We Study Billionaires - The Investor’s Podcast Network - TIP349: Why You Should Be Investing In Art Shares w/ Scott Lynn

Starting point is 00:00:00 You're listening to TIP. On today's episode, I sit down with internet entrepreneur Scott Lynn, who most recently founded the company Masterworks, which allows smaller investors, like me, to invest in multi-million dollar pieces of art. In this episode, we cover why you should consider art as part of your portfolio. What are the risks involved, but also what are the rewards? Where to start when examining the art market, how you can get started, and much, much more. This was an incredibly insightful discussion for me, since I know extremely little about the art market,

Starting point is 00:00:34 but I think of myself as someone who can appreciate art and love the practical approach that Scott has laid out for us. So with that, sit back and enjoy my discussion with Scott Lynn. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, everybody, welcome to the Investors podcast. I'm your host, Trey Lockerby, and I'm here with Scott Lynn of Masterworks. I'm so excited to talk to you, Scott. Thanks for coming on the show.

Starting point is 00:01:20 Thanks for having me back. It's been a minute since you've been on the show. You were first on the show in 2019. You had recently launched Masterworks, right? What year did you launch the company? I mean, I must have been on the show last very early because I think our first painting that we had securitized with the SEC. launched in May of 2019.

Starting point is 00:01:39 But yeah, I mean, I think it must have been right after launch. Fantastic. Well, a lot's happened since then in the world in general and also, I'm sure, with your company. Before we get into that, let's talk a little bit about why you started Masterworks and what got you interested in art in the first place? It's a good question. So I've been starting technology companies for the past 20 years and also collecting

Starting point is 00:02:01 art at the same time. Personally, you know, have a top 100 collection. I've always been fascinated by the asset class. I think my perspective on, I guess, the asset class and the art market generally is it's probably the largest asset class that's never been securitized. Masterworks was the first firm to securitize a painting. When you step back and think about that, it's kind of amazing, right? Because art is a $1.7 trillion asset class.

Starting point is 00:02:26 And if you compare that to the most comparable asset class that people know, which is a venture in private equity, that's a three and a half trillion dollar asset class, or roughly twice the size. But in today's world, there's 9,000 firms that help people allocate to venture and private equity, but there's literally never been an investment product in the art market. So from our perspective, that that's what the opportunity is, is how do you take this asset class and make an investable really for the first time? Why do you think that is? Why do you think it's taken till now to securitize an asset class like art? We have struggled with this question internally so many times. And I think the thing that's particularly fascinating is art is one of

Starting point is 00:03:07 the oldest asset classes. Sotheby's, for example, up until recently going private, was the oldest listed company in the New York Stock Exchange at 275 years old. So the asset classes has literally been around for centuries. And you would have thought that by now there would have been an investment product, but there hasn't been. Well, last time you were on the show, Masterworks was just beginning to do some research into what actually drives the prices of certain works of art. So I'm curious to catch up with you now and see what you've uncovered so far. We now today, I guess two and a half years later, have the leading research team in the art market. And we publish a lot on everything from returns, correlation, loss rates, etc.

Starting point is 00:03:51 One of the common questions that we get, particularly from institutions, is what drives our prices? Why do our prices go up, even though we know that they've gone up for, for decades now, in many cases outperformed other asset classes like the S&P, like real estate, like gold, not only from a return perspective, but also from a risk-adustor return perspective when accounting for volatility, the obvious question is, why are our prices going up? And I think that we generally have two answers for that. One is the top 1% and demand by the top 1%. So we generally believe that investing in art is similar to buying a call option on the

Starting point is 00:04:28 ultra wealthy. The wealthier the top 1% gets, the more art prices tend to go up on a global basis. And it's important to understand that the art market today is 25% U.S., 25% China, 25% Western Europe, and 25% rest of the world. So you can literally buy a painting in New York, put it on a plane, fly to Hong Kong and sell it. So we do view it on a global basis. The second thing, which is really interesting, is that art is one of the few asset classes that becomes more scarce over time. And what I mean by that is that if you have an artist who is living, who's well-known, who paints a bunch of paintings and then passes away, at some point those paintings are donated

Starting point is 00:05:09 to museums or institutions. So the supply actually decreases over time. And that's actually a really, to me, a really interesting concept because think about other asset classes, like real estate, there's constantly more real estate being built, gold, there's constantly more gold being mined. And this is one of the arguments I think people have as to why Bitcoin is an investment, which, you know, that's a whole separate topic that I guess we can debate. But the answer to the thing about art is that over time, when you have a great artist,

Starting point is 00:05:37 there becomes very and very few paintings that are actually left after they pass away. And in many cases, those paintings sell for millions of dollars because of that. Well, let's talk about your interest in art, because I know this is what drives you and gets you out of bed every morning and why you started this company. Did you have some early wins with art in your own investment portfolio? Like what drove you to say, hey, everyone else needs to be doing this? When I started collecting art, it was in the late 90s. And, you know, I did it because I was passionate about it.

Starting point is 00:06:08 I had a mother who was an amateur artist, a group with art books. But it quickly to me started to become interesting just from an investment perspective. And the main thing that drove that, I guess like many things, was really the advent of the internet. So for the first time ever, you had websites which are publishing prices the paintings sold for a public auction. And quickly, within a number of years, you had large databases that tracked public transaction records of paintings. So today, there's roughly $60 billion in art that sells every year.

Starting point is 00:06:40 Half of that is a public auction. So you have this very big data set that you can analyze to determine things like returns, correlation, loss rates, etc. In today's world, a lot of people that look at the art market are looking at this data to try to understand how are particular paintings appreciating, how are artist markets appreciating, really for the first time, first time ever. So you mentioned $60 billion in transactions a year. What's the overall market cap look like for something like the art market?

