Why Rich People Buy Dumb Art ? #finance #stocks
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00:00Hey there! Maybe you've heard the news about some of these ridiculous art pieces.
00:05One example is a banana taped to a wall that was sold for $120,000.
00:10Then there's a painting that's just a vertical stripe of black and white, which sold for $84 million.
00:16And another one, which is just two orange squares on a darker orange background, was sold for $28 million.
00:23And to make it even more ridiculous, the title is simply Untitled.
00:28Truly a masterpiece, isn't it?
00:31So, maybe you're wondering, why so many people are spending millions of dollars on these seemingly absurd paintings or art collections?
00:39You might think they're just bored and want to squander their money, or maybe they have a weird taste in art.
00:44Well, while some rich people can be weird, they're not stupid.
00:48It's all about strategy and hidden intentions to make or save more money.
00:53And you might be asking, how do rich people use this art to make money or save money?
00:58Let's break down why rich dudes buy these ridiculous art pieces and how they use them.
01:03Section 1. Investment
01:05Believe it or not, art can be an incredible investment.
01:09Imagine buying a piece of art today for $10,000, and in 10 years, it's worth $100,000.
01:16That's a tenfold increase.
01:18Sounds pretty good, right?
01:20For example, there's an artist named Jean-Michel Basquiat.
01:24You might have seen his art and thought, what is this mess?
01:28Basquiat's work often looks like a child's scribbles, random lines, words, and chaotic figures.
01:34But one of his paintings, also titled Untitled, sold for over $57 million at an auction in 2016.
01:42Yes, a Japanese tycoon named Yusaku Maizawa competed with other billionaires to bid on this chaotic doodle,
01:50and he won this painting for $57 million.
01:53So, why would someone pay that much for a painting like that?
01:57Well, in the art world, people buy art also due to the artist's reputation, not necessarily the art itself.
02:05In Basquiat's case, he was just right on time, drawing during the beginning of the Neo-Expressionism movement.
02:12So, he was regarded as one of the pioneers.
02:15Also, when artists die, their artwork becomes more valuable because no new art is being created,
02:22making the existing pieces rare and highly sought after.
02:25If the artist had a tragic life, it can make the price even higher.
02:29In Basquiat's case, he was expelled from school, kicked out of the house at 17, and began to live on the street.
02:38In the 1980s, he was just a street artist and did some graffiti in New York.
02:42And just at the right time, his drawing style matched the Neo-Expressionism that was going viral in the 1980s.
02:49So, he started making some paintings and successfully sold his first painting for $200.
02:55Then, he continued to paint more and became famous.
02:58Despite his success, he struggled with drug addiction.
03:02And tragically, in 1988, Basquiat died of a drug overdose at just 27 years old.
03:09So, his tragic life, untimely death, and pioneering style in modern art made his works even more valuable.
03:17And in Yusaku Maizawa's case, he sold this painting again in 2022 for $85 million.
03:24Given that he bought the painting for $57 million, held it for six years, and then sold it again for $85 million, it means he just made $28 million in profit from this investment.
03:38So, that's why art collection can be a great investment too.
03:42Section 2. Tax Avoidance
03:44As we all know, rich people hate taxes, and they'll do anything to avoid them.
03:50If you've watched my video, How the Rich Avoid Paying Taxes, I explained how the wealthy use various methods to reduce or eliminate their tax bills.
03:59Now, I'll explain how they use art to avoid paying taxes.
04:03For example, let's say there's a billionaire named Bob.
04:07So, in 2020, Bob sees art as a tool for investment and decides to buy a painting for $3 million from a fairly famous artist.
04:16Then, five years later in 2025, Bob has a $50 million income, which is normal for a rich dude like Bob.
04:23As expected, the IRS or tax authority asks Bob to pay his taxes, let's say 30% of his $50 million income, which amounts to $15 million.
04:34Of course, Bob, as a rich dude, hates taxes and doesn't want to pay that much.
04:40To avoid paying that much, Bob thinks about how to reduce his tax burden and then remembers the painting he bought five years ago.
