Warren Buffet & Art

[intro]Michael Reid just announced a new partnership with Vasili Kaliman in a new Sydney Gallery called Kaliman + Reid. [/intro]

Coming as I do from the proposition that collecting art requires the buyer to act with a high degree of financially responsibility, on more than one occasion I have been intrigued by the business investment principles of the Sage from Omaha, Warren Buffet. Over some time, I have been interested in what fundamental principles Mr. Buffet is known to have applied to his stock selection process. In this instance I am not looking at the idea of art as an investment. No, I am looking way ahead of that consideration, to any parallels (if there are any) between what Mr. Buffet would say on financial decision-making principles and what may be said, in a similar regard, to the decision making principles involved in art collecting.

I say from the outset they my ideas as to Mr. Buffet’s investment strategies have been formed under the tutelage of my friend and art-collecting colleague, Mark Nelson, a director of Caledonia Investments. However, I take full responsibility should I have totally misunderstood Mr. Buffett and have screwed things up.

From my take, Warren Buffett is interested in buying (and holding) simple-to-understand, high-quality businesses, at a fair price, run by people that he admires and trusts. Obviously the devil is in the detail, and it requires a sound ability to make a call on what actually represents “high-quality”, and “a fair price”. Having said that, in a nutshell therein lies Mr. Buffet’s world conquering investment strategy.

Straight off we note the fundamental importance Mr. Buffet places on obtaining a strategic balance between the identification of a high quality business within which to invest, and his requirement that a fair price be paid for that investment. As I read it, a significant component to the Buffet investment master plan is that there must exist a balance and strong interrelationship between the quality proposition and the value proposition.

Mr. Buffet amidst a basket of considerations, places a great deal of significance in the quality proposition. In a similar manner, but to a far greater degree in my mind, the quality proposition in art collecting must come first- we differ not on focus, but on the degree of emphasis. If anything, in art collecting the balance is firmly skewed towards the quality proposition. As in strategic business investments, when buying art you scope, research and scour for the very best of what visually interests you- within your budget. If a collector’s personal taste demands that he or she begin their collecting journey with a painting from the artist Pro Hart (early Ok late very bad), then well and good. It is not my role as an art dealer cum consultant to ride roughshod over a collector’s own taste. God forbid that we should slavishly follow my rather quirky, confronting and a touch morbid collecting example. After all, I have just purchase a large Adam Cullen oil of a rather 1930s-looking female nude with a large red firecracker up her bottom. Entitled Cracker Jack, the work indeed goes off like a visual cracker. I adore it. Many may not. No, my professional role with my art consultant hat on is to make sure that when a client wants, say, a Pro Hart painting, that we find the best quality Pro Hart ever painted for the money. I would, in a Pro Hart situation, gently direct the collector to his late 1960s and early 1970s work- a time when, with his great skill, Pro Hart had something of interest to say.

The quality proposition is the most significant consideration when purchasing an artwork. Unlike the changing nature of business, whereby the quality proposition of a company may well be expected to improve- under new management, or with the injection of increased resources and so on. With regard to an artwork, the quality proposition is fixed from the outset and will never vary from purchase. As physically a watercolour will never mysteriously metamorphose to an oil painting, as an oil painting will physically never grow larger- even under good management- what you buy in terms of art quality, is set in stone. A bad picture by a good artist will never become a good painting- and as such, the market will value the work down accordingly.

Unlike the more even-handed, business investment being a balance between the quality and value propositions mix, in terms of art collecting the value proposition must come a close but firm second. It is a failure to understand this priority- above all others in the art world- that quality must come first, a “fair price” second in the hierarchy of purchasing considerations, where many a potentially good art collector comes unstuck at every purchase.

I have witnessed collectors as a matter of business strategy, when faced with the possibility of buying an absolutely museum quality artwork, attempt to screw down an art dealer to the very last cent- only to lose the purchased and be left to buy- at a more reasonable price, a second rate example of the artist’s work elsewhere. They lose the first better quality picture. But worse is yet to come. For if the collector had any real idea as to quality, the disappointment becomes all the greater as they are forced to live with, for sometimes years and years, an artwork they know not to be the best example of the artist work. They live with disappointment, both visual and physiological, every day.

Just as bad, I have seen a collector, when faced with the possibility of purchasing a top-flight picture, screw an art dealer into a one-side deal. The collector obtains the artwork, at a price they are only too happy with, but the dealer has been left with almost nothing. The consequence of this being that the collector, who always goes for the price deal by the throat, is never again offered a first class painting by that art dealer. This type of collector goes from art dealer to art dealer, leaving behind a landscape of burnt bridges. Like any other industry, the art trade talks. The consequences being that when you visit the collector’s house, you spot one or two great paintings and a collection of overwhelmingly second-rate artwork- and the collector has never worked out why this is so.

The value proposition is a focus on obtaining- as Mr. Buffett makes a great deal of effort to do- a fair price. What the seller or market may want, is not by any definition the only understanding of the term a fair price? A fair price could well be, and often is, a price below that on offer in the market. In the alternative, it may in terms of an artworks rarity to the market, be a higher price than is expected. Whatever the definition of a fair price, or the specific circumstances under which a fair price is concluded, as a factor in collecting art it is more than stupid to primarily focus on a cheap price, at the expense of quality. A “fair price”, in essence must be fair to all.

And as to the last very important component of Mr. Buffet’s investment stratagem, that is he invests in [businesses]…“run by people that he admires and trusts,” I could not agree more. There is no more a professional manner in doing business- any style of business- than between people acting in a “seamless web of deserved trust”. Mr. Buffet said that too.

Michael Reid