Starting point is 00:07:12 The best estimate is $1.7 trillion. You can think of that $60 billion a year as whatever, a couple percent turnover on the overall size of the asset class. The interesting thing about that $1.7 trillion number is it really excludes art held by museums or institutions, which obviously in terms of the global landscape is the most culturally significant art. But museums or institutions, for a whole bunch of reasons, never sell their art. Interesting. So in your opinion, knowing that, it sounds like it's about 20% the size of gold, which you could say is a similar asset class in a way of store of value or scarcity or any of the

Starting point is 00:07:51 other benefits. In your opinion, how should investors look at art? What kind of portfolio percentage should it make up for? I guess it depends on the investors. So we, when we're onboarding investors in the master works, we run them through suitability and try to understand what is the size of their overall portfolio, what is their tolerance for liquid investments. City did the very first study on an asset allocation model to art in 2018, I believe. And they concluded somewhere between 1.8 and 8% if you look at the art market overall. And we can certainly talk about performance by segment in the art market. But one of the things that's really interesting about the asset class is as art ages, very broadly speaking, returns go down. And this is something that a lot of

Starting point is 00:08:37 people don't totally understand. So if you take an artist like Rembrandt, for example, I can almost guarantee you that if you buy your Rembrandt today for $20 million, you will sell it 10 or 20 years from now for roughly what you paid plus inflation. That's one thing that I think a lot of new collectors also don't understand. So there's definitely a relationship between recency and return, but those returns or those recency periods are measured in very wide increments. So, for example, today Masterwork thinks that the most investable segment of the art market is art created after World War II, which has been roughly 75 years.

Starting point is 00:09:12 And just now we're seeing art created right after World War II starting to decelerate in terms of returns. So returns are correlated to fashion, but it happens in very, very wide increments. What, in your opinion, is art mostly correlated with? We've done this research, and it was actually an interesting case study, I guess, for better for worse, between what our research said and then what happened with COVID. it. So we published a report on correlation between art and other asset classes at the end, I believe it was in December of 2019. And we basically concluded that art is effectively uncorrelated. I think the highest correlation at that point in time was to, I believe, bonds that I'm not, I'm not remembering specifically what the correlation was, but it's very low still. It was like 0.2.

Starting point is 00:10:03 When we look at it compared to the S&P, depending on the period we measure, measure somewhere between 0 and 0.11. So it's effectively uncorrelated to almost every asset class. We often get the question, why is it uncorrelated? And I think there's a couple of reasons. One is that if you believe that our prices are correlated at the top 1%, and as the wealthy get wealthier, our prices go up, then you probably can also assume that on a global basis, that top 1% behaves differently than the rest of the market. And two is that art is an illiquid

Starting point is 00:10:37 asset class. People invest to hold it for a very long period of time. So some of the correlations you would see with things like S&P that would be more extreme in moments of stress, you just don't see because it's inherently an illiquid asset class. Okay. So give us the lay of the land for the art market. Who are the key players? You mentioned Sotheby's and some of these really old, brokerage houses, but what are you as Masterworks attempting to disrupt exactly? I wouldn't say that we're disrupting the art market. That's maybe a common misconception. You know, the art market today, I think, is really excited about Masterworks because we're effectively taking a pool of capital that hasn't been buying paintings or investing in art

Starting point is 00:11:22 and bringing it to the art market through these investment vehicles. So I think we're probably the largest buyer in the art market today. So that in itself makes the art market like us. I think when I think about what we're disrupting, I tend to think about the alternative investment universe. As I mentioned earlier, we really have one of the largest asset classes that's never been securitized. And I think there's parallels today's world to thinking of that in the context of whatever Bitcoin at $1,000, right? Like when Bitcoin is very early, no institutions were allocating to it, it was all individuals, and it just behaved differently than it does today. That's really the status of the art market. You have thousands of collectors, whether it's

Starting point is 00:12:05 5,000 large collectors, 10,000 large collectors, I don't know the exact number, but you have thousands, not millions who are buying and trading these $10 million paintings. But I think as we see investors broadly define, particularly for managed money, come into the art market that's really disruptive from an asset class perspective. Talk to us a little bit about the flow of funds. So essentially, you are, you know, Masterworks goes out and actually purchases a piece of art and then sells the securities. Is that correct?

Starting point is 00:12:39 Yeah. So these are qualified public offerings. So we buy paintings of Balanchi Capital. We file them with the SEC, is identified objects effectively. And then people invest in particular specific paintings. Yeah. So I just want to call that out because it's not like a spat. where you're going out there and raising capital

Starting point is 00:12:56 to then go buy a certain thing? No, and I would love it if we could pull off that structure. The reality is it's just the way the art market operates. We have to move quickly, do deals fast, to find good investments. So we do it with balance of capital. So maybe explain to our audience how much of an advantage that really is because what does it take to get into the art market in general for someone like just starting out and who are the agents in play?

Starting point is 00:13:21 And what does the ecosystem kind of look like? So I would think about it in two different buckets. One is auction houses, so auction houses like Christie's and Sotheby's. And then two are primarily mega galleries. So galleries like the Goshen, Pays, Houser & Worth, etc. So these are kind of the main players in the art market. They're the ones who handle most of the transaction volume. The art market is not friendly to new collectors, right?

