The art of investing: How Masterworks presents a unique platform to invest in art with superior financial returns
Business
Scott Lynn's Masterworks is an art investment platform, that enables retail investors to own a piece of coveted art (blue-chip art)1, by splitting it up into digital shares on the Ethereum blockchain.
The artwork is held in a climate-controlled, secure environment while Masterworks searches for an independent collector or buyer to sell at a profit. Investors can trade these shares on the platform or cash their payout once the original artwork is sold.
How it works?
The business model
Masterworks undertakes actual delivery and physical storage of the original artwork, thus incurring storage, insurance, regulatory filing, annual appraisal and administrative costs.
In exchange for the same, it charges its investors:
The value proposition
Democracy in purchase – In 2017, Basquiat’s 1982 ‘Untitled’ sold for USD 110 million. Masterworks makes such coveted art ownership more accessible to the common man with shares worth as less as USD 20/share.
High uncorrelated returns – Blue chip art has grown to a USD 1.7 Trillion market and reportedly outperformed the S&P 500 by 180% from 2000-2018. Further – it represents a very effective hedge to traditional investments in equity with uncorrelated returns (0.11), thus reducing their risk profile.
The leadership
Scott Lynn, Founder
Scott is a seasoned art collector, having built a collection in Abstract Expressionism over 15 years, Scott previously founded Payability in 2014, a digital lending provider advancing in excess of USD 1 billion credit to e-commerce sellers.
Alberto Simon, Co-Founder
Alberto is the Co-Founder and Head of Product at Masterworks. He was also the co-founder of Payability.
Hai Minh Tran, Co-Founder
Hai Minh is the Co-founder and Head of Design at Masterworks. He has previously worked as the senior-most creative at Zynga as well as served as Creative Director at Apple, Nike, Intel, HP, Microsoft etc.
The competition
Maecenas operates a similar platform, powered by blockchain technology, to allow users to buy/sell/trade-in tokenized fine art. It allows users to transact in any accepted fiat currency & cryptocurrency.
Its model relies on reducing the margins levied by galleries (50%) and auction houses (25%) to just 1% (buyer) and 8% (seller).
Other notable players sharing the ecosystem include Look Lateral, ArtSquare, Artolpolie etc.
The criticism
Valuation of art is highly subjective, with most appraisers using distant comparable pieces and dated sales as a benchmark.
Liquidity - an unfulfilled promise? Although Masterworks does provide a platform to sell your stake in an artwork, the userbase itself is small and sales are infrequent. At times, it may even resort to a public auction if it doesn't find a suitable buyer.
Selling hurdles: The sale requires majority approval, with little protection offered to minority investors and exposure to bureaucratic decision-making.
Perks of a secondary market
Masterworks, through its ‘Bulletin Board’ has created a secondary market, that allows for consistent price discovery and lends liquidity to an otherwise illiquid asset class, thus allowing for a reliable and effective way to monetize your investment.
It also provides the following benefits:
“There’s a name for the blah you’re feeling”
Health
Back in April 2021, Adam Grant wrote an article for the New York Times titled ‘There’s a Name for the Blah You’re Feeling: It’s Called Languishing’. Upon publishing, I’m sure collective sighs were heard across the world.
We finally had a name for the motley of emotions we have been feeling but couldn’t figure out why.
There appears to be a pattern in the conversations we have with our friends and family. If you notice, the phrases often repeated are along the lines of “I feel exhausted/ not motivated/ empty/ lonely/ can’t seem to focus”
When asked why we feel this way, the unanimous answer is “I don’t know”. This see-saw of feeling ‘not too bad but not too good’ is what led sociologist, Corey Keyes, to coin the term “languishing.”
Living through a pandemic
At the beginning of COVID-19, we were hypervigilant. Obsessively cleaning and sanitizing everything coming into our homes- from groceries to family members! Chefs and bakers sprouted in every household, graduating from the YouTube School of Culinary, whisking away Dalgona coffees while pizzas baked in ovens.
And then came grief.
Grief and loss
The second wave brought with it an unfathomable loss. Every phone call made our hearts race. And now, we find ourselves in a never-ending auto-pilot mode, filled with lethargy and lacking willpower. We started sleeping during meetings and online classes, cutting back on work, and procrastinating on minor chores regularly. We never noticed when we fell into this pattern.
As Adam says, we became indifferent to our indifference. What’s alarming is the indication of increased risk of mental health issues over the next decade, even in people with no prior concerns.
Studies across the world have shown a startling rise in mental illnesses, substance abuse and suicide ideation. A US study reported that symptoms of anxiety or depressive disorder have risen from one out of ten adults in 2019, to four in ten in 2021. There’s a steep rise in the number of individuals experiencing their first episodes of panic attacks.
Rising above
To emerge from our shared languish, the article suggests we pay heed to a couple of things. What helped us deal with the initial shock of complete lockdown was “flow”.
Each of us picked a routine to divert our attention from the way the world turned on its head overnight. Finding one thing that comforted and distracted us from the harsh reality of pandemic life, even momentarily, benefitted us immensely.
Setting small, achievable goals like finishing a household chore, clearing a game level you’re stuck on or sending out an email you’ve been avoiding, will help instill a sense of achievement in us.
Lastly, something therapists swear by, is setting boundaries. Allowing yourself some ‘me’ time, or removing distractions for as little as 30 minutes while you work on a report will not only help you focus but also foster the feeling of progress.
Speaking openly of languishing has helped stir discussions about destigmatizing mental illnesses. We, as a society, are now significantly more aware of the need to approach mental illness in the same way as we do physical illness.
Mental health issues require a professional diagnosis, therapy, medication, and follow-up. It’s about time we comprehend the urgency of leading people towards the other end of the spectrum, away from languishing - towards flourishing.
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