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Thousands of years ago, small bands of humans used to sit around the campfire and exchange tales of bravery, passion and vengeance.  In some ways, humanity never outgrew those mythical accounts and ancient epic poems.  This is rarely more evident than when observing how investors in today’s equity markets flock to story stocks.

A story stock is a publicly traded company with a compelling narrative that explains why it is growing quickly.  The very best story stocks leverage this plot into capital market access, where they issue billions of dollars worth of stocks and bonds to fuel their corporate ambitions.  Right now Amazon, Netflix and Tesla are excellent examples of some of the most irresistible story stocks of our time.  But while the sizzle is always great with story stocks, oftentimes the steak is missing.

When people invest in equities, what they are really doing is buying future cash flows in the form of earnings and dividends.  Even though the narrative surrounding each individual story stock might be unique, the end product that all investors want – cold, hard cash – is actually a commodity.  Ultimately, it doesn’t matter whether an investor gets future stock market earnings from the latest and hottest technology company or from distinctly unsexy stocks in the trucking, mining or utility industry.  To any rational investor, a dollar’s worth of cash flows is a dollar’s worth of cash flows, regardless of where it originates.

What usually happens when investors get suckered into buying story stocks is that the fabled companies fail to live up to their own mythology.  This is especially the case during stock market bubbles, when investors’ greed-filled imaginations run wild.  Bubbles are exactly the time when story stocks are not only at their most seductive, but also at their most dangerous.

For example, during the original 1999 internet bubble there was a company called Juniper Networks.  This company was one of the classic story stocks of the era.  Its business centered on the production of networking hardware and software – critical tools used to power the early internet.  According to the prevailing zeitgeist of the time, the future belonged to these internet infrastructure companies.  And Wall Street enthusiastically agreed with this assessment.  Juniper Networks nearly tripled from its IPO price on its first day of trading and was often treated as one of a select group of “must own” stocks for any savvy, forward-looking investor.

Although the fantasy spun around the company was a good one, it wasn’t enough to keep this story stock afloat.  Juniper Networks’ stock price peaked at $232 on October 20, 2000.  Today, in January 2018, Juniper Networks stock trades at a meager $28 per share.  The company’s price-earnings ratio declined from a nosebleed 473 at its 2000 high, to a rather pedestrian 16.6 currently.  Investors who chose Juniper networks as one of their story stocks are still sitting on 87.9% losses to this day, 17 years later!

This is the omnipresent danger with story stocks.  The fantasy might be alluring, but at the end of the day, all investors really want is for their investments to spin off lots of cash.  And cash flows simply don’t care about the story.

Now I’m not opposed to a good tale.  After all, much of human identity and society is driven by myths, legends and sagas.  But as an investor, I think it is imperative to know when to embrace the narrative and when to demand cold, hard facts.  When dealing with the stock market, I very much lean toward facts rather than pleasant fictions.

However, there is one class of assets where history, anecdote and adventure are not just acceptable, but truly desirable.  I’m speaking, of course, about fine art and antiques.  These alternative assets have been pursued, hoarded and coveted by the wealthy and powerful for centuries.  And this is because they fulfill deep-seated psychological needs, including the need for a good story.

Edvard Munch’s famously unsettling painting, The Scream, is a good example of how a story can enhance a work of art, propelling it to the status of a cult classic.  According to Munch, his inspiration for painting this masterpiece was as follows:

“One evening I was walking along a path, the city was on one side and the fjord below. I felt tired and ill. I stopped and looked out over the fjord – the sun was setting, and the clouds turning blood red. I sensed a scream passing through nature; it seemed to me that I heard the scream. I painted this picture, painted the clouds as actual blood. The color shrieked. This became The Scream.”

That is powerful commentary!  It is easy to see how this description builds a compelling myth around The Scream, elevating the painting to a status that it probably wouldn’t hold otherwise.

Of course, it isn’t just priceless artworks that benefit from a good origin story.  Far more affordable art and antiques also become more interesting and desirable when their history, provenance and legends are known.

For instance, in 1954 between 200 and 300 gold Brazilian 12 guilder coins were restruck at the Sao Paulo Exposition Numismatic in commemoration of the city’s 400th anniversary.  The original coins are steeped in history, having been minted in 1645/46 in the Dutch-occupied, Brazilian port city of Recife.  At this time, the Dutch West India Company had seized a large portion of the Portuguese colony of Brazil for its sugarcane resources.  These beautiful gold coin restrikes deftly position the tumultuous history of 17 century Brazil and early-modern European colonialism against a mid 20th century Latin American backdrop.

It is a great story, and one that should be compelling to any coin collector or investor.  Yet, these pieces of Brazilian-Dutch numismatic history currently sell for ridiculously low prices right now – a mere $604 in this case.  And almost half of that price is attributable to the gold content of the coin!

However, I don’t expect this situation to persist forever.  Eventually this romantic tale will gain a wider audience.  And when it does, prices for Brazilian 12 guilder restrikes (and probably the originals as well) will inevitably rise.

I like stories.  But I think investors need to be very careful about investing in them.  There are some asset classes where stories make sense and others where they don’t.  There’s a reason you’ve never heard of the term “story bonds”; likewise, story stocks rarely make much sense for long-term investors.  All too often, those fabulous tales of perpetual and limitless future growth end up being disappointing mirages.

Happily, more narrative-oriented investors can always rely on fine art and antiques.  Their history and myth builds a foundation of desirability that appeals to even the most hard-nosed connoisseur.  Fine art and antiques are one of the few asset classes where a good tale is worth the price of admission!