Starting point is 00:13:46 And I think maybe even a lot of your listeners have experienced this, when you walk into an art gallery and you're interested in buying a painting, a lot of people getting ignored, right? It's not the most friendly, friendly industry. I think with Masterworks, to a certain extent, we're making it easy for people to engage with the art market on a painting by painting basis, limited capital, ramp up, learn about it, and then eventually hopefully get more involved. So I've heard you talk about, well, let's just talk about the $20 million rim brand.

Starting point is 00:14:16 So let's just say, for example, you wanted to use that as a store of value, and Masterworks goes out and purchases this $20 million rim brand. And what does the price per share look like for an investor something that size? Our price per share is the same on every IPO we do. So it's always $20, $20 a share. And then minimums, our minimum per painting is $10,000. So anyone investing in any particular painting would invest at least the minimum unless we waive that what we do on a case-by-case basis. But we tell people to think about portfolio construction across a number of paintings.

Starting point is 00:14:49 So similar to any other asset class diversification really matters. And we've even seen that in a lot of our own internal data. And I think it's, you know, I talk about it with our CFO, but I think it's analogous to, frankly, even public equities, how it's very hard to pick winning stocks over time. You're probably better investing, investing in an index. I don't know how to think about that in today's world, but probably better investing in an index. A masterworks index of sorts?

Starting point is 00:15:17 We're in process of working on fund products right now. So rather than simply having people pick and choose individual paintings to invest in, they can invest in a fund which effectively buy securities in those underlying paintings. But an index product is far out. Our secondary markets have some liquidity, but they don't have the required liquidity that it would take for an ETF like product. So something maybe more like a REIT, but for ART? Yeah, that's right.

Starting point is 00:15:47 about it. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, journalists, investors and builders from all over the world, many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the

Starting point is 00:16:40 room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron pass. is offering deep access, private events, and small group time with the speakers.

Starting point is 00:17:22 The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI Cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while

Starting point is 00:18:04 making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't on ad-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI at netsuite.com slash study. The guide is free to you at netsuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people. overnight wearing many different hats. Starting something from scratch can feel exciting, but also

Starting point is 00:18:51 incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify,

Starting point is 00:19:38 and start hearing... Sign up for your $1 per month trial today at Shopify.com. slash WSB. Go to Shopify.com slash WSB. That's Shopify. com slash WSB. All right. Back to the show.

Starting point is 00:19:59 Talk to us about that secondary market because that's relatively new, I think, for Masterworks. So last time I was on, we didn't have a secondary market. We launched that in the middle of last year. So we now have people, you know,

Starting point is 00:20:10 we have thousands of trading accounts open, investors are trading, shares and individual paintings, which is interesting. I mean, I tell people to think about our secondary market very different than how you would think about an exchange traded security. So it's not, you know, an investor wants to sell their shares at a reasonable price. They go into the secondary market. They list their shares at a certain price. And that trade might clear in a week. So it's not, you know, it's not like you're buying and selling shares with Google. It's trading in milliseconds. But there is liquidity for people that are looking to get in and out of these

Starting point is 00:20:42 securities now. And what is the turnover look like for getting in and out of those securities? Do you have any data around like the average hold period for people holding shares in this kind of pieces of work? We have 140,000 investors signed up on the platform today. And I would say the vast majority of those, I don't have the exact number now, but I would guess 80% really, really intend to hold those securities long term. So they're just viewing it as liquid long term holds similar to private equity or something like that. So there's a small minority of investors who are actively trading, but most people still view these as long-term investments. All right. So after Masterworks goes out and buys one of these pieces and sells the shares,

Starting point is 00:21:24 where does the art live? Is it just in your apartment? Or where does it go? Yeah. So we have a pretty good structure in place where we avoid sales and use tax on these investments. So today, everything is sitting in, what's referred to as a free point. in Delaware. So we buy the paintings, they go to storage in Delaware. We do lend them out to institutions for important artist exhibitions or retrospectives, as they may be called. But in general, most of them, most of them stand storage. I've heard you talk about the strategy around, you know, something that might drive price is the relevance of the piece of work so that maybe it was just recently in an exhibit. So do you guys have any strategies about it? Let's get this

Starting point is 00:22:08 a new exhibit and then let's like write about the time of sale. So the art market, I guess the way I would think about selling a painting is, I would describe it as very event driven. So you want to sell a painting going into momentum either because an artist just recently set a price record, there's a museum retrospective or an exhibition, something like that. So I wouldn't necessarily say that an exhibition itself causes a painting to be worth more, but it does generate buzz around that artist's market, which is usually the right time to sell. One thought I had just now was that, you know, if I look at this like other kind of collectibles,

Starting point is 00:22:47 maybe fine wine, for example, they have sort of a futures market associated with it. Is there anything like that in the art market? You've got these artists still alive that you know are going to produce more art, but there's nothing like that. Do you see anything like that down the road? I think it's really interesting. I mean, you know, again, the only investment product for art today is via Masterworks. The only secondary market for art is via masterwork.

Starting point is 00:23:08 So we, I think there's a long road ahead before we get to option markets. But I think it's, I mean, I think it's certainly interesting. And there's definitely a lot of people in the art market that would want to make particular bets on individual artists. But yeah, it doesn't exist now. In your opinion, where should we start as investors? You mentioned Rembrandts and some of these old masters kind of fade into just becoming stores of value and they're not really high yield producing. So I've heard you talk about Blue Chip Works, up-and-comers. Where should we focus? And how do you allocate between all three of those? You know, the answer is it really depends on the investors. So it really depends what the investor's objectives are.

