Mawkish Investing
by Lord William Rees-Mogg
May 18, 2004 ------------------------------------------------------------------------------------------------------------------ "…Apparently the Ambassador bought the painting for $30,000 in 1950. That did give me a tinge of regret. I did not have $30,000 in 1950 - it was then a far bigger sum than it is now - but I did pay about $10,000 for my first house in 1952, so I could have potentially raised enough money to buy a lower-market Picasso…" ------------------------------------------------------------------------------------------------------------------ In the 1950s, when I was first working in London, Ambassador Jock Whitney was the US Envoy in London. He was a Republican and he represented President Eisenhower. He had quite a difficult time; though he was personally popular, and what used to be called "a fine figure of a man", he had to reconcile British opinion to Eisenhower's decision to undercut British policy at the time of the Suez crisis. The United States was felt to have let her ally down with a bump. I did not know the Ambassador, but I heard him address a number of public dinners. He came back into the news when his estate sold Picasso's portrait of a boy with a pipe, a charming, if somewhat sentimental painting from Picasso's figurative period before the First World War. Masterpiece? Mawkish more like… I suppose that it is a masterpiece, though if anyone were to describe it as "mawkish", I should know what they meant. It was for sale at Sotheby's last Thursday, and went for more than $100 million, including the buyer's premium. It is the first painting ever to be sold for more than $100 million, which is still a very respectable sum of money, enough to endow a College, though Oxford and Harvard's endowments run into tens of billions. At any rate, $100 million would endow a small college…if that was what one wanted to do…and would finance a run for the US Senate, if not for the Presidency. Apparently the Ambassador bought the painting for $30,000 in 1950. That did give me a tinge of regret. I did not have $30,000 in 1950 - it was then a far bigger sum than it is now, but I paid about $10,000 for my first house in 1952, so I could have raised enough money to buy a less highly rated Picasso. I like the idea of long-term investment The Whitneys turned $30,000 into $100 million in 54 years. By my calculation that means that the investment doubled nearly twelve times in the period. That may not be as extraordinary as it sounds. If my sums are right, the Picasso had to double every four and a half years. A compound investment at 15% will achieve that. In any case, this was a nominal, not a real, gain. I am not sure how much the dollar depreciated between 1950 and 2004, but it must have been of the order of a 90% depreciation. That means that $30,000 became $10 million in real terms. So in real terms, the Picasso only doubled ten times, which is only about a 12.5% real return. Pretty good, but no better than some stock market investors - including, I suspect, Mr Warren Buffett… But in short, paintings are not a short cut to becoming a billionaire. They are a help, of course, if, like the Whitney family, one is up in the dollar stratosphere to start with. As for me, I hope I have got my compound interest sums right. | 
