Chris’ note: In yesterday’s Cut, you heard from colleague Teeka Tiwari about the New Reality of Money we’re living in. It’s courtesy of the highest inflation readings in 40 years.
In times like these, the normal rules of money no longer apply. That means we need a different strategy for protecting and growing our wealth.
That’s why one of our favorite inflation-beating asset classes is alternatives – or “Maverick” assets, as Teeka calls them.
Below you’ll hear more from me on what makes an asset a Maverick… and why they’re your best bet for growing your wealth as inflation rages.
He also passes along the details of an unusual platform that lets you invest like a multimillionaire, without the multimillion-dollar price tag.
Talk about a great TV moment…
In January, Antiques Roadshow viewers watched the delight on a Vietnam veteran’s face when he found out the unworn Rolex Daytona watch he bought in 1974 for $345.95 at a military base exchange is today worth up to $700,000.
That’s a 2,023x return.
And Rolexes aren’t the only luxury watches shooting up in price.
A 2020 survey by insurance firm Chubb revealed how a surging second-hand market had a Patek Philippe Nautilus selling for triple its retail price.
Sports cards have followed a similar trajectory.
In August, a mint condition 1952 Topps Mickey Mantle baseball card sold at auction for $12.6 million.
Contemporary art has also made folks windfall profits.
In 2017, a Jean-Michel Basquiat painting of a skull sold for $110.5 million at an auction. That’s a life-changing sum for the daughter of two collectors who bought it for $19,000 in 1984.
What do these investments have in common?
They’re what colleague Teeka Tiwari calls “Maverick” investments.
They’re great ways to grow your wealth outside of stocks and bonds… especially when inflation is running hot.
Having a gameplan to beat inflation is critical right now…
The annual inflation rate is 7.1% right now.
That’s the highest level it’s been in 40 years.
And it’s been hammering stocks and bonds.
At writing, the S&P 500 is down 17% since the start of the year. The tech-heavy Nasdaq is down 29%.
And it’s been one of the worst years for bonds in history.
Take the iShares 20+ Year Treasury Bond ETF (TLT). It tracks the price of Treasury bonds with maturities of 20 years or more. And it’s down 32% in 2022.
And it’s no wonder bonds are taking it on the chin…
Inflation eats away at the buying power of the income payments bonds pay out. And when a bond matures you get back what you paid for it… without any compensation for inflation’s wealth-eroding effects along the way.
Inflation’s impact on stocks is harder to parse out. But we know stocks tend to do worse when inflation is rising than when it’s falling.
A study by Ben Carlson of Ritholtz Wealth Management showed that from 1928 to 2021, the S&P 500 returned an annual average gain of 5.5% during times of rising inflation.
That’s roughly one-third the average annual gain of nearly 15% when inflation is falling.
And when inflation is running at 7.1%, even a 5.5% return means you’re going backward in terms of your buying power.
That’s where Maverick investments come in…
Teeka took the name from the Top Gun movies. As he explained it to his readers…
A maverick is an unorthodox, independent-minded person. The first person who comes to mind is Tom Cruise’s character from Top Gun, Lieutenant Pete “Maverick” Mitchell. He goes his own way. He’s free-thinking. He doesn’t follow the crowd. Because of that, he’s successful.
That’s the mindset you need to survive this inflationary market. But you won’t find maverick ideas on Wall Street. Maverick investments exist outside the standard portfolio model, which focuses on stocks and bonds.
Maverick investments share three characteristics that make them great ways to beat inflation. They’re…
Real – The harder it is to “print” an asset, the more real it is.
Rare – These are assets with low supply.
Enduringly desirable – These assets have a history of high demand from wealthy people.
Take that $700,000 Rolex…
Real – Governments can’t “print” a Rolex watch.
Rare – There are vanishingly few early-1970s Rolex Daytonas in the world and there will never be more of them.
Enduringly desirable – Rolexes have a history of high demand as status symbols for wealthy people.
Unlike stocks and bonds that struggle during inflationary cycles, Maverick investments grow more valuable during these times.
Inflation happens when governments and central banks create too much money. Maverick investments, by contrast, are scarce. They can’t be faked or artificially inflated. And people who own them know they’ll always have willing buyers.
That helps them keep their value relative to rapidly inflating currencies.
The returns on contemporary art are proof of this…
One index looks at artworks made after 1945 that have sold at least twice at public auction.
On average these artworks have grown 13.5% in value per year in inflationary periods.
Compare that with an average annual gain of 5.5% for the S&P 500… 3.2% for gold… and 0.5% for U.S. corporate bonds.
And you don’t have to be a millionaire to invest in contemporary art.
You can now buy shares in iconic paintings…
One platform Teeka recommends is Masterworks…
Scott Lynn, a tech entrepreneur and art collector, founded the company in 2017.
His goal was to make investing in iconic artworks possible for everyday investors.
It buys and securitizes artworks. This allows you to own shares in a Picasso, a Rothko, a Basquiat, or any of the other blue-chip masterpieces that make up the Masterworks portfolio.
Over the past five years, Masterworks has bought more than 130 works of art for more than $500 million.
And since then, the value of its art portfolio has risen at an average rate of 15.3% a year.
That’s an inflation-beating return… even at today’s inflation rate of 7.1%.
And it’s roughly three times the average annual return for stocks in times of rising inflation.
There’s usually a waitlist to join Masterworks. But as a Daily Cut reader, you can skip that waitlist here.
You’ll get access to this inflation-beating asset class without having to spend millions of dollars to acquire art.
Chris Lowe and Anthony Planas
Chris’ note: I recently sat down with Scott to learn more about how Masterworks creates shares in artworks… why contemporary art is a great way to diversify outside of stocks and bonds… and how art appreciates in value independent of inflation.
Members of our premium research advisory, Legacy Inner Circle, can catch the conversation with Scott here.
And if you’re not a Legacy Inner Circle member, don’t worry. I’ll share an excerpt of my conversation with him in tomorrow’s Daily Cut.