Jonathan Sharpe, a 25 year-old accountant in Greensboro, NC, never thought of himself as a “baseball guy,” but when he saw a 1909 Honus Wagner T206 baseball card valued at $520,000 (Dh1.9 million), he decided to buy it. Not all of it, though. The card was being issued through the fractional ownership collectibles site Rally Rd.—there were 10,000 shares valued at $52 apiece. “I thought it was a good idea,” Mr Sharpe says. “They broke it down into enough shares that it was affordable.” He had the Rally Rd. app open when the card listed and bought a single share; less than 20 minutes later, every single share had sold. “It was insane,” he says. Mr Sharpe, who heard about Rally Rd. on Twitter, is one of thousands of individuals around the globe who’ve bought tiny fractions of luxury collectibles in an effort to participate in an economy previously reserved for the very wealthy. “There’s a big focus around the investment aspect” of collectibles, says Micaela Saviano, a senior manager at Deloitte Tax. “There’s been such a run-up in the market in the last 20 years, and there’s more and more media focus around growth in the art market.” It’s not just art and baseball cards. In the past few years, these fractional ownership structures have sprung up for vintage cars, Magic: The Gathering cards, racehorses, vintage sneakers, and comic books. John Day, a senior manager at Deloitte and a Rally Rd. user, says he’s spent about $21,000 on shares in Lamborghinis, watches, baseball cards, and rare books. “As someone who’s not going to buy a full Ferrari, I now have access to [invest in] one,” Mr Day says. “But I don’t have to maintain it, insure it, secure it, or store it.” Each company’s model is slightly different. Rally Rd. (“The investments of the rich, now available to all”) allows people to buy and sell shares of collectibles while maintaining a block of shares in each. Feral Horses allows people to buy and sell artworks, then takes a commission on the money raised for each object. Masterworks, based in New York, buys artwork at auction, sells shares of the art, and then takes a fee and cut of the profits when it’s sold. There are more than a dozen of these companies around the globe. A partial list includes: Acquicent (collectibles and fine art), Artopolie (fine art), ArtSquare (fine art), CurioInvest (supercars), Look Lateral (collectibles), Maecenas (fine art), Malevich (fine art), My Racehorse (race horses), Mythic Markets (games and comic books), and Rally Rd. (cars, watches, sneakers, and other collectibles). All share a unifying premise: Luxury goods won’t just hold value, they’ll appreciate. “Our thesis is that art is a large asset class,” says Masterworks founder Scott Lynn. “If you look at different segments of contemporary art, it’s performed at about 11 per cent every year, and that’s outperformed every major public equity market.” The reality is far more complicated. All artworks, racehorses, cars, and trading cards are not created equal, and not all of the “investment opportunities” offered by fractional ownership companies are the best in their field. Just because one racehorse wins the Preakness doesn’t mean that every racehorse has a shot, and just because one Picasso delivers 800 per cent returns doesn’t mean that all Picassos will do the same. The claim that the art market beats the S&P 500 has been largely discredited, due to its aggressive survivorship bias. “The performance of the [top 50 contemporary artists] is largely a function of the fact that hot artists keep on getting added—after they’ve become hot,” wrote Felix Salmon, then a Reuters columnist, in a 2012 assessment of art market indices. “It’s a classic case of investing in hindsight: if you only bought things which performed extremely well, then you would have made lots of money.” Nevertheless, stories about wealthy people buying paintings and then making a large fortune a few years later are seductive, and it’s those stories that many fractional ownership companies are banking on to drive participation. “People have the perception that any given artwork will triple in value,” Mr Saviano says. “And that’s not the case. Each work of art is unique and needs to be analysed on its own.” As a result, it’s easiest to break fractional ownership companies into two broad categories: “collectibles,” for which value judgments are relatively straightforward (is a comic book in mint condition? Does the Porsche have all of its original interior? Is the Rolex rare?); and fine art, for which perceptions of value are constantly in flux. Multiple collectibles sites have quickly found adherents. Rally says it currently has $10m worth of assets under management, with 150,000 active users. The platform has already sold two of its “assets,” a 2000 Ford Mustang Cobra, and a 2006 Ferrari F430 Spider “Manual” realizing gains of 18 per cent and 16 per cent, respectively. Currently, there are about 60 cars on the site, along with 40 objects that include a gold Rolex. “We’re investors in these assets, up to 10 per cent,” says Rob Petrozzo, a co-founder of the site. “So we benefit from their appreciation.” Meanwhile, Mythic Markets launched in August 2019, with a “Black Lotus” Magic: The Gathering playing card valued at $90,000. “We sold through the first offering pretty quickly,” says site founder Joe Mahavuthivanij. “One hundred and twenty-four investors got involved in that deal, and I think it came out to an average of $700 per person.” To the uninitiated, hundreds