What Powers MyArtBroker’s Art Technology?
In Conversation with Stuart Jamieson, Financial Quant

MyArtBroker's advanced tools, powered by the SingularityX algorithm, offer data-driven art investment insights by processing auction and private sales data to estimate artwork values. The creators of these innovations are entrepreneurs and art market experts Ian and Joe Syer, who founded MyArtBroker 15 years ago. Overseeing these developments is our Managing Director, Charlotte Stewart. In this article, we interview Stuart Jamieson, a Financial Quant who contributed to the algorithm's development.

Financial Trading and Algorithmic Portfolio Management With Stuart Jamieson

Stuart's professional background lies in financial trading and investment. After completing his undergraduate degree in Economics, he dedicated 18 years to a career as a financial derivatives trader and algorithmic portfolio manager, collaborating with diverse London-based brokerages, Commodity Trading Advisors (CTAs), and hedge funds. His expertise encompasses trading derivatives for both Buy Side and Sell Side participants, with a particular focus on dealing, market-making, risk management, hedging, and the systematic development and execution of trading strategies. Stuart boasts a range of professional qualifications, including the CFA® charter, Financial Risk Manager designation, and certificates in Securities, Derivatives, and UK Regulation & Professional Integrity. His educational journey includes an MSc in Data Science, and a Ph.D. in Computer Science, obtained from Newcastle University.

This extensive and varied background equips Stuart with a wealth of expertise that proves invaluable in the development of algorithms for the art market. His 18-year experience in financial derivatives trading and algorithmic portfolio management provides deep insights into risk management, market dynamics, liquidity, pricing, and the strategic application of systematic trading techniques for analysing historical art market data. With exposure to both Buy and Sell Side participants, Stuart possesses a keen understanding of the motivations and behaviours of various stakeholders in the art market.

Understanding AI Algorithms In Art Investment

The term 'algorithm' might sound complex and daunting to those new to fintech jargon, but Stuart simplifies it with a straightforward explanation: “an algorithm is essentially a systematic, step-by-step procedure or a set of rules used to perform a task or solve a problem.” This definition emphasises that algorithms are tools for finding solutions, often involving mathematical processes.

Stuart explains the word's etymology, tracing it back to the influential 19th-century Persian mathematician Al-Khwarizmi, from whose surname 'algorithm' derived. Originally, it referred to the rules for performing calculations using Hindu-Arabic numerals. Over time, the term has broadened, especially in computer science, where it now signifies a set of instructions given to a computer to guide it from a starting point (a problem) to a desired outcome (a solution). Algorithms typically encompass inputs (the data, variables, or information that the algorithm uses to perform a specific task or solve a problem) and outputs (the results or outcomes produced by the algorithm after processing the provided inputs), arriving at a conclusion through a finite number of steps.

To make the concept more relatable, Stuart offers an analogy to a cooking recipe. A recipe, like an algorithm, has inputs (ingredients) and outputs (the finished dish), along with step-by-step instructions on achieving the desired result. Therefore, a recipe can be seen as a human 'algorithm' for preparing a specific dish.

In essence, algorithms are systematic procedures used for problem-solving, whether by humans in cooking or by computers in various applications.

The Creation Of SingularityX And Art Tech In A Digital Era

The perception of art as a financially secure asset class has become commonplace, particularly among the affluent, yet the art market's inherent volatility and riskiness deter most investors. This is where 'Art Tech' steps in, particularly in the modern digital age, offering solutions to aid a wide array of individuals involved in the art market, from collectors and artists to dealers, in elevating their buisness and art collections. While the origins of art tech date back decades, it is now, in the current digital era, that we witness how technological tools are reshaping an art market that is becoming more accessible and transparent. Recognising this opportunity, MyArtBroker has taken the initiative to develop innovative smart technology. Namely, our highly advanced algorithm that fuels our platform: SingularityX.

