MICHEL PIREU: Owning an index and sitting back is a hot investment strategy
Horizon Research Group wrote a paper a few years ago about a handful of art dealers who ended up with huge collections of masterworks by Picasso, Matisse, and Klee worth hundreds of millions of dollars. How did they know what these would be worth one day? They did not. The value of art is subjective. It is impossible to know what something will be worth years in the future. Some of these dealers were buying paintings that had not yet been produced, let alone knowing which artists would be admired decades down the road. It was not a question of luck either. All these dealers did the same thing. They bought huge quantities of art, thousands of paintings by different artists. They diversified. As Horizon explained, "A subset of the collections turned out to be great investments, and they were held for a sufficiently long period to allow the portfolio return to converge upon the return of the best elements in the portfolio." In today’s market parlance, the art collectors owned an index ...
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