The Motley Fool stumps for Sotheby’s stock as a play on emerging markets wealth accumulation. Although the analysts also want to make the case for BID as a play on increasingly global inequality they make one crucial error in assuming that the art market cannot produce new works. The art market’s power lies in its ability to take objects that were previously undervalued or unvalued and actively making a market in those objects thus increasing their value:
As the above chart shows, Sotheby’s stock outperformed its peer group and S&P global luxury index since financial markets have recovered in recent years. […] Sotheby’s is unique in the fact that it benefits directly from wealth disparity. A report released by Oxfam in January 2014 discussed rising wealth disparity. Here are a few key points:
Almost half of the world’s wealth is now owned by just 1% of the population. Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
The richest 1% increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.
The upper class has also been growing by household worldwide. According to a study performed by Boston Consulting Group in 2011, millionaire households have increased in both number and wealth. Millionaire households owned 39% of global wealth, up from 37% in 2009. The number of millionaire households increased by 12.2% in 2010 alone.
The wealth disparity and increase in millionaire households is important because Sotheby’s revenue is highly segmented within the top 1%. This benefits Sotheby’s more than other luxury-good sellers due to the limited supply of fine art. Most luxury goods, like Lamborghinis or diamonds, can be manufactured or mined. Unless scientist find a way to bring people back from the dead, a Picasso can no longer be painted.