Scott Lynn is the Founder and CEO of Masterworks, the first platform allowing investors to buy and trade shares in blue-chip art. Scott is a serial entrepreneur and a leading art collector.

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Guest Resource

Masterworks – Check out their website and schedule a call with their financial advisers who are trained in the stock market.

3 Value Bombs

1) Strategy before execution. Focus more on making sure you are solving the right problem than just working really hard.

2) Art is a long term security so it is important for people to realize that if they invest in art they should think of it as a 7-10 year investment that is illiquid before they ultimately sell them.

3) The market on investing is going to change rapidly over the next 10 years so you need to update your investment portfolio.

Show Notes

**Click the time stamp to jump directly to that point in the episode.

Today’s Audio MASTERCLASS: Investing in Art with Masterworks CEO Scott Lynn

[1:03] – Scott shares something that he believes about becoming successful that most people disagree with.

Strategy before execution. Focus more on making sure you are solving the right problem than just working really hard.

[2:28] – Scott talks about investing in blue chip art has been over the past few decades.

Its not possible to invest in art unless you have millions of dollars to buy a painting or millions of dollars to build a portfolio.
In the past decades, centimillionaires and billionaires who buy paintings for their own personal collection and look at how the value of those paintings have appreciated mainly based of what they sell for at the public auction.
Looking at the overall art creation market after WWII, has outperformed the S&P by 130-140%. Its an interesting asset class but the only way to invest in it is to have millions of dollars to buy a painting.
What they want to solve in Masterworks is how to take this great works of art and make them investible by allowing purchase shares.

[3:47] – Scott shares his AHA moment or what gave him an idea to create a company that allows investors to buy and trade shares in blue-chip art.

His AHA moment was a long process. He started companies and sold him over the years. He started collecting art with the money that he made. He saw the value of his collection go up over time and he has always viewed it as an investment as part of his portfolio.
In 2016, there was a lot of talk about tokenizing assets or curitizing assets specifically related to block-chain. Masterworks is not a block chain platform but all of those conversations gave hom the idea of taking a painting and essentially making it investible by allowing people to buy shares.

[5:13] – Scott talks about how Masterworks works.

They live in US which is a very regulated environment. The regulation on how Masterworks operates is very similar to how it is when you go public.
They buy an individual painting with a value of $1-30M, file that painting with the SEC as a public offering, sell shares on the painting and after they close the offering, investors can then trade those shares in the secondary market.
They have over 450 paintings and over a billion dollars of art. Its quite complicated to effectively maintain that number but that is how it works.

[6:13] – Scott talks about how Masterworks acquire the art found on their platform.

It’s a 2 step process. The first thing is to choose the right artist market because the returns in the art market are highly correlated with the individual artist. If you get it wrong, the return will also be wrong.
They have a research team that analyzes data of different artist market. They have advanced models that are built to predict future returns and they have about 50-60 artists like Banksy and Bosschaert that are investible and will produce a return.
Once they have the artists list, they give it to the acquisition team who go out and source the paintings of those individual artist market. They look for the quality of the painting at the best price and once they know that they are interested in buying an artist painting, they will go out and source as many as possible and find it with the best price.

[7:49] – Scott shares where the art goes once it is acquired.

They prefer that all their paintings will be out on a loan at museums because they have a multi-year or multi-decade planning on exhibitions.
They have a dozen out of their 450 art that are out on a loan.

[9:02] – Scott shares what type of investors are ideal for Masterworks.

Art as an allocation generally makes sense for most types of investors.
They are financial advisors, they onboard investors by looking at the size of their portfolios and make a recommendation depensing on the risk tolerance of that investor as to what percentage they are allocating to art.
These are long term security so it is important for people to realize that if they invest in art through Masterworks they should think of it as a 7-10 year investment that is illiquid before they ultimately sell them.

[10:51] – A timeout to thank our sponsors.

Mentorship: Email John@EOFire.com to set up a call!
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[13:32] – Scott talks about what happens once an investment is made on the Masterworks platform and if there is a need to wait for the hold period of 7-10 years.

They have the control over when to sell the painting and they will sell it if they think that the value is above the 3^rd of its value.
They also have a secondary market so investors can trade their shares in it but since it is illiquid assets, those trades are in discounts.
They inform them to be prepared to all their securities for up to 10 years.

[14:35] – Scott tells if Masterworks showcase their collection.

The dream vision of Materworsk 20 years from now is to have a Masterworks Gallery. Their collection today is probably in the top 3 or 4 private collection in the world.
The dream scenario is to have a museum where an investor or even the general public can go and see the collection which is much easier for long term than connecting with hundreds of independent museums.

[16:25] – Scott talks about the most popular artists on the platform.

Banksy and Bosschaert are the most popular artists and they have a 10-15% per year return for the past 20 years. In 1980s it was sold for $30-40K and now it is worth $150M and the price still goes up.

[18:12] – Scott gives his key takeaway.

The market on investing is going to change rapidly over the next 10 years and that means when people look at their investment portfolio, its not going to be 60% on stocks or 40% on bonds. Other alternatives like Bitcoin are getting a lot of traction and the 60% portfolio is going to be outdated.

[19:10] – Call to action.

Masterworks – Check out their website and schedule a call with their financial advisers who are trained in the stock market.

[20:21] – Thank you to our Sponsors!

NetSuite: Over 41,000 businesses have future-proofed their business with NetSuite, by Oracle – THE number one cloud E.R.P. Download the CFO’s Guide to AI and Machine Learning for free at NetSuite.com/fire!
Mentorship: Email John@EOFire.com to set up a call!

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