Starting point is 00:23:48 Masterworks tend to focus generally on two different segments of the art market. One is what I would describe is mid to late career living artists. And we tend to classify artists into two different risk categories. One is an a risk category and one is a risk category and one is a B. B risk category. So the living artists, we tend to put in this B risk category. And then our A risk category, we have brand name, well-known artists like Picasso, Warhol, Baskiat, etc. Probably what you're referring to as Blue Chip. Interestingly, we've done a lot of work on these two different buckets to try to understand how do risk-adjusted returns differ. And risk-adjusted returns are basically the same. So there's not necessarily a right decision or a wrong decision that the living artist bucket tends to be more volatile but have much higher returns, generally returns above 15% when we look

Starting point is 00:24:40 at historical appreciation. The A risk bucket tends to be less volatile and have lower returns, generally somewhere between 8 and 12%, depending on the artist's market. But there's not a right or wrong answer. You know, one of the artists that I think is very interesting, which Masterworks is not really that focused on anymore is actually Monet. And Monet typically is the second or third largest selling artist in the art market, selling somewhere between $200 and $400 million in art a year.

Starting point is 00:25:10 And the interesting thing about Monet's market is that historically, he returns somewhere around 7% annualized appreciation, but the volatility is so low, like his returns are so predictable that what your listeners would think of as a sharp ratio is actually pretty outstanding. it, I think, somewhere around 1.2, which in the yard market is a really good sharp ratio. So it really depends on what the investor is trying to achieve. If someone said, hey, I'm just looking for store of value, very low risk. You know, my target return is 6%. I would point them to someone like Monet.

Starting point is 00:25:44 If they're targeting 15% plus returns, we would probably point them more towards major, significant living artists, but there's, you know, a bit higher volatility. I've heard you talk about Boscaut, too, as a pretty high-yielding artist. So how soon would you direct someone to someone like him? Bosquiat is an exception, right? He's kind of the anomaly here. So he is a, he's what we define as a blue chip artist. But for over 15 years, maybe 20 years, his market is appreciated somewhere between

Starting point is 00:26:13 15 and 20 percent per year. So he, you know, he's one of those artists where he's very predictable, his returns are very high, but he's arguably the best performing artist in the art market overall. And how often does a Bosquiat come to market? I mean, are we, is it every other year? Is it every few years? Is it once a year? There's not a lot of work. So he died young of a drug overdose and there's not a lot of paintings. But, you know, I think we'll see somewhere between five and ten, I don't know if I would use the word major, but paintings in excess of $15 million trade every year is probably the right way to think about.

Starting point is 00:26:52 I think his market overall is doing somewhere between $300 and $400 million a year now. And during that time, that piece of art is most likely sitting in some warehouse, not being seen by someone. Is that correct? Probably sitting in someone's home, most likely, but possibly storage, yeah. You've kind of hinted at the risk ratios, the Schiller-P-E kind of way to look at this. So what, in your opinion, is an average kind of volatility for something like a piece of Art. Again, it really, really depends on the artist market. I mean, we see living artists today,

Starting point is 00:27:23 for example, who their paintings are selling for $50,000, 10 years ago, 15 years ago. Today, they're selling more for $1.5 million, right? So just the volatility on that alone is very high, but the return is obviously very high as well. Someone like Monet, it's very low. I mean, I think we see vols less than 10% for him as an artist. So it really depends on the individual artists in their market. I would think of art as similar to any other asset class, right? Like there's segments of the art market, which are super volatile, very unpredictable, very speculative. And there's, there's other segments which are much more predictable and less speculative. So in something like the equity market, which is where our listeners are probably most focused, or the majority of their

Starting point is 00:28:06 amount of spend the most focus, right now you have something like the Fang stock. So there's a handful of stocks that are driving the most amount of return, but they're also the largest in market cap. So if we applied that to something like art market, which artists would kind of be the fang stocks, which would make up the most market cap? Picasso is usually the largest market. So somewhere between Picasso, Monet and Basquiat, they tend to trade off. Those are the largest in terms of transaction volume. I'll get this number specifically wrong, but I believe last year Picasso was somewhere in the

Starting point is 00:28:39 12 or 13 percent of the overall market is the largest artist in terms of transaction volume. So you don't really have the fang dynamic in the art market, but you do have a half dozen names, which are 20, maybe 25% of the market overall. If art is appreciating in pretty close correlation to the 1%, where does the biggest risk come from? Should we be watching taxes? Should we be watching just the economy in general? How do we monitor or gauge kind of the risk associated with the art market? I think you're exactly right.

Starting point is 00:29:13 So when we think about risk to the art market, we tend to think about what are the risks of the top 1%? What will cause them to stop buying art? And it's interesting if you go back, I don't know if you recall all the details of the Trump tax plan, but there were a lot of changes to 1031s, which allowed investors, particularly in real estate, to roll their gain over into a new asset. 1031s were actually removed for art whenever that was, those changes were in place three or four years ago now, I guess. So we thought at that point in time that could have had a material impact on the art market because so many particularly big collectors really relied on 1031s to continue rolling gains

Starting point is 00:29:53 forward. And interestingly, it had no impact. We didn't see prices change at all, which we were frankly surprised by. Maybe because 25% of the art market is the U.S., maybe because the top 1% has so much money now that that tax change specifically didn't really change. how they thought about buying or selling paintings. So, you know, I guess we think about things like wealth taxes. We think about specific taxes that can target the art market.

