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Stocks S / Sotheby's Holdings, Inc.

URL:  http://boards.fool.com/hi-valu3buff-okay-so-i-lied-im-going-to-reply-26757283.aspx

Subject:  Re: BID: Sotheby an interesting rec, but . . . ? Date:  6/23/2008  11:42 PM
Author:  AESpot Number:  97 of 102

Hi Valu3buff,

Okay so I lied, I'm going to reply to it simply because if you put the time into your thoughts, I'm thankful people are willing to share them (and plus I have internet at home now, which helps immensely!) BTW, I pretty much agree with your thoughts and may have some random thoughts to add.

>> 1)...Sotheby's is an attractive place for these people to put their new money because of its strong reputation as a market for Western goods.

Resp:
It is. Subsequent articles (in other posts) have been indicating strong sales and records in new areas that are of interest to the Asian, Arab and Russian clientele. (For example, see the post re Diamond sales and how those demographics are broken out). I do think this will only continue as (1) people who have the money looks for items that retain a unique value, yet have the potential to be an investment, (2) offer an alternative investment to what's on the standard markets and (3) continues to provide enjoyment/value to people. People have been collectors of various things for centuries. I don't see this going away any time soon, especially with the strength of various sales that are occurring in this squirrely market.

>>2) Yes, while Sotheby's does face a risk from guarantees, the fact that they have had such a long history in this market means that it is more likely for Sotheby's to have an accurate value for a particular item while the potential buyers are incorrect than vice versa.

Resp:
I'd actually agree with this. I think Christie's gets a lot of press attention and is known amongst the American crowd, but Sotheby's is pretty well known internationally and also has the exposure and data/intelligence to know when a given product line (i.e. items from a particular artist) are being more sought after. I think it should then, however, be understood that this is the type of company that one should know will always have a relatively higher inventory than would be "desired", but that may very well get priced into the stock.

>>2)...since Sotheby's is able to mark down the value of a good that does not meet the guaranteed price to the highest bid, when the market corrects itself and Sotheby's is able to sell the good for its new price ... it would improve its balance sheet.

Resp:
I agree. There are costs associated with carrying this inventory, and certainly risks. However, I have noticed just from looking at their auctions and their results, their ranges tend to be a little more conservative, and that a lot of the results have been exceeding their ranges. I actually like this conservative expectation and beat demand, versus having high hopes and being disappointed. It's more realistic, especially given the uncertainty in the current markets (both stock/financial and art).

>>3 I believe they said in a conference call that Q1 is also the slowest quarter anyway. I don't know what "single-owner" sales have to do with anything, but your idea that it involves cash-strapped or otherwise disadvantaged parties sounds good to me.

Resp:
A couple of things here. Yes, BID is a very cyclical stock and I think that should get factored into when people are looking to find a position in this stock. I would personally take a look at the chart, see where the past trend is, research the news and the 10K and 10Q, and see where a good starting position would be (i.e. around current levels, or moderately lower).

Second, I think the single-owner sales helps Sotheby's to reduce costs. It allows them to consolidate the collection of art and host an auction (which costs money to organize, advertise, puts your PR people on the line, challenges in presenting a unifying theme etc). However, it also allows them to enter into negotiations with a single party, which would (in my mind at least) reduce costs. If you had to negotiate with 10 various parties or simply one, which would you prefer? I'd prefer the single terms of agreement from a costs perspective and from a management perspective (although, maybe not from a risk management perspective).


>>Authentication: It sounds to me that you think the increasing difficulty in authenticated items is a disadvantage, while TMF (and I, fwiw) think it to Sotheby's great advantage.

Resp:
I actually agree. I think authentication will continue to require more money, but I also think this can work to Sotheby's brand and bottom line. If I were dropping 80k on a pair or Egyptian earrings, I'm willing to pay a 10k premium on having a less likelihood that they are fake with the valid research involved, than taking a chance. Given that authenticity seems to be one of the dominant issues of this century, this can certainly work for Sotheby's; if you see this quality go down, I would seriously reconsider investing in the stock. Likewise, if you see them investing in methods of authentication or pairing up with someone like RSA or a security firm, I would consider that a plus. And, yes, I do think it's easier for them to pass along those costs to willing buyers.


>>Sotheby's sure seems to fit that definition - since when have rich folks not wanted to show off for each other?

Resp: Point WELL taken. Aside from those rare ones like Buffet, there is a sense of being able to get something unique. I'll admit, I actually looked at the site to see if I could get something "cheap" (ha, I know there's a gallery (no pun intended) full of people laughing) for my girlfriend (which, right now, there isn't), but I did want something unique that couldn't be bought at the mall or matched easily. Plus, I figured I'd be able to enjoy it too. Oh well, maybe if the market does incredibly well over the next several years.


>>hoping to be one of those rich folks, but on my sailboat in the South Pacific, not betting on vases.

Likewise, except I do like the Ming vases and with China's market being as bullish as it is, who knows, maybe it'd be another investment to consider ; )

Thanks for the response and sorry it took so long to respond back!

Cheers!

AESpot
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