The Lesson of the Barnes

Last weekend the new location of the Barnes Foundation opened in Philadelphia, on the Benjamin Franklin Parkway near the Philadelphia Art Museum.  The opening was a huge success, a must-attend for members of the Philadelphia cultural establishment.  In its new location, it is hoped that up to 250,000 art lovers will see Barnes’ spectacular collection every year.

If only Albert Barnes, doctor, inventor, 20th-century millionaire, and legendary art collector, could have lived to see it!  What would he have thought?

He would have been furious.  Enraged.  Absolutely beside himself.

Barnes hated the Philadelphia art establishment. He said that they were “cliques of socialites”, and called the Philadelphia Museum of Art, “a house of artistic and intellectual prostitution.”  For decades he feuded bitterly with Walter Annenberg, owner of the Philadelphia Inquirer.   Less than a year after Barnes’ death in 1951, Annenberg sued to change the terms by which the Barnes Foundation was run.

Now Barnes’ extraordinary collection has been moved from the location he chose, to a new building alongside the Art Museum he despised, and the Board of his Foundation is now dominated by exactly the sort of cultural institutions he so disliked, conspicuous among them the Annenberg Foundation created by Barnes’ bitter enemy.  It would be difficult to imagine an outcome that more comprehensively violated the intent of the Foundation that Barnes first created in the early 1920s.

So exactly why was the Barnes Foundation’s great collection forced to move from the building Barnes constructed in Merion Pennsylvania specifically to house his collection, where every piece of art was precisely placed in the exact location Barnes chose in order to educate viewers in his idiosyncratic theories of art? (The Barnes Foundation was established, not as a museum, but as an educational institution.)  It was not as though the Foundation’s location in Merion was a bad place to view great art.  Indeed, artist Henri Matisse considered the Barnes the only “sane place to see art in America.”

The simple reason the Barnes was forced to move was that it ran out of money.  By the early 1990s, the Foundation’s Merion building, built for $500,000 in 1925, was falling apart. One of the world’s greatest art collections, worth tens of billions of dollars, was protected by less security than your neighborhood Wal-Mart store.  One by one, various explicit requirements of the Barnes’ founding documents were violated. The works went on tour, expressly against Barnes intent. The Barnes sold glossy catalogs and began to charge admission.  The Foundation had little choice. It had to find cash flow simply to keep the doors open.

The full story of the failure of the Barnes in Merion, and of its eventual effective takeover by exactly those Philadelphia institutions that Barnes himself most loathed, has been the subject of several books and one movie. Since this is an investment blog, I’ll simply point out what I believe to be Barnes’ essential mistake.

Barnes was a control freak’s control freak.  With the assistance of Philadelphia lawyer Owen J. Roberts, later a justice of the Supreme Court, Barnes created an indenture that specified in minute detail every aspect of the operation of his Foundation, from what to pay the janitors to how the Foundation’s assets  must be invested.  The investment strategy Barnes mandated was simple — all funds had to be in publicly-issued securities – Federal, state and municipal bonds.

When Albert Barnes died in 1951, his Foundation had an endowment worth approximately $9 million. That was real money back then, the equivalent of about $75 million today. Of course, the financial assets of the Foundation have always been dwarfed by the value of its art portfolio. Today it is estimated that the 2,500 artworks owned by the Barnes Foundation are worth between $20 and $30 billion.  (This means Barnes’ art collection is worth more than half the value of the Bill & Melinda Gates Foundation, the creation of the second-richest man in America.)

Why did Barnes insist on an all-bond portfolio?  Because he hated common stocks.  During the Great Depression of the 1930s, Barnes was able to purchase many extraordinary works of art when their original buyers, who had lost everything in the 1929 stock market crash, had no choice but to sell. Barnes referred to stocks as “flimsy securities,” as contrasted with “priceless paintings.”

What if Barnes had permitted the Board to invest the Foundation’s assets in common stocks?  Ignoring operating costs, had the Barnes Foundation invested $9 million in stocks in 1951, by now the net worth of the Barnes might well have been in excess of $3 billion.   Had Barnes not insisted on bonds, and forbidden stocks, his collection would probably remain in Merion today, in the building he built, displayed exactly as he desired.

Many investors today have the same viewpoint as Albert Barnes — that common stocks are a flighty, risky, and imprudent investment.  They are certainly a volatile investment.  But anyone who retires at 65 today, contemplating what is likely to be a thirty-year retirement, and who has a substantial portfolio that does not include common stocks, is setting them up themselves up for failure just as surely as was Albert Barnes.

2 thoughts on “The Lesson of the Barnes

  1. I love this story. But for me, it is a story about quirkyness and its price. Gotta do everything different from the usual ways? Sure go for it, its your nickle. But surprise surprise, your reinvented wheel may not be quite as round as the one which has been refined by millions for hundreds of years.

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