Read more thought-provoking Antique Sage investing articles here.

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Read in-depth Antique Sage investment guides here.

It is no secret that I like buying antiques for investment purposes.  But lately I’ve also been exploring the idea of investing in future antiques.  I define future antiques as contemporary artwork, jewelry or other objets d’art available for relatively modest sums of money that have a good probability of being highly desirable in the future.  In theory, buying undiscovered masterpieces for low prices when they are new and then waiting two or three decades should lead to massive profits.

Of course, this strategy is easier said than done.  The real problem is determining what will be considered desirable future antiques and what will be considered mediocre.  However, we do have a roadmap to help guide us – The Antique Sage’s five rules for determining an antique’s desirability.  Portability, quality of materials and construction, durability, scarcity and zeitgeist are the five distinct aspects that help define investment grade antiques.  Luckily, these rules apply to new artwork just as reliably as century-old antiques.

These guidelines do leave a lot of room for interpretation, though.  Many future antiques will score very highly on some of the five factors while lagging in others.  So how is the forward thinking art connoisseur or investor supposed to choose?

In my opinion, quality and zeitgeist are the two most important attributes to consider when looking for future antiques.  Quality is a fundamental attribute for antiques.  We are looking for items made from the highest quality materials available.  In addition, we want our future antiques to be crafted with the greatest care by artists of the highest skill level.

Zeitgeist is a little more complicated.  Zeitgeist can loosely be thought of as the prevailing artistic milieu of a given time or age.  Motifs, styles and subject matter are all hallmarks of zeitgeist.  All art produced in a given time and place will reflect the cultural backdrop of that period regardless of the individual training or personal preferences of an artist.

We shouldn’t forget the role of the artist when scouring the internet for future antiques, either.  I have found that many of the best contemporary works of art available today are often created by self-taught or non-traditionally trained artists operating outside of the established artistic community.  This is sometimes referred to as outsider art or folk art.  As an added bonus, informally-trained artists often charge less for their works than traditional artists.

Artists without formal training can have unique and fresh approaches that result in groundbreaking, visually distinctive work.  This can manifest itself in what I term the “It Factor”.  When I am sorting through a large number of works, the ones that have the It Factor make me stop and exclaim “Wow!”  The It Factor just means that an artwork, for whatever reason, is truly exceptional.

In order to get a better idea of what I’ve been talking about, let’s briefly examine a few specific examples of items that I believe will become future antiques.  The first piece is a contemporary nephrite jade pendant that I recently featured in an Antique Sage Spotlight post.  This exquisite work of art was hand carved by a self-taught artisan jeweler named Alif Ballangrud who lives on the coast of Oregon.  This breathtaking jade pendant exhibits all of the five elements of antique desirability, and really exudes the It Factor.  Perhaps best of all, this magnificent jade carving is for sale for the surprisingly modest price of only $425!  I have no doubt that this one-of-a-kind piece will be much more valuable in a couple decades.

Another work that I think has a high probability of ascending to the pantheon of future antiques is another one of my Spotlight posts – a 2011 drypoint print by Mariko Kuzumi.  This lovely nature-themed print deftly juxtapositions vibrant color with monochromatic lines to create a compelling work of contemporary art.  The artist, Mariko Kuzumi, lives and works in New York City, but I feel that her Japanese heritage really shows through in the work.  In any case, for only $200, this contemporary drypoint print is a marvelous piece with great future potential.

Future antiques don’t have to be conventional art, though.  For example, there has been a renaissance over the last few years in poured silver bullion bars.  Most silver bars produced by refineries today are struck or extruded, methods that lend themselves well to mass production.  But a tiny portion of the precious metal community has banded together and begun creating vintage-style, hand-poured silver bars.  Half collector’s item, half silver bullion, modern poured silver bars represent an attractive and unusual precious metal investment.

One of the premier makers of these new hand-poured silver bars is Backyard Bullion.  Backyard Bullion, also known by the acronym BYB, is a self-taught craftsman who started off in his backyard with a simple blowtorch and crucible.  But he has since evolved into a top-notch fabricator of poured silver bars.

These superb silver bars are available in a variety of shapes and sizes, but they all share a level of care and attention to detail that is only available in the finest of hand-made future antiques.  Some BYB poured silver bars are even hallmarked by the Edinburgh Assay Office in Scotland, a fact that will undoubtedly positively impact the future desirability of these objets d’art.  While BYB artisan-poured silver bars already sell for healthy premiums over the spot price of silver, I strongly suspect they will appreciate briskly in the years to come nonetheless.

Of course, every investing strategy has its drawbacks, and investing in future antiques is no different.  By trying to divine the future popularity and demand for certain types of art and antiques, you run the risk that misjudging the market.  Maybe that artwork you purchased directly from a promising artist ends up being ignored and shunned for no good reason.  Or perhaps your fine antique is finally appreciated for its great style and compelling quality, but only after several decades has elapsed.

Because of this uncertainty, buying future antiques should be considered a higher risk investment strategy, like investing in micro-cap stocks or high yield bonds.  As a result, I would strive to limit the exposure of these works in your investment portfolio to reasonable levels.  However, if done intelligently, buying the antiques of tomorrow, today, can reward the patient tangible asset investor with phenomenally high returns.

Read more thought-provoking Antique Sage investing articles here.

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Read in-depth Antique Sage investment guides here.