Starting point is 00:30:22 Anything of that nature could introduce a risk to art returns. What are the taxes on art in the U.S. right now? Is it similar to capital gains or like a piece of property? What does it look like? It's a good question. So many people do not know this, but we have the special capital gain rate for collectibles, which today is 28%. And you can kind of, you know, depending on how you define it,

Starting point is 00:30:44 you kind of think of that as a wealth-like tax. It's really targeting people who are trading objects like this. That does already exist. Now, interestingly, if you're buying a security in a painting through Masterworks and you're selling that security on a trading platform, you're still paying capital gain, not the regular capital gain of 20 versus 28. But yeah, that tax does exist effectively on the art market today. You kind of alluded to maybe this arbitrage opportunity where you're buying pieces in the U.S.

Starting point is 00:31:13 going to China where there's a new billionaire every day and selling art. Is that a pretty common occurrence? We don't actually see a lot of that, to be honest. I mean, we do see it when an artist is specific to a region. So for example, Banksy grew up in the UK, as popularity is as much greater in the UK than it is in the U.S. Oftentimes, we'll see Banksy sell in the region. London for that reason, even if someone, even if the owner of the painting is, is in the U.S. But generally, we don't see a lot of shifting of works between regions by collectors.

Starting point is 00:31:48 Kind of interested in, you know, you brought up Monet and Picasso, we have a lot of pieces of work out there. And it kind of brings to mind someone also like Matisse, who you've just seen prints just go to infinity and you might see a print now at Urban Outfitters or something. How do you look at artists as they just start to get kind of diluted down to, you know, you know, even though they're a master and they're really well known, is there a dilution factor to this? It is interesting that for artists, even like Rembrandt, we don't really see prices decline. We see appreciation approach zero or returns approach zero, but we don't actually see prices decline. Could that change in the future as the market continues to grow and get bigger?

Starting point is 00:32:30 I'm not totally sure how to think about that. I think the thing that really helps maintain price in the art market, again, is this shrinking supply dynamic. Because now if I want to buy a RIMbrand, there's only, I don't know the answer, but I'm guessing less than 100 good RIMbrands and private collections that I could actually purchase. So I think that helps maintain the price, even though interest from collectors is declining over time as well. One of my favorite documentaries is exit through the gift shop. It's just such an amazing feature on the art market, but also this really, maybe it's well known. It wasn't to me, but this fact that a lot of artists aren't actually producing their own work.

Starting point is 00:33:14 And even Picasso, right, was kind of farming out a lot of work and slapping his name on it. How authenticated is that through third parties or, you know, and how do you look at the value of pieces like that? So the reality is it's been an accepted practice in the art market for centuries. So, you know, using Rembrandt as an example, there's Rembrandt, obviously, the person, and then there's sort of school of Rembrandt, which are people that worked for him, people that painted on his behalf. It's one of the reasons that with a lot of old Rembrandts, there's been authenticity issues because so many hands from different people were on those paintings are difficult to tell

Starting point is 00:33:49 which specific section of the painting did he paint versus what, you know, what sections did other people paint? And we see that same practice today with a lot of artists. I think the reality is when artists are famous in their lifetime, they generally sell paintings for a lot, which causes them to want to produce as much work as possible, and they can't, they can't do it on their own. So a lot of artists have dozens, I guess in certain cases, hundreds of assistants that are helping them create, create these works under their name.

Starting point is 00:34:21 And how should we look at the value of those kind of works? Is it indistinguishable or is there some way to know that, hey, this is just from the family of work? Yeah, I don't think, I mean, we've never seen anything in the data to indicate that if an artist doesn't work on a particular object, that object is less valuable so long as it's generally accepted by that artist. However, we have seen a bunch of data with living artists who produce tons of work and their market falls apart because of just the total volume of work they're producing. So I think it's, you know, our concern is more about what is the volume of work that an artist is going to produce and how does that hurt their market? A great example of that is Damien Hearst, who many people might be familiar with. I mean, Damien produces more art than a small factory. And, you know, he's one of the few artists in the top 100 who's had consistently negative returns.

Starting point is 00:35:17 You know, I think we've seen three artists out of the top 100 who have negative returns and, you know, he's one of them. All right. So we have scarcity, which is a good part of value here, part of the equation, events that are driving price. Is there anything else that we should consider as investors that are producing these returns? One of the things that we spend a lot of time thinking about, and we don't have clear data on this today is this, the question of what role does cultural significance play?

Starting point is 00:35:47 in terms of returns over time. And when we talk about cultural significance, we have to first define what that means. So our internal definition of cultural significance is threefold. One, which other significant artists does that artist exhibit with? Two, which institutions or museums collect that artist. Three, how global is the demand for a particular artist? So we built models where we tried to look at cultural significance

Starting point is 00:36:15 and then correlate that to future returns. And I would say, you know, as much as we would love for there to be a clear correlation between cultural significance and future returns, there really isn't. There's some loose correlation, but there really isn't a clear correlation. But what we do see is that if there is very low cultural significance or no cultural significance and an artist's market has run up and prices for paintings are selling for millions of dollars, it is potentially risky long term. that it may be hard for that artist to maintain those price points if there's low cultural significance.

Starting point is 00:36:51 Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving.

Starting point is 00:37:21 Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vanta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of of platform I'd want in place. Get started at vanta.com slash billionaires. That's vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect

Starting point is 00:38:03 place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4x, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity, you'll be able to trade it in just two clicks once your account is open.

Starting point is 00:38:35 Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts and charts in a new click. analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes thanks to the Fundrise

Starting point is 00:39:21 Income Fund, which has more than $600 million invested and a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's perspective. at fundrise.com slash income. This is a paid advertisement. All right, back to the show.

