How Masterworks is Changing Art Investing Forever

art collection

Many people choose to invest in stocks, bonds, and other commodities because they feel investing their money is a smart way to secure a better financial future. Additionally, people choose between different options for short and long-term investments. Typically, people work with a financial investor to ensure a diverse portfolio built on various asset classes. Diversity is one of the hallmarks of a well-constructed portfolio because it has less inherent risk. According to The Balance, people can choose four asset classes when building their portfolio; equities, fixed-income and debt, money market and cash, and real estate and actual currency. One of the most common investments is stock which falls under the equities category. Many people prefer tangible assets like real estate. However, tangible assets include things like gold and even livestock. This category is defined as illiquid, which means that these investments are longer-term investments. One of the least likely tangible investments people choose is art. After all, many people feel that it is an elite world and investments in the art are only for the upper echelon. Yet, it’s also an investment that many are intrigued by. It’s a dream of many to have a rare piece of art like a Warhol or Monet. Furthermore, these blue-chip paintings need a substantially higher amount of capital than blue-chip stocks like Amazon or Apple. Nonetheless, the allure of buying and selling art remains a dream, and they wish they could enter the elite world of art investing.

After the global pandemic, people began to reconsider their investments since there was a drop in traditional assets like stock, real estate, and other items. Although people gravitated towards tangible assets like gold or other metals, artwork remains notably absent as an investment option even though it works much the same way as other tangible assets. According to Masterworks.io, there are almost 2 trillion dollars in art owned by private investors, with more than 70 billion sold annually. Art is something globally recognized and a worthy investment. Yet, it is more often than not overlooked as an intelligent investment. It’s surprising considering assets like oil or agricultural goods’ worth is contingent on the economy. Whereas artwork remains steady as well as increasing in value despite economic downturns. In fact, over the last two decades, artwork has steadily grown almost 10 percent.

The only decline was during the 2008 financial crisis. In a Medium article, Scott Lynn discussed a few things he’s learned along the path to being a serious art collector. Since he grew up in rural Kansas, collecting art seemed inaccessible. Additionally, he recalled hearing about pieces selling for millions of dollars. He wanted to be a part of the elusive art community and learned to do so over time. Lynn didn’t want to just enjoy painting aesthetically; he wanted to build an art collection as an investment. So, he looks at the artist’s portfolio and what the pieces are selling for. This allows him to project what later pieces will be worth. He had many ups and downs in the beginning. Since he was only beginning to understand the market, he made bad investments and even purchased fake pieces several times. However, after being a collector for almost twenty years, he feels he has an inside edge to help people diversify their portfolios.

Collector and investor

According to PR Newswire, Lynn’s collection is internationally recognized and includes artists like Clyfford Still, Barnett Newman, Mark Rothko, and Willem de Kooning. It has been featured at many art museums like the MoMA, the National Gallery of Art, and London’s Royal Academy of Arts. Additionally, he is an internet entrepreneur who has worked with numerous advertising companies and fintech companies. This experience and passion made starting Masterworks a natural progression in his career. In 1970, Parker Brothers released the board game Masterpiece. The premise was that people bid on blue paintings from artists like Monet and won by amassing the best collection. One of the reasons behind the success of this game is that it gave people who love art the opportunity to, in theory, own paintings that would otherwise be far beyond their price range. However, now there is a way to own some artwork that you may never have thought possible; it’s called Masterworks. Unlike the board game, you don’t have to bid to win. Instead, you invest in shares of the painting and co-own them with a group of people. Let’s look at a company making artwork available to anyone who wants to add a masterpiece to their investment portfolio and how someone can own a Warhol when they have billions in the bank.

Masterworks

Lynn’s mission with Masterworks was to make owning artwork a feasible investment for anyone. However, there is a twist. People who invest in the paintings will only hold a portion or share of them. Masterworks is the first company to use blockchain for its investment platform, a distributed database owned by a company and a group of people. Essentially, this means if you purchase a painting, your share is recorded on the painting’s blockchain Masterworks offers blue-chip paintings. Blue-chip means that the commodity is from an industry leader whose values have already been accepted by those unfamiliar with the term. With paintings, there is an additional layer; the artist must also have a large sales volume. Instead of selling off the work as a whole, they sell it in pieces so that people have the opportunity to own an iconic piece. Even though this concept may sound strange, one way to look at it is by comparing it to a blue-chip stock like Amazon. People can buy stock in that company and own a piece of a very well-known and successful company. Essentially, with the purchase of a piece of a famous painting or a renowned company, you know your purchase is high quality with a strong likelihood it will sell for a profit.

