In Search of Market Signals in the $450 Million Da Vinci
Price contains information, but how much does an outlier art sale say about stocks or the economy?
Bloomberg, November 20, 2017
Economist Friedrich Hayek wrote that “price contains information.” So what information is contained in the almost a half billion-dollar price for a painting?
The Last da Vinci, as the “Salvator Mundi“ has been called, sold at auction last week for $450 million, a record and blowing past the previous high of $179 million paid for Picasso’s “Les Femmes d’Algers” in 2015.
But before we debate just what this does mean, let’s quickly dispatch with what is does not: This isn’t a sign of a bubble economy or a top in equities. Why? As we discussed last time out, a single outlier transaction is merely an anecdote, and not a market. Anecdotes tell us what a tiny subset of investors is doing with their money; it doesn’t measure the emotional state of the crowd. Bubbles reflect a collective madness, when the masses go crazy with greed. As noted previously:
They are…one-off transactions in a ludicrously small market dominated by a ludicrously wealthy clientele. Given the choice between quantifiable data or anecdotal tidbits, you should always choose the data. So no, these sales are not proof of anything other than the simple truth that some people have very large bank accounts that they are unable to exhaust through normal profligacy or by paying insane prices for a handful of unique objects of art.