The Best Investment Writing. Meb Faber
the point. We had bought these magnificent sculptures – the others were two snorting, rearing horses and a cat with a fish in his mouth and his tail in the air – from the manager of the town dump in Salem, N.Y., who ran a junkyard down the road from the dump. They were propped against an exterior wall of his shed, exposed to the sun and rain and snow. We felt as if we had salvaged them from the brink of oblivion. When part of Ralph’s collection of American folk art was sold at Sotheby’s in 2014 to satisfy creditors in his bankruptcy, David Schorsch, a leading dealer in Woodbury, Conn., paid $106,250 for our carousel rabbit. David was kind enough to send an email letting me know that he had bought it on behalf of a private collector and that it would have “a wonderful home in a great collection of folk art.”
We were all fond of that rabbit, partly because of its spectacular vigor as a sculpture but also because of its radiant condition, still in all its original pigments and with most of its patina intact. You hardly needed to imagine it on a carousel to picture it leaping up and down; you could see the wooden muscles coiled to spring under the wooden fur, and the joy on its face as it prepared its wooden leap. I still remember sitting on it and imagining what it would be like to be a boy in the 1890s escaping to the carousel for a quick spin on this magnificent sculpture – which did evoke the rabbit in Alice in Wonderland, just as Ralph says.
Our adventure with the rabbit wasn’t unusual. In the 1970s – before the duopoly of Sotheby’s and Christie’s had grown to dominate the art world, before Antiques Roadshow became a public-television hit, and before Google put a universe of knowledge at everyone’s fingertips – the market for art and antiques was extraordinarily inefficient. Prices could be, and often were, out of whack by several orders of magnitude.
In financial markets, information asymmetry often favors the sellers; those who have held an investment have access to inside knowledge and may be far better informed than those who are interested in buying it. In the art and antiques business of the 1970s, however, that information asymmetry was inverted: Buyers could often know far more than the sellers.
I thus learned a lesson, as a child, that has never left me and that has stood me well when, as an adult, I sought to understand the financial markets:
Things are not what they seem: Much of what most people think is treasure is, in fact, trash. And much of what they think is trash is, in fact, treasure.
To tell the difference, art dealers and value investors alike must develop what the great investor Michael Steinhardt has called variant perception. You have to know much more than most of the other people in the market, and that knowledge becomes most valuable when it is at odds with the common perception of the other participants.
When I was a kid, that variant perception was based on vast amounts of study and preparation, along with stubborn – almost ornery – patience.
Realizing that rare books were chronically undervalued and easily overlooked, I spent a few days one summer, probably around the age of 13, going through our encyclopedia and writing down the dates when America’s greatest writers first published their works. Author by author, one to an index card, I listed all their major books by date (some, like Mark Twain, required more than one card). Then I memorized all the dates, flash-card style.
That way, I knew, I would be able to spot first editions almost instantaneously. In the 19th century, book publishers typically didn’t designate that a book was a first edition on the title or copyright page; but if you knew which year great books were published in, you could work your way through a crate full of dusty old volumes at remarkable speed. Knowing which ones didn’t matter enabled you to focus your attention on those that did.
I did the same thing with paintings in art-reference books and at museums, memorizing dates and styles and compositions until I could see a landscape or portrait from the other side of the room and instantly identify the artist and, within five or ten years, when it was painted.
Speed, in an inefficient market, is important. An enormous value can exist, because the market is inefficient; but it might not persist, because its very enormity may call the value to someone else’s attention. Whoever is first to appraise it correctly wins.
So my parents taught me to move through a display booth, a room, a house – even a lawn strewn with items for sale – at high intensity. You rake your eyes everywhere: from floor to ceiling, from one end of the area to the other. But you don’t look at one object at a time; that would take forever, and devil take the hindmost.
Instead, you train your eye to take in whole groups of objects at once: everything on this table, all the objects on that wall, that cluster of furniture, the entire contents of this cabinet. You are searching for the incongruous, the oddball, the thing that doesn’t belong there – the mahogany chair at the oak table, the silver porringer amid the modern dishware, the oil painting or watercolor tucked in among the photographs or prints or posters, the hand-woven rug alongside the rolls of synthetic carpeting. My parents also gave me prompt and unambiguous feedback – one of the keys to developing expert intuitions.
Only much later in life did I learn that similar training is the basis for many forms of pattern recognition by experts in a variety of fields.
As Herbert Simon, the great polymath and Nobel Laureate in economics, wrote:
The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.
At an estate sale in the early 1970s, I walked up to a table covered in old books, swept my eyes across it looking for the gold-stamped leather bindings that typified early editions, and instantly took in that all the volumes were 20th-century – except one, which I immediately picked up. It was The Song of Hiawatha, by Henry Wadsworth Longfellow; I opened it, and the publication date, 1855, matched the entry in my mental database. I bought it for 10 cents.
At another auction, I went through what must have been two dozen boxes of old books until my hands were so dusty it looked as if I were wearing tan leather gloves. At the bottom of the last box was one book bound in magnificent red Moroccan leather. I opened it without even looking for the title. The inner covers were lined with superb Florentine marbled end papers, and the pages were edged with gold leaf. It wasn’t just a first edition of A Connecticut Yankee in King Arthur’s Court by Mark Twain (1889); it was one of 250 presentation copies the publisher had printed, and tucked inside the back cover was an original Christmas card drawn by Dan Beard, Twain’s illustrator. This copy had evidently been given to Beard by Twain, although the book wasn’t autographed. I stuffed it back under the rest of the books it came with; we bought the entire box for $40 and gave all the other books away.
But vast preparation and expert pattern recognition were only half the battle; patience and stubbornness mattered at least as much.
We never assumed, on any buying expedition, that we wouldn’t find anything good enough to be worth owning. My dad often said, “If you don’t see anything good, you haven’t looked hard enough yet.”
He often took that principle to extremes. My dad was one of the most intelligent people I’ve ever known, but he did commit one cognitive error: the sunk-cost fallacy. He hated to come home from any expedition empty-handed and would often devote absurd amounts of effort to find something – anything – worth buying in order to “justify” the trip.
On one such wild goose chase, we had driven to a house in Schoharie, N.Y. for the preview of an estate auction. Everything in the house turned out to be junk at a glance: the pieces of Chippendale and Hepplewhite furniture that had looked enticing in the ad were reproductions, the pottery and porcelain was chipped and cracked, the rugs were tattered, the paintings were poor quality, and so on. My parents kept trudging from one room to another and up and down the staircase in endless loops of frustration, trying to find something worthwhile.
After all too many of these laps, I refused to waste any more energy and flopped down on a sofa in the dim and dingy living room; I was a teenage boy, after all. The upholstery expelled a musty puff of dust. I coughed and squinted my eyes shut. When I opened them, I found myself looking at the same hideous painting, propped up against the fireplace,