Stuart shares that the active development of SingularityX commenced in early 2021, spurred by MyArtBroker's management team's dedication to enhancing art print valuation and market trend understanding. This endeavour holds particular significance in the art market, often shrouded in opacity. SingularityX signifies a departure from conventional valuation methods, which heavily rely on subjective expert opinions from those who have spent decades learning and working in the art market. The art market is notorious for its lack of transparency regarding Fair Market Value (FMV). A robust pricing model, such as SingularityX, offers an objective foundation for determining FMV, rooted in historical transaction data.

How AI and Technology Assess Artwork Valuations

Stuart explains how SingularityX's pricing model leverages data-driven insights to evaluate artwork print values accurately. By scrutinising historical sales data, the model identifies pricing trends and patterns over time, shedding light on the appreciation or depreciation of certain styles, artists, or periods. Additionally, it facilitates the comparison of similar artworks, introducing a more standardised approach to valuation. This valuable tool serves collectors, investors, insurance providers, and galleries by empowering them to make informed decisions.

When asked about the significance of auction sales history in art investment decisions, Stuart provided an insightful perspective, which is why MyArtBroker was enthusiastic about collaborating with him on this project. He clarified that traditionally, extensive access to auction sales data was limited to those who could afford paid subscriptions. Making such a pricing model available to the public democratises access to this crucial information, empowering a broader spectrum of market participants to make well-informed choices. He explains that this technology addresses one of the primary challenges in the art market—information asymmetry, where some individuals possess more data than others—a transparent pricing model helps level the playing field by disseminating valuation information more widely.

Technologies That Help Art Collectors Predict Art Market Trends

Arguably, one of the most challenging concepts to grasp in the art market is understanding and identifying art market trends. These 'trends' are elusive to define because doing so would require rationalising what is inherently an unpredictable market influenced by cultural shifts and evolving tastes. Consequently, valuations become a complex task, highlighting the importance of a pricing model that enhances the art market's predictability and broadens its reach. Stuart elaborates on this, emphasising that stakeholders can foresee market trends and valuation shifts more accurately by leveraging AI-powered pricing models like SingularityX. He also underscores why transparent pricing models are indispensable for investors, as a clear understanding of how artwork prints gain or lose value over time informs more strategic investment decisions. Increased transparency fosters trust and confidence among buyers, sellers, and collectors, potentially stimulating greater market activity and healthier dynamics.

SingularityX and MyPortfolio Art Collection Management

What MyArtBroker wants collectors and clients to understand is that our sophisticated technology, developed in-house, powers our art collection management tool, MyPortfolio, which was officially launched in Spring 2023. MyPortfolio is designed to simplify the lives of art collectors by offering a platform where they can add their artworks, provided they are listed in MyArtBroker's database. SingularityX plays a pivotal role in tracking the value fluctuations of these artworks, providing insights into their appreciation or depreciation.

Stuart explains that SingularityX accomplishes this through a model input based on historic auction sales data collected from over 300 auction houses, essentially creating a 'market index.' As Stuart mentioned, think of an algorithm like a recipe for cooking. Just like a recipe needs ingredients to make a dish, an algorithm needs inputs to do its job.

The 'market index' for a specific artist is built using a Repeat-Sales Regression (RSR) method, using individual print sale prices to estimate value fluctuations for a representative print over time. The RSR model is advantageous as it derives the index from price relatives of the same print, thereby accounting for differences between prints.

How can an algorithm outperform a human in determining price trends?

Stuart clarifies that this market index serves as a basis to assess a print's value volatility compared to the artist's overall market performance. By factoring in historical sales prices through various rolling 'look-back' periods and 'decay factors,' the algorithm can effectively analyse pertinent price patterns across different time frames for a specific print. Additionally, the algorithm takes into account the relationships between different prints over time, allowing it to consider the behaviours of closely related prints. These fundamental components combine to yield a final value estimate, with several checks and safeguards in place to ensure the logical consistency of the generated output.

In essence, the algorithm is exceptionally sophisticated and incorporates a range of internal checks to guarantee the precision and consistency of its assessments. It surpasses human interpretation for two primary reasons: its ability to rapidly and objectively scrutinise vast volumes of data.