04:47Since Bob is already bored with this painting and also doesn't want to pay the full amount in taxes, he decides to use this painting to reduce his tax liability.
04:57So, Bob takes this painting to a professional art appraiser to check the value.
05:03According to the art appraiser, the painting is now worth $20 million, so Bob's investment in this painting has succeeded.
05:10If Bob sells this painting for $20 million to pay taxes, he would still need to pay 28% capital gains taxes on the sale, which means he would owe another $5.6 million in tax.
05:24So, instead, Bob decides to donate the painting to an art museum.
05:28If the art museum agrees to receive the donation, Bob can tell the IRS he just donated a painting worth $20 million to a museum, which is considered a charitable contribution.
05:40When rich folks donate to charity, the IRS allows them to pay less tax by deducting the donation amount from their taxable income.
05:49So, the IRS or tax authority gives Bob a discount by deducting the $20 million donation from his taxable income.
05:58In the end, Bob's taxable income is reduced to $30 million, and he only needs to pay 30% of that, which is $9 million.
06:07Since Bob bought the painting for $3 million and now only needs to pay $9 million in taxes, he effectively spends $12 million and saves $3 million compared to paying the full $15 million in taxes.
06:22Well, some of you might wondering, why doesn't Bob just buy a cheaper painting for, let's say, for $10,000 from an unpopular artist, and directly asks the appraiser to value it at $50 million, then donates this painting to the museum, and tells the IRS that he just donated a $50 million painting to avoid paying taxes.
06:43Well, this trick may have worked in the past, but now, not really, the IRS will have their own art appraisers check whether the art is really worth $50 million.
06:54Also, since Bob just bought the painting from an unpopular artist, it would be more suspicious that the price could be inflated to $50 million.
07:02If the IRS finds out his scheme, Bob will be in serious trouble.
07:08And art itself has no intrinsic value, because it is subjective.
07:13If you like this painting, you might say it's worth $100 million, but if your friend hates this painting, he might say it's only worth $1 million, or not worth anything at all.
07:23So, this practice is quite risky.
07:25Section 3. Money Laundering
07:28Most people say that these ridiculous arts are used for money laundering, and it's quite true, even though it's not always for money laundering.
07:37So, what is money laundering?
07:40Money laundering is the process of making illegally gained money look legal.
07:45It's all about cleaning that dirty money to make it look clean from legal business.
07:50You can watch more in my other video here, too.
07:52So, for example, let's say Charlie has made millions of dollars from super-sussy activities like selling drugs, which is illegal.
08:01All criminals always use cash for their crimes, since cash is harder to track by the police.
08:07But Charlie can't just store his millions in cash at home.
08:10He needs to deposit it somewhere safer, like a bank.
08:14However, if Charlie deposits these billions into a bank, the bank and the police will ask him where he got the money.
08:20If the bank and the police investigate and discover Charlie's super-sussy business, he'll be in serious trouble.
08:27So, Charlie must clean this money first, and he uses art to do that.
08:32Charlie decides to buy a painting for $10 million using his illegal dirty money in cash.
08:38Now, you might wonder, wouldn't the police be suspicious about where Charlie got the money to buy the art?
08:43Well, that's one of the advantages of the art world.
08:47High secrecy.
08:48Charlie can use a third party to purchase the art on his behalf, and because transactions in the art world are often anonymous,
08:55it makes it harder for the authorities to trace the money.
08:58After that, he places this art in a freeport.
09:02So, what is a freeport?
09:03It's a storage facility for expensive art collections with no taxes, high security, and high privacy.
09:10Most importantly, it's legal, even though very shady.
09:15One of the most famous freeports is the Geneva Freeport in Switzerland.
09:20Charlie decides to store his painting there because it's safe and discreet.
09:24Later, Charlie finds a buyer for his painting.
09:27Charlie can then sell the painting for $10 million and receive clean money from the legitimate transaction without having to pay any taxes.
09:36Now, Charlie can deposit this $10 million into the bank.