of people buying shares of a $90,000 playing card they’ll never touch, and thousands of people buying shares in a car they’ll never drive, might seem like a stretch. But Mahavuthivanij points out that, from his end, “these communities are huge, and global, and Magic’s been around for 27 years now, and it’s continuing to grow.” It stands to reason, he continues, that a collectible tier has emerged. “There’s an active secondary market where these are changing hands,” he says. “There are aggregators and online auctions that we use as comparable data points—if you were to value a house, you look at comparables in the area; we’re doing the same thing.” In the art world, definitions of value—not to mention desirability—are much more fluid. Take an artist such as Andy Warhol, whose market has been languishing since its high in 2014. Anyone can look at an artwork’s return—an 8,220 per cent return in 30 years for Warhol’s Last Supper!—and assume that it’s a smart investment. The person who bought it for $99,000 in 1988 certainly was wise. It sold for $8.2m in 2018. But that doesn't mean its value will grow the same way in the future. The 2018 sale price, which includes an auction house premium of nearly 20 per cent, barely eked past its low estimate $8m hammer price (which doesn’t include that premium). So the work wasn’t quite worth what the auction house expected, making its future value far less than sure. Past results are no guarantee of future performance. (Other artists whose markets have soared, then deflated in recent years, include Damien Hirst, Jeff Koons, Christopher Wool, and a baker’s dozen of young process-based abstract artists who rose and fell from 2007 to 2014.) Some of the owners of fractional art companies are carefully messaging around this unpredictability. “Our minimum investment is €1 [$1.10],” says Francesco Boni Guinicelli, who, with Fabrizio D'Aloia, co-founded Artsquare. It has 3,000 users, 500 of whom have bought shares in a 1984 Warhol silkscreen print valued at €28,000. “We’re not evangelising investing in art, but rather participating in the art world on a different level.” The share price, he says, “is symbolic, but our target is the person who goes to a museum and wants to buy a mug with a Picasso on it, or a poster. If you’re willing to buy that, you might want to buy a share of an artwork.” Artsquare’s business model is built on a 4 per cent transaction fee for buying shares; investors can choose to pay a flat subscription instead. Feral Horses, one of the other fractional art companies, is based on effectively the same principle: “By making the entry point so low, it opens up completely new possibilities,” says Francesco Bellanca, the company’s chief executive officer. “We sold shares in a €200,000 marble sculpture, which we then loaned to a museum in Rome,” he continues. “Four hundred of the 1,000 or so co-owners then flew to Rome to meet, and mingled. They were part of a community.” The point, both men say, is that investing in art could be a good investment, but it is definitely a way to become part of an art world community. That alone, they argue, is worth the share price. “That’s what we try to do on a daily basis,” Bellanca says. “How do we make this [investment] become an increasingly active participation in the art world?” The answer, he says, is that “rather than just give investors an economic interest in the piece, we work with galleries and artists to give them the opportunity to have a follower base that participates in the journey.” Mr Lynn, of Masterworks, argues that people should feel confident in the art market as a viable investment vehicle. “If you think about portfolio construction in general, a core tenet for any investor is diversification and lack of correlation,” he says. “Art isn’t correlated with other asset classes, and historically, certain segments of the art market have performed very well.” For some investors, that argument resonates. “It’s not a certain investment, but at the same time I don’t see art to be riskier than the tech world,” says Nadir Luvisotti, a 31-year-old investment banker at Deutsche Bank in London, who spent about €2,000 to buy shares in the Warhol print issued by Artsquare. “Andy Warhol is a famous artist, and probably right now, he’s a commoditised one—everyone knows him and the value of his paintings. Investment or no, all fractional ownership plans have to reconcile their “investors” to the fundamental paradox of partial ownership: They’ll never be able to drive their cars, read their comic books, taste their wine, or hang their paintings on their wall. Buyers might now have access to the theoretical returns of the very rich, but for many of these ventures, that’s it. One of the primary joys of being a collector will, for the time being, still be out of reach. “Part of the reason people like to own art is to see it on their walls,” says Mr Saviano, the Deloitte Tax manager. “When you take that away, you have to focus on the investment [component], and when you do that, it has to be substantiated.” For Mr Day, who bought shares of Lamborghinis on Rally, that hands-on experience is beside the point. “I’m not so worried about driving the cars,” he says. “If I wanted to drive a Ferrari, I can rent a Ferrari” through supercar adventure sites. “I invested in it because it’s accessible to me. Buying a whole car is a kind of luxury, and whoever does that can say that their collectible car is in their living room. Cool. But that’s not me.”