According to Money US News, advancements in technology are making these types of sales happen. When asked, CEO Scott Lynn was quick to address people’s hesitance about purchasing expensive art pieces. He said, “there might be a few art funds out there, but there isn’t really a way for ordinary people to invest in art. We wanted to change that, so we came up with Masterwork.io.” Masterworks doesn’t select painting solely on the artist. They look at many factors, one of the critical factors that make people shy away from investments. According to The College Investor, the look at the artist and the best paintings. CEO Scott Lynn understands all too well how people will think that an artist is valuable when it’s only certain paintings. Before Masterworks can sell the painting, they file it with the United States Securities and Exchanges Commission, which helps guard potential investors again market manipulation. According to Millenial Money, the paintings are broken down into shares for customers to purchase, much like crowdfunding. After all the shares are purchased, Masterworks tries to resell the artworks and passes the profits back to the shareholders. Since the paintings offered are blue-chip, the average price tag for these paintings is approximately 25 million. One thing to keep in mind is that this is not a quick sell. Masterworks typically does not sell the painting for three to five years allowing time for the painting to rise in value. However, they will enable people to purchase the image if all investors agree.

A purchaser story

Masterworks’ first offering was Andy Warhol’s 1979 painting 1 Colored Marilyn, which sold for albums 2 million dollars in 2018. However, unlike the Sotheby’s auctions we read about, this painting wasn’t purchased by one person. Instead, it was purchased by 1300. Each investor is registered on the blockchain, powered by Ethereum tokens, as the owner of this painting. Cheryl Ellzysmith is one person who owns this painting. According to CNN Style, she is a twenty-nine-year-old studio artist from Philadelphia and a huge fan of Warhol’s work. During an interview, she said, “they’re talking about having an exhibition for all the community-owned artworks, and I will absolutely bring people there and say I own a piece of that painting.” This level of excitement is what Masterworks wants to achieve. Since Lynn is an investor, he understands how it makes people feel to own a painting by an artist who is so well known. Even though people don’t get to see, the painting hanging on their wall. Masterworks has a gallery in Soho, New York, where people can view the paintings they purchased and others they have bought stock. This allows them to see their tangible assets. It also allows them further exposure to beautiful art pieces, exposing them to additional blue-chip artists who may have other pieces with stock available later. The Masterwork.io portfolio currently has works by Andy Warhol, Pablo Picasso, Claude Monet, and Joan Mitchell. Even though many Masterworks are focused on blue-chip artists, they also work with living arts. According to Reuters, these artists are mid-career and will likely give an investor a twelve to twenty percent return. Additionally, these types of paintings carry less inherent risk than their blue-chip counterparts.

Before Investing

Owning a piece of a well-known painting sounds like a great addition to your portfolio; there are many things to consider before deciding to invest. First, this is like any other investment; you’ll need capital to begin, a thousand dollar minimum before you can invest. Even though many of the painting shares go for twenty dollars. Masterworks is currently only a platform. Additionally, you’ll want to do independent research to determine if this is the right direction for you. Even though investing in artwork, then selling it for a potential profit sounds like the goal of the Parker Brother’s game Masterpiece. Scott Lynn is undoubtedly working to make higher-end paintings more accessible to people as portions of their portfolios. Additionally, more people are gaining entrance to what was once an elite subculture where most people feel extraordinarily out of place. Buying these paintings is similar to investing in a Hedge fund that charges 2% annual management feel and 20% of any profits. Masterworks.io charges 1.5% maintenance and 20% of the profits. However, unlike a hedge fund, there won’t be a profit until the painting is sold. People who choose to invest have one additional option. The Masterworks platform allows them to monitor the appreciation of their investment artwork, allowing them to decide whether to wait for someone to purchase the painting or sell their shares. Additionally, tracking the rise in the piece’s value affords investors additional information for potential future investments.

Final Words

Masterworks has done something extraordinary with its platform, allowing people entry into a once elite world. People from all socioeconomic statuses are fascinated with art. After all, it’s said a picture paints a thousand words. Additionally, many wonder what it would be like to have something rare from one of the masters hanging on their walls. Scott Lynn wanted to bring the beauty of owning art to people, and he has certainly done that. Even though people can’t have these masterpieces hanging over their walls, they can visit them and proudly say, I own that painting. Lynn has undoubtedly succeeded in accomplishing his goal. After all, as Scott Lynn says, “Masterworks aims to make it possible for anyone to invest in this asset class by offering the opportunity to invest in artworks at an affordable entry point.”

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