment. CEO Bill Ruprecht opened the call by pointing out that “fewer $10m+ objects means higher margin!”

It is not immediately clear how that statement reconciles with Sotheby’s insistence that they are the leader in the higher-value end of the art market leaving Christie’s to the lower-priced but higher margin works.

• Analysts asked about Ruprecht’s view of supply of good works. The chief executive replied that higher sell-through rates and sales that exceed estimates would create a virtuous circle of sales.

• That lead another analyst to ask if Ruprecht thought the art market had reached a bottom. To that, Ruprecht hedged in the obligatory way before saying, “I don’t see it getting any worse than those first half volumes.” Although that left the analyst disappointed, she should have rejoiced at getting as close to a categorical bottom call as any CEO could issue.

• The most perceptive question came next when one researcher asked which would improve first, price or supply? Ruprecht thought supply faltered before price and that perceived price was what collapsed. (Did you follow that?) He was quick to paddle on with the valid observation that some collecting areas had seen little or no reduction in price. However, Ruprecht added that he did not expect prices to rise any time soon. “I would not expect prices to move meteorically North unless we get into hyperinflation” before concluding that “volume will bring higher prices” in the end.