Buyer beware

Sotheby’s is of some interest to the investment world.  More mature participants hope to grace its halls as serious bidders rather than interested voyeurs.  For the more childish natured, then BID (Sotheby's) joins the catalogue of US stocks with slightly silly tickers which include RACE (Ferrari), HOG (Harley Davidson) and WOOF (VCA, the veterinary practice).  Of greatest interest, however, is its ability to signal or reflect a sell off in markets.  Its most valued customers are the free spending rich and its offices are old and expensive halls in the centres of the greatest cities – any downturn in bids and bidders is awful for the share price.  As the goods are as rich and rarefied as these halls and clients, then Sotheby’s tend to see a decline in inclinations to spend before many other businesses.  As such collapses in its share price often happen before or at the same time as broader market pull backs as can be seen below.  The stock has just started to fall sharply, albeit after a strong run.

Data Source: Bloomberg – 29.08.97 to 21.08.17

However, there are many reasons that this fall isn’t a portent of future malaise.  For one, there have been similar moves before that haven’t ended in wider collapse so the correlation doesn’t always hold, and art prices show slow but steady growth for another.  But it probably does show that the expectations of growth and valuation had got ahead of themselves at least in the short term.  In that way it might just be a good reflection of the wider market and should be monitored.

By George Palmer

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