TO MANY, a report on “treasure” might not sound intrinsically financial, conjuring images of pirates, shipwrecks and chests stuffed with gold doubloons. However, owning items that are financially valuable, emotionally pleasing and culturally significant is a timeless tradition that shows no sign of abating. Treasure assets – items such as precious jewellery, fine art, wine, antique furniture, classic automobiles and precious metals – make up a sizeable portion of many investors’ total wealth.
Earlier this year, a version of Edvard Munch’s The Scream sold for a record $120m (£78m) at Sotheby’s in New York, after an auction lasting just 12 minutes. 2011 was the biggest year ever for sales at art auctions. A painting by Roy Lichtenstein sold for almost $40m, after its owner had purchased it 13 years previously for just $2m. Clearly, the current market for treasure assets can be a lucrative. But these are isolated headline-grabbing examples and achieving genuine returns from treasure can be very difficult. The complex rationales behind owning art, jewellery, wine, or indeed any such commodity, are worth scrutinising.
Barclays’ latest Wealth Insights report, published today, explores the financial and emotional motivations for holding treasure assets. A survey of wealthy individuals worldwide, coupled with the knowledge of a number of industry experts, suggests that despite the appeal of tangible assets at a time of widespread financial uncertainty, treasure should primarily be held for the pleasure it brings.
The report reveals that currently, wealthy individuals hold an average of 9.6 per cent of their total net worth in treasure assets, although in some countries this share is as high as 18 per cent. Precious jewellery, fine art and antiques are the most popular types of treasure held.
ANIMAL HIGH SPIRITS
Is this commitment to the practice of investing in collectibles driven more by emotional than financial motivations? The report reveals that only 18 per cent of treasure assets are held purely for the financial benefits they bring, and just 21 per cent are believed by their owners to provide security in the event of the failure of more conventional investments. Emotional ties to the assets themselves are thus shown to be significant in driving individuals to build collectibles into their portfolios.
These emotional ties that benefit collectors come in many forms; over 60 per cent of treasure owners said that they choose to build portfolios of such assets primarily because they enjoy owning them. Over a third (37 per cent) collect treasure assets to be enjoyed by future generations, and 35 per cent say that they are motivated by collecting artefacts which are part of their heritage or culture. Other emotional factors motivating the purchase of treasure assets include an enjoyment of sharing them with friends and a desire to show off.
In London, the motivations behind owning treasure are particularly strongly based on emotion. Treasure holders here say 72 per cent of their treasure is held purely for enjoyment, with the highest percentage of any UK region (31 per cent) citing a desire to share treasure with friends as a motivating factor. 39 per cent of treasure is held for cultural reasons in the capital, with just 13 per cent of treasure asset holdings motivated by purely financial considerations.
When significant emotional motivations exist for holding treasure assets, the utility derived from owning the piece may outweigh any financial perils. For individuals who invest in collectibles for primarily financial reasons, the reasoning rarely stacks up. Investing in treasure is highly risky, with assets often laborious and expensive to sell. Transaction costs at auction houses tend to be high, especially when buying. Insurance and storage of assets can also be expensive, and authenticity must be constantly and vigilantly considered.
Cognitive biases can cloud decision-making in all investment situations, and this risk is heightened in the case of treasure, due to the emotional allure of the assets. Treasure assets may give you a financial return, but buy something you enjoy and it will always give you an emotional return.
Dr Greg B. Davies is head of behavioural finance at the Wealth and Investment Management division of Barclays.
To read more about the latest Barclays Wealth Insights report, visit www.barclays.com/insights