Starting point is 00:40:14 Something that seems to have cultural significance as of late would be the new NFT industry, if you want to call it that. I'd love to hear your thoughts on what is your take on this whole NFT movement? People can't see you, but you're holding your head in your hands. Does it keep you up at night? Yeah, I mean, look, I've been doing lots of interviews on this. I don't understand it. And let's talk about it, I guess, maybe from 30,000 feet, the reason that we don't, we don't understand NFTs. One of the things that we've talked about so far is that scarcity drives returns and cultural significance matters.

Starting point is 00:40:51 So one of the things that we struggle with with NFTs is that the investment proposition goes something like there's a digital image that for whatever reason is important. Let's just use the word important rather than cultural significance is important. And because we take that digital image and we put it on the blockchain and now has scarcity value, and that should cause it to go up in value in the future. And we don't understand that. And the reason we don't understand that is because when you transfer that digital image to the blockchain, you're not transferring copyright, you're not transferring any IP. You're frankly just putting a digital image on the blockchain that anyone else can copy. If you pay

Starting point is 00:41:31 $60 million for the BEPO NFT that recently sold, I have just as much right to display the deploy that on my wall as you do. We actually don't understand what people are doing at all when it comes to NFTs. I think there would be some argument that that NFTs have inherent value if there was some sort of IP that transferred with these images that people could own the copyright from and potentially profit from in the future. But today, we don't understand what the asset is that people are effectively owning when they purchase an NFT. Well, I understand that part of it, but copyright is not even that common, I think, in traditional art. Is that correct? I mean, even if you're buying the piece, you're not necessarily owning the copyright. So maybe you walk the listener through that

Starting point is 00:42:13 a little bit. It's a bit surprising to most people, but if we go out and we buy a $20 million dollar Bosquiat, which did three days ago, we don't own the copyright to that painting. The artist's foundation owns the copyright or if the artist is living, the artist owns the copyright. So buying the object does not entitle someone to necessarily own the copyright. And why does that matter? I mean, like, if you, you buy the piece of art, you can hang it on your wall, but you can't do what, you know, lend it to a museum. What is the limiting factor there? The obvious use case would be royalties. So you take an artist like Picasso, I don't know how much the Picasso family still earns in

Starting point is 00:42:52 royalties, but I think it's nine figures a year. So there's a lot of earning potential in royalties for certain artists. And that's the longer term ambition, I think, with NFTs, is to have a royalty, or maybe that's what's happening currently, right? Is there might be some element of turnover and the artist collecting royalties in that way? Yeah, we are unaware of a single NFT that has inherited the copyright from the artist. Well, we touched on a number of things. I'm learning a lot. It sounds like it's okay for an artist to go from artist to producer.

Starting point is 00:43:26 Something that comes to mind for me coming from the music industry is something like a Rick Rubin, who's a famous record producer. and he's known for just having the final product kind of come across this desk and be like, yep, good or bad, you know, you're kind of giving a seal of approval and how that actually adds value, which is really interesting. And another thing is the royalty factor that someone is still sitting back and collecting royalties on these traditional pieces of art, but not actually on NFTs, which is, I think it would be the opposite.

Starting point is 00:43:52 To us, that seems like the interesting opportunity or the interesting angle for NFTs is that people can somehow inherit a royalty stream when they're buying an NFTs, that feels. feels like an investment to me, but otherwise, I'm getting a digital image that has no IP associated with that. I don't understand that. That would make it a cash flow producing asset, right? Whereas now, you know, art is typically, I would say, looked at as somewhat of a greater full theory asset class, right, where art is so subjective. That's probably an argument you get all the time, right? Like a canvas painted a certain type of blue means something to me and less to you. I mean, how does that play into all of this? Is it purely psychological?

Starting point is 00:44:31 Can you use data in any way to extrapolate from that? What's your take? We get that question all the time. I think I just spend the question around and I say, you can make any argument you want, but you literally have an asset class, which has been appreciating in many ways for centuries. You're familiar with the Da Vinci that sold a couple years ago

Starting point is 00:44:50 for $450 million. Like some of these paintings have been around for literally centuries. And if you track individual artist markets, even like Monet, right, that market has been around for $1,000, whatever 40 or 50 years now, it's hard to make an argument that an artist like Monet is going to lose value. And we've just, we've never seen it happen, right? We've never seen artists that that are very culturally significant, like Monet, like Picasso, like we're all, etc.

Starting point is 00:45:17 Go from from something to nothing because case changes. Now, we have seen recurrence change for those artist markets, but we've never, we've never seen people really entirely fall, fall out of favor. We do ask ourselves sort of why that is what causes that. And I think a lot of it is many of these artists are ingrained in our culture, right? They're supported by museums. They're hanging in museums. They're in art history books. The kids learn in school. They're part of the narrative of contemporary society. So for whatever reason, I think that's helped kind of establish and help these markets survive throughout decades or centuries. Well, whether we like it or not, NFTs are happening right now. Talk to us a little bit about the importance of the number

Starting point is 00:46:02 of bidders on that recent 60 or 70 million dollar people, NFT that sold. I mean, I think like everyone else in the world, we were shocked when that NFT sold for 60 million dollars. So my first direction of that was, this can't be a real sale, right? This must be two guys, do whatever, collaborating behind the scenes to mark this digital image at $60 million. And it was very surprising to us. So what we learned from talking to the auction house that day was that there were more than 30 bidders who were registered with the auction house who were totally unknown to the auction house. And in our world, someone who's spending $60 million on a painting is almost always known to an auction house, right? They're a large collector, multibillionaire, very successful.