SingularityX and MAB100 Print Market Index

MyArtBroker's most recent breakthrough, the MAB100 print market index, represents a pioneering development in its category. We unveiled this innovative technology in November 2023 with the aim of providing valuable insights for investment decisions within the prints market. This growing market sector witnessed a 14% rise in sales value in 2023, according to ArtTactic. However, the challenge lies in the fact that indices, while utilised for many years, can be just as perplexing to decipher and comprehend as an algorithm. Stuart, the developer behind SingularityX, which drives the MAB100, helps demystify this for us.

What Is An Index?

Stuart starts with explaining the function of financial indices and elaborates that in the context of financial markets, a price index serves as a statistical tool that monitors the performance of a selection of typical stocks or other financial assets over a period. When the combined value of these components increases, the index value rises, and conversely, it falls when their value decreases. This simplifies the dynamics of the market into a single, comprehensible figure, aiding investors and analysts in identifying market trends, assessing investment performance, and making strategic choices. These indices play a crucial role in comprehending market shifts and guiding investment strategies.

The MAB100, on the other hand, monitors the performance of the top 100 artwork prints based on their total auction spending over the preceding five years. The auction sales data used to measure an artworks auction spend is sourced from over 300 auction houses and assumes the print is in excellent condition. Stuart clarifies that on a quarterly basis, the index undergoes a 'rebalancing' process. This involves recalculating the total auction spending over the preceding five years and updating the list of prints included to reflect the latest top 100 artworks based on auction spending. This ensures the MAB100 remains representative of the overall 'blue chip' print market over time.

How Useful Are Financial and Art Indices?

Art price indices have long served as tools for justifying returns, prices, and portfolio diversification within the art market. However, biases and complexities have plagued these indices. Stuart delves into the different methodologies employed in financial and art indices. In the financial sector, various approaches, including 'market-capitalisation weighted,' 'price-weighted, and 'equal-weighted, are common. Each approach carries its own advantages and drawbacks.

In contrast, constructing art indices proves considerably more intricate due to the subjective nature of art as an asset class. Methods used for art indices include repeat sales regression (RSR), hedonic regression, auction sales-based approaches, expert appraisal-based methods, and composite approaches that combine these methods.

Stuart further explains that the art market faces a unique challenge absent in many financial markets: the heterogeneity of individual artworks. Unlike company shares, which are 'fungible' and identical in value and function, each artwork print is distinct, even within the inherent nature of editioned prints. They possess their own ownership history, current condition, and wear-and-tear. The RSR method addresses this heterogeneity by tracking the price changes of repeatedly sold individual artworks, while the hedonic regression method considers various artwork characteristics, such as artist, size, medium, and colour, to estimate their value.

What Are The Problems Of An Index?

In discussing the challenges associated with art indices, Stuart highlights two significant issues: survivorship bias and selection bias.

Selection bias in art indices pertains to the non-random selection of artworks or artists for inclusion in the index. This bias can result from various factors, including a focus on renowned artists, specific art styles, or artworks that are more likely to appear at auctions.

Survivorship bias arises when an index comprises only artworks or artists that have met specific criteria, essentially those that have 'survived' in the market. These criteria often relate to an artwork's enduring popularity, appreciation in value, or frequent trading.

What’s next for MyArtBroker In The World of Art Tech In 2024?

In summary, MyArtBroker remains dedicated to the ongoing fusion of art and technology. We initiated this discussion with our financial expert, Stuart Jamieson, to provide our clients and readers with a comprehensive understanding of our overarching objectives. Our commitment extends to the creation of market reports and the utilisation of our technological tools to bring transparency to the art market. We aim to demonstrate to the art world and collectors, who often operate within the confines of traditional models, the significant strides we have taken in the digital age. Our smart tools and technology can enhance the experience of online art sales. Auction houses continue to offer thrilling and competitive bidding experiences, and they are here to stay. Our intention is not to discredit their value but rather to showcase how technological tools like ours can make art collecting enjoyable and accessible, breaking down barriers in what can sometimes be an intimidating art market.