The curse of great expectations

Here are three of the week’s top pieces of financial insight, gathered from around the web:

A $100 piece of a $55 million painting

A 1963 portrait by British artist Francis Bacon is about to make its stock market debut, said Carol Ryan in The Wall Street Journal. Next month, “a company named Artex is launching a roughly $55 million initial public offering of Bacon’s Three Studies for a Portrait of George Dyer,” with shares of the artwork going for about $100 apiece. The “stock” will list on a specially created “art stock exchange” available to regular investors. Though “artworks valued below $1 million are risky, returns on ‘blue-chip’ art” from the post-1945 era gained 12.6% yearly between 1995 and 2022, compared with a 9% annual return for the S&P 500, according to Masterworks, an investment platform that began offering fractional art shares to investors in 2017.

The curse of great expectations

American investors have unrealistic expectations about their returns, said Terry Lane in Investopedia. The 2023 Natixis Investment Managers Survey of Individual Investors found recently that Americans expect “their investments can return 15.6% over the long term,” more than twice “the 7% returns that financial advisers expect.” Between 2012 and 2021, the S&P 500 returned 16.5% per year. Then 2022 happened, which 86% of respondents said was “a wake-up call” that the bull market run wasn’t unstoppable. But the memory of that seems to be fading. Some 59% of investors say they are comfortable accepting more risk — even though 44% admit they are already taking on more risk than they should.

Gloom for commercial real estate

It could take 15 years before U.S. office buildings regain their pre-pandemic peak values, said John Gittelsohn in Bloomberg. London-based research firm Capital Economics said last week that U.S. office values “are expected to plunge 35% from the peak by the end of 2025.” The firm said the collapse mirrors what happened to shopping malls as e-commerce grew in the late 1990s and early 2000s. Many large investors, such as Blackstone, are simply walking away from their holdings, and handing them to lenders. “About $18 billion of office buildings were considered distressed at the end of March,” according to a recent report by MSCI Real Assets. Despite efforts by companies to bring workers back, office usage remains “only about half what it was before the pandemic.”

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