Starting point is 00:46:47 The auction house knows who they are. So the auction house basically had 30 people show up from the crypto community to bid on this, this NFT that they didn't know who they were. That was fascinating to us. I think the thing that was maybe even more fascinating was after that sale, we've seen a few of those crypto people come in and start buying real paintings. You may have read about $20 million. I believe it was a Dora Mar, Picasso that sold at Christie's to one of the people that was registered for the NFT people painting. So from our market perspective, we love that, right? like we would like to see more and more crypto people come in and start buying real art. Closing the loop on the NFT thing, I've heard that an NFT is more kin to say like the

Starting point is 00:47:32 authentication certification certification on the Mona Lisa than the actual Mona Lisa. Since it's a highly replical piece of art, you're buying sort of this authenticator slip that can maybe turn around and sell. Is there anything like that in the traditional art market? We mentioned that copyright is typically owned by the artists or their heirs, but is the authentication of artwork valuable at all? In today's world, it really isn't that valuable. So I'm on the board of an organization called IFAR, which is probably the leading art authenticity nonprofit.

Starting point is 00:48:05 Most authenticity issues today are really dealing with old masters for people who are painting, you know, definitely pre-World War II mostly. For any major artists, there's a book published for that artist called a Catalog Resonet, which are the published, recognized paintings that are authentic by that particular artist. You know, if you have a painting that's being offered to you that's not in a resume, particularly if it's a significant multimillion dollar painting, in today's world, you just don't buy it. And that's one of the arguments that I have a lot with people that don't understand authenticity well, which is you can argue about whether or not a painting is by Jackson Pollock.

Starting point is 00:48:43 But the fact that you're arguing almost, you're already losing, right? Because if that painting is not in history, if it hasn't been exhibited by museums, if it hasn't been talked about in art books, even if it is a real Jackson Pollock, it probably still isn't that valuable from an art history perspective. I think this idea of found or recently discovered painting, you know, it's great to talk about from a media perspective, but in the world that we live in, we just pretty much discount that stuff almost 100%. Got it. So there's not the possibility of saying something like a real piece of art having something on the blockchain that helps keep its value or certify it.

Starting point is 00:49:21 I don't think so. Yeah. I was recently watching this documentary on Netflix, I think, and these guys stole something like $200 million from this Boston museum. And obviously, that's not a common risk when it comes to the art world. But my question was around that, though, is why would someone do that? It seems like you've just marked those pieces of art as inherently dangerous to own. Who would go buy that and where would they buy it? I think we spend our Saturday afternoons the same because I just watched that as well. The short answer is I have no idea, right? I mean, that seemed like such a bizarre story of, I mean, they also, by the way, you know, I think they mentioned this in the documentary, but they talked about how they cut those paintings

Starting point is 00:50:08 out of the canvas when they took them from the museum. I mean, I can tell you, if you cut an old master painting like that out of the canvas, you can't even roll it. If you roll it, the paint on crack, you'll ruin the painting. So whoever did that didn't know what they were doing it. They clearly weren't reselling it to someone who cared about art. I don't know. It was a good documentary, though.

Starting point is 00:50:27 Well, you kind of mentioned the quartiles here of like the U.S., China, Europe, the rest of the world. What is the trend, though? Obviously, we mentioned China is very up and coming in their wealth. class and art consumption, how do you see that trend continuing? Well, it's actually China's been on a downward trend. So we, you know, we talked about how art is an uncorrelated asset class. One of the things that we saw in the art market in 2016, art prices actually decreased

Starting point is 00:50:55 when public equities increased. You know, our best guess is that it was really due to two things. One, either to Brexit or two due to capital controls in China and really preventing China from people in China from moving money out of the country. I think at the peak, China was 35, 40% of the art market. Today, it's down to roughly a quarter. We have seen that shrink. And that's not, by the way, dissimilar to other countries in the past. Like at one point, Russia was 25, 30% of the art market. Today, I think it's less than 5%. So you do sort of see these countries with mega billionaires coming to the art market, move it in a big way, increased concentration.

Starting point is 00:51:36 and then that, you know, that usually changes over time. Let's talk about you a little bit more. So what has been the biggest success you've had in art and maybe what was the worst outcome you've had in the art market? Personally, I would say that like any collector, any investor, depending on how you define it, you know, you make lots of mistakes early on. I think one of the mistakes I made early on was I focused on brand name artists, but I didn't focus on objects that were necessarily A examples.

Starting point is 00:52:08 So, for example, Picasso, a lot of people don't realize this Picasso during his lifetime created, I think it's 65,000 objects. So a lot of people think, oh, you know, if you own a Picasso, that's amazing. But the reality is there's 65,000 Picasso's, right? You can buy an addition to ceramic tile by Picasso for $2,000. So it's not necessarily that rare or that unique. So I think as a collector in the beginning, I bought, a lot of addition to work, I bought a lot of drawings. I didn't necessarily buy eye quality

Starting point is 00:52:41 examples. And I obviously had no idea at the time, but one of the things that we've studied a lot of Masterworks is how does price point impact volatility? And how does volatility go down or up relative to price? And generally what you see is what you would expect is the more you spend for a painting, the more volatility goes down and the more predictable returns are. which is why we fundamentally believe the only real investable segment of the art market for paintings somewhere between $500,000 and a million dollars on up. We think it's very hard to make predictable returns if you're investing in any artwork less than that.

