Investing Lessons From Vermeer Fakes | The Acquirer's Multiple®

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss Investing Lessons From Vermeer Fakes. Here’s an excerpt from the episode:

Jake: All right, this is the story of the fake Vermeer. And this guy named Abraham Bredius, I believe his name is. I could be mispronouncing that. That’s okay. He’s an art critic and a collector. And he’s one of the leading scholars on Dutch painters. Particularly, Johanne Vermeer paintings. And as a young man in the 1880s, Bredius, he made his name by spotting works that were wrongly credited to Vermeer. And so, fast forward, he’s 82 years old in 1937 and he publishes this book identifying 200 fakes and imitations of Rembrandts. He’s like this master expert when it comes to what paintings are real and which aren’t, especially Dutch painters.

And there’s this newly discovered work that comes out that surfaced. And Bredius has ruled that not only is it a Vermeer, but he thought it was Vermeer’s finest work. His quote was, “When this masterpiece was shown to me, I had difficulty controlling my emotions.” This dude, he’s into it. The painting soon after sold for $10 million equivalent at that time period. There were several more paintings that emerged in a similar style. To score on high value paintings like this, it might be worth investing in blue-chip art. All these critics certified them, museums exhibited them, and more than $100 million of that time, and this is like in the 1930s, changed hands. There was only one problem. All of them were fakes. May 1945, the Dutch authorities arrest this old man named Han van Meegeren, van Meegeren, I think, or it might be Meegeren, I don’t know. And they charge him with treason.

Tobias: Treason.

Jake: Treason. They accused him of selling Dutch masterpieces to the Nazis, specifically to Hitler’s right-hand man, Hermann Göring. After a few days in jail, Van Meegeren, eventually, he confesses. And he’s actually gloating. And he says that he forged these paintings himself and he sold them to the Nazis, and he was so happy with himself–

Tobias: Got him.

Jake: Yeah, that he fooled all these experts and the Nazis.

Bill: That doesn’t sound like treason. That sounds like getting a bunch of money out of a country for a bunch of junk.

Tobias: [laughs]

Jake: You’re getting there. So, how did Bredius, who’s this Vermeer expert, no one knows Vermeer better than this guy, how did he get fooled?

Bill: Can I hypothesize?

Jake: Please.

Bill: Is it because he wanted to find these things? It was all motivated reasoning?

Jake: Oh, my God, Bill, you’re so good.

Bill: Is that it?

Jake: You’re ready to serve the veggies. You’ve ascended.

Bill: The student has become the teacher.

Jake: [laughs] Bredius’ feelings were trumping his expertise. We have to rewind a little bit and go back into Bredius’ history to understand this a little bit better. In 1901, he ruled that this certain portrait wasn’t a Vermeer. And it turned out that it actually was, and it stung his ego, and he didn’t want to repeat that mistake again. And so, he was likely looking for a chance at redemption. He was also especially fascinated by the religious works of Vermeer, and there was this gap in Vermeer’s timeline where these paintings might have existed that were more of the religious nature. And so, this one that came out– Actually, van Meegeren, he knew that, and he laid a trap, and he included lots of little touches that only Bredius was likely to notice.

For instance, there’s a simple test. Was the paint soft? Apparently, it takes 50 years for paint to dry fully. Van Meegeren knew this, and he did some amateur chemistry, and he effectively added this early plastic before there were really plastics to resemble old paint, like it dried faster. And so, younger paint would have dabbed off and revealed that it was a fake, but you pass it off this way. Bredius was very motivated to find another Vermeer. And so, he was very emotional about it. Oh, by the way, all of this is from this book by Tim Harford, and it’s called The Data Detective. There’s a bunch of good stuff in there. But this is the most interesting story that I got out of it. So, apologies for stealing Tim stuff without crediting him sooner.

Bill: This is a very good story.

Jake: Yeah. So, a couple of quotes from Tim in this is, he says, “People with deep expertise are better equipped to spot deception. But if they fall into the trap of motivated readers reasoning,” cue Bill, “They’re able to muster more reasons to believe whatever they really wish to believe.” And then, he says, “Today’s persuaders don’t want you to stop and think. They want you to hurry up and feel.”

Bill: It’s like politics, man.

Jake: Oh, totally. So, van Meegeren, as you foreshadowed, he pulled an even bigger stunt. He had made a ton of money during this Nazi occupation by selling paintings. In fact, he threw these regular orgies with prostitutes while many Dutch people were starving, which is obviously not a good look. The Dutch were feeling bad about this five plus years of Nazi occupation, and van Meegeren was the ringmaster of his own media circus that was this trial of him. He spun this story that he’d only forged art to prove his worth as an artist and that he took a great pleasure in tricking the Nazis. He twisted his reputation from a trader into that of this patriotic hero, who’s getting over on the Nazis. And so, he basically told all the Dutch people this story that they wanted to believe, because they were feeling so bad about occupation. Van Meegeren was found guilty of forgery, but he was cheered as he left the courtroom.

Tobias: [laughs]

Jake: And he knew how to give people exactly what they wanted. He died of a heart attack before he served any time, but there was an opinion poll that was conducted shortly around that time, and he was found to be one of the most popular men in the country at his death.

Tobias: [laughs]

Jake: There’s some takeaways from us here. Don’t be emotional when you’re analyzing whatever it is that you’re analyzing. Think about do you have motivated reasoning and be very fearful of it. Recognize that others might be playing into your desires and giving you exactly what you want to be hearing. The smarter you are, actually the more persuasive you can be in talking yourself into something. So, you’re actually extra dangerous. And then, finish it up with a Kahneman quote here, which is, “Overconfidence is the most significant of the cognitive biases.” So, just check to make sure you’re not being too motivated in your reasoning. Don’t be overemotional. And recognize that it’s really easy to be overconfident in what you’re looking at.

Bill: The other thing I’d add if I could is, I think, it’s really important when you’re asking people. Particularly, I’m thinking about expert interviews and whatnot. But same can be said about, I don’t know, if you’re trying to figure out why management teams are doing something. Ask the right people for the right stuff. If you ask an engineer a question that should be asked to a salesperson, you’re probably not going to get a very good answer. So, I don’t know. I just thought of that, because I had interviewed somebody from Guidewire and I didn’t ask too many sales-related questions, but I need to, and I need to go back and ask a different person that. But he was an engineer, and I don’t think he’s well suited to answer the questions that I have from the sales stuff. So, I don’t know. It’s interesting.

The other thing that I was thinking about with what games people are playing is, I don’t know, somebody has a motivation to flip– I guess, what I’m thinking of is, my buddy that was in oil, he was telling me about the games that they used to play and how he thinks they would see people that would bid on assets around them to fake mark their book up, and then flip to another person. So, it’s really important to think about who is making the bid, who is telling you the information, what might they be thinking behind? And it’s annoying to think that way, but I think you almost have to.

Jake: Yeah. How does that fit into efficient market theory when you have people’s–? [crosstalk]

Bill: Well, at his level, I think he would argue there was a lot of inefficiency, which is why he made the money made and luck. But that was good veggies, Jake.

Jake: Thank you.

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