The smartest guys in the investment management business are often focused on some variation of a single theme. They all want to discover the world’s most under-owned asset class. And then they want to buy that magical asset – preferably a lot of it as cheaply as possible.
There is a simple reason for this unerring focus. The widespread ownership of an asset class is usually inversely proportional to its future return potential. Once a particular investment – regardless of whether it is a stock, bond or REIT – becomes well known, prices inexorably rise as the asset becomes more popular. Everybody wants a piece of it, so to speak. This phenomenon drives up prices as there is a frenzy to buy.
Once everyone does own their hundred shares though, it becomes less and less likely that the asset in question will continue to outperform other assets. After all, there is a limit to how much Apple, Tesla or Bank of America stock investors are willing to stuff into their portfolios. The resulting lesson is perfectly clear. Relentlessly search out the most under-owned asset class and buy with both fists. If you can patiently wait until it becomes popular, you will assuredly be rewarded with above average returns.
The only problem with this idea is that there is no good definition of “under-owned”. After all, every asset must be owned by someone at all times. They don’t simply disappear when no one is interested in them. So when we discuss under-owned investments what we are really talking about is ownership distribution. Under-owned assets have “lumpy” ownership distribution compared to popular assets, where almost everyone owns at least a little bit.
Now comes the big question. What is the world’s most under-owned asset class today? In other words, which asset class is not only unpopular but also has a lumpy ownership distribution, with most people having no significant investment position. I think the answer to this question is obvious. Investment quality art and antiques are the clear winner here.
First, investment grade art and antiques are not a well known or popular asset class. Most people think you need to be a billionaire to build a meaningful art collection. Or they think that fine antiques can only be acquired for a million dollars or more. These myths are both false, but they have effectively prevented most people from fully exploring the investment benefits offered by this asset class.
Now I would like to conduct a thought experiment. How many pieces of fine art and antiques are present in your household? For most people the answer is zero; absolutely nothing they own could be mistaken for investment grade art and antiques. For those people who do own some, it is typically not much. In most cases it will be one or two separate, unrelated pieces. And in most instances, these few investment quality specimens will have been inherited, not purchased.
Instead, high quality art and antiques are primarily owned by a select group of savvy connoisseurs and collectors. These farsighted investors may only spend a few hundred dollars on a single item – and sometimes even less. But they use their specialized knowledge of the field to pick out the very best antiques, leaving the dregs behind.
These discerning art and antique aficionados are building important collections bit by bit that, one day, will undoubtedly be worth large sums of money as the asset class becomes more popular. Fine art and antiques are currently a grossly under-owned asset class destined for a high future rate of return. And for those who are shrewd enough, it isn’t too late to get your share.