Starting point is 00:53:19 So that's probably the worst example or the worst decisions that I made personally collecting in the beginning. I've had a lot of great examples of paintings that I bought for. I'm thinking of a painting. I have downstairs in my living room where I bought for a million dollars, sold it for $11 million. I had a painting that I bought by an artist named Dekooning, which was a great one. I think I can't remember exactly. I think it paid $7.5 million for the work, and I think I sold it a year and change later for $16 million, which from a return perspective in the art market is pretty unheard of. It's definitely an asset class where you can generate

Starting point is 00:54:00 great risk adjuster returns. Like to me, it was always, when I thought about investing in art, it was never that I could make 50x or 100x returns. It's that I could return, I think when I last calculated of this, and personally I returned 21% of my portfolio over a 10 plus year period. But I could do that without taking a lot of risk. That's what was always so interesting to me. It's very rare to see someone buy a Monet for $10 million and sell up for $5 million.

Starting point is 00:54:28 It almost never happens. Like the store of value characteristics on art are really, really good. So if you can generate returns without taking any, from my perspective, you know, material risks, I think that's, I think that's super interesting. And that was that was the genesis really behind, behind Masterworks in the beginning. It is interesting because you would think, you know, you mentioned Masterworks has about 140,000 subscribers or that's kind of the market, which is not a large, pool. So you would think that there would be some liquidity issues there or there would be more

Starting point is 00:55:03 volatility and you have 140,000 people more or less selling things back and forth to each other and that would create more volatility. But are you saying that that's pretty limited on the platform? Is that correct? Just think about liquidity overall in the art markets. You have $60 billion a year in transaction volume. Masterworks has 140,000 investors. This year will raise $300 million. So our segment of the art market is still relatively small. I would think of liquidity from an art market perspective. It's frankly probably slightly better than real estate. If you own a $20 million home in the Hamptons, it's going to take you a couple years, maybe

Starting point is 00:55:40 one year at best to sell that home. If you own a $20 million Boscaiite, you probably have three or four collectors at any point in time that'll buy that painting. So it's still, you know, it is an illiquid asset class not dissimilar to real estate, but I think it's better than real estate in many ways. obviously doesn't have carrying costs and the complexity that goes with buying or selling a piece of real estate. So with 140,000 investors you have on the platform currently, do you have to be an accredited investor to be on the platform? Walk us through a little bit about what it takes to get set up on

Starting point is 00:56:12 the platform. Yeah, these are all qualified public offerings. So very similar to how Uber goes public. You can go to the SEC's website, search for Masterworks, and literally read every single painting that we've taken public. And today we're taking one painting public every 10 days, roughly, valued somewhere between $1 million and $20 million. So there's a bunch of examples out there. But because they're qualified public offerings, we can sell securities to retail as well as accredited investors. So you don't have to be accredited. Very cool. Well, before I let you go, Scott, talk to the audience about where they can find Masterworks, where they can follow along with what you are doing. By the way, are you a person?

Starting point is 00:56:54 personally in on a lot of these deals? Can someone follow along with what you're doing and where your expertise is? Yeah, we're in every single deal. So we actually, you know, our management fees are one and a half percent per year and then 20 percent of profit when the painting sells. So we earn those in equity because paintings don't produce cash flow. So that one and a half percent is earned by issuing ourselves shares and that individual vehicles. So our interests are entirely aligned with investors from that perspective. You know, high level, if anyone once you get involved with Masterworks and look at some of these investment opportunities,

Starting point is 00:57:27 they can go to the website at www.masterworks.io, request a meeting with our membership team and basically get on the phone with one of our representatives and walk through how they're investing today, what their investment objectives are, how they think about diversifying into art, what their objectives are with art specifically, and we'll work with people to construct a portfolio that makes sense for them. Now, what you just threw out there kind of reminds me of like a hedge fund fee structure. So I'm just curious, how does that compare to the traditional art market with the Sotheby's and the like?

Starting point is 00:58:00 What are their fee structures like? It's significantly less. I actually had a call today with our team to just walk them through how to think about traditional art fees versus how Masterworks charges fees. And the reality is the art market has tons of transaction fees. These auction houses charge 20% commissions. Today, I think our average commission that we'll pay with an auction house is somewhere around two or three percent just because of our buying power.

Starting point is 00:58:27 Advisors charge 10%. We don't use advisors because of a research team and an acquisitions team in house. Most collectors pay sales and use tax. We avoid those transaction fees with our structuring. Repaintings are moved through the state of Delaware. The transaction fees historically in the art market have been very high, but we've created a pretty unique structure that gets around most of those. Very cool.

Starting point is 00:58:51 And so if I go to masterworks.io and is there a way to just subscribe and get notified when these new IPOs are coming out? Yeah, as soon as you create an account, you'll receive emails every single time we launch an offering. But yeah, that's the way to get started. I think most people that we talk to, 99% of people don't know how to think about artisan asset class. They don't understand returns.

Starting point is 00:59:13 They don't understand risk. they frankly don't understand hold period, liquidity. So we're kind of educating hundreds of investors a day on how to think about a new asset class. Well, you certainly educated me today because I knew very little about the space and I really enjoyed talking you about it. My wife loves art, so I need to kind of catch up quickly.

Starting point is 00:59:33 And this was super helpful and it'll make me look smart later. So I appreciate that. Really enjoyed our conversation, Scott. Thanks for coming on. Yeah, thanks for having me. All right, everybody. That's all we had for you this week. If you're loving the show, be sure to follow us on your favorite podcast streaming app.

Starting point is 00:59:49 Also, follow me on Twitter at Trey Lockerby. Be sure to say hello, give us some feedback. We love to hear from you. And finally, if you haven't already done so, go to the Investorspodcast.com and check out the TIP finance tool. I live by this tool and can't recommend it highly enough. So with that, we'll see you again next week. Thank you for listening to TIP.

Starting point is 01:00:13 Make sure to subscribe to millennial investing by the Investors Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP349: Why You Should Be Investing In Art Shares w/ Scott Lynn

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.