09:40If the bank asks where he got the money, Charlie can simply say he got it from selling a painting,
09:46and if the bank investigates, it turns out to be true because freeport is legal.
09:51Actually, using art to launder illegal money is more complex than that.
09:56It requires numerous third parties and multiple transactions like buying and reselling the art several times to make it even harder to trace.
10:05But, in this video, I just explain the simple concept for you.
10:10And of course, don't try this at home.
10:12Section 4. Market Manipulation
10:14In the art world, market manipulation means tricking people into believing that certain artworks are worth more than they really are.
10:22This can take various forms, but one of the most common methods is through secret deals between art collectors, art galleries, and sometimes the artists themselves.
10:33For example, let's say there's a wealthy art collector named Tom.
10:37He has connections with a gallery owner and a few other rich collectors.
10:42Together, they plan to manipulate the market using a relatively unknown artist named Jane.
10:47Her paintings are currently worth about $10,000 each.
10:51So, Tom and his friends decide to buy Jane's paintings for $10,000 each.
10:57They then invest $50,000 each, which is $200,000 in total, to create a buzz around Jane's work.
11:04This includes promoting her artworks in social circles, advertising her art on social media,
11:10and even organizing art exhibitions to increase her popularity.
11:13As a result, more people become interested in buying Jane's paintings, and the value of her work starts to rise.
11:21As Jane becomes more famous, many start to see her as a highly professional and talented artist.
11:27Her paintings become highly sought after by art collectors.
11:31Then, Tom decides to sell the painting at an auction house.
11:35As Jane's reputation grows and the auction process become more intense,
11:40bidders compete for more and more money.
11:43Let's say another art collector buys Tom's painting for over $10 million at the auction.
11:48As commonly the buyer will pay the auction fee, Tom receives full $10 million.
11:54After subtracting the $10,000 the original painting's price and $50,000 he spent on promotion,
12:01Tom's total profit is $9.94 million.
12:04Even though Tom still needs to pay 28% taxes on it, but Tom's still profiting about $7.15 million.
12:13And Tom's friends can repeat this process too, to sell their paintings.
12:18And of course, don't try this at home.
12:20Section 5.
12:22Social Tool
12:23Well, not all rich people really like art, actually.
12:27But they still collect it because they see art as a social tool.
12:31For example, imagine there's a billionaire named Jerry who invites his friend to visit his mansion.
12:37While they're walking inside, his friend notices a lot of expensive art collections,
12:41and Jerry might say something like,
12:44I own art pieces that are more expensive than what's in museums.
12:48So it means I'm very, very, very rich.
12:53And you better not to mess with me.
12:55After that, Jerry's friend might respect him more,
12:58seeing that Jerry isn't just an ordinary rich dude,
13:01because not every rich dude can buy famous expensive paintings.
13:04Besides having lots of money, Jerry also needs good relationships
13:09with fellow art collectors, dealers, and famous artists.
13:13By doing this, Jerry can join the exclusive club of rich art collectors,
13:18which is full of other powerful billionaires, politicians, artists, celebrities,
13:24and more influential people.
13:26For example, Art Basel, the most prestigious international art fair,
13:30which is held annually, is filled with celebrities and powerful people.
13:35In this club, Jerry can meet another powerful individual
13:38he can collaborate with for his future businesses.
13:41So even if Jerry doesn't really like art,
13:44he collects it to gain respect among the rich
13:47and to enter the rich people circle for his future business deals.
13:51So, in conclusion, when rich dudes spend millions on what seems like weird art,
13:57it's not just because they're crazy.
13:58They might not even like the art that much,
14:01but they buy it for other reasons that could bring them more money or benefits.
14:05Of course, nobody really knows if they genuinely like the art
14:08or if they have hidden intentions because art is hard to judge
14:11and people's tastes can be so different.
14:14So, the next time you see a banana taped to a wall selling for millions.
14:19Remember, it's not just about the art.
14:21It's about what you can do with it.
14:23If you want me to make other videos explaining these topics,
14:26please like and subscribe.
14:28Thanks for watching.
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