Jake Lazarus had money to burn during the pandemic. The 24-year-old, from Radlett in Hertfordshire, says he sold three start-ups between 2016 and 2019, generating a seven-figure sum, and now ploughs money into other start-ups, many of them in the music industry, where he runs a streaming service. Then he saw an opportunity in a new kind of art: digital-only animation. He and two other investors clubbed together to spend £125,595 on more than 20 copies of the same animation of the planet Mars by Grimes, the artist and singer, and girlfriend of Elon Musk, Tesla’s founder.
They could not buy the art itself because it doesn’t exist in a physical form. Instead, they bought the slices of data on which it is located on blockchain — a virtual ledger run by thousands of computers around the world — called non-fungible tokens (NFTs), which prove their ownership.
Lazarus and his friends didn’t particularly want to keep Grimes’s animation: 32 seconds of a peculiar cherubic alien brandishing a weapon while floating above the red planet to a backdrop of eerie music. Because the artworks were a limited edition, they believed they might make money by selling on the 23 copies.
NFTs are among the unusual trophy purchases and investments being made by those who have found themselves swimming in cash in the pandemic. While the coronavirus has taken a financial toll on many workers and businesses, an estimated 7.5 million adults in the UK have made money, according to the Financial Conduct Authority, the City regulator. The Bank of England estimates these savers put £140 billion into bank accounts last year, with much of it earning almost no interest and many savers desperate to invest their cash.
Those who benefited range from white-collar workers — for whom commuting costs disappeared and their usual spending on restaurants, holidays, the theatre or gym could be saved — to the owners, many in their twenties, of digital start-ups whose value has rocketed as the UK lived, learnt and shopped online. Spurred by low interest rates and with billions pumped into economies by governments, stock markets have been flying.
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The extremely rich are getting even richer. Forbes’s annual billionaires list, released last week, found the total wealth of the world’s richest increased by more than $5 trillion (£3.64 trillion) during the pandemic, with a record-breaking 2,755 billionaires — 493 more than last year.
This collision of free time and free money is producing a spree of spending and innovative — some might say dodgy — investing which experts believe is creating a bubble that could be devastating for some when it bursts. As Rebecca O’Connor, of the wealth platform Interactive Investor, says: “There is a danger of this being a classic bubble — the frenzied behaviour and the fear of missing out, which typically happens towards the end of one of these cycles. The thing about bubbles is you never know you’re in one until it bursts.”
Over the past year vintage cars, art, watches, boats, houses and handbags have been flying off the shelves, all seen as investment opportunities. But the definition of “investment” is expanding.
Joe Franklin, 18, a British college dropout, says he makes between £5,000 and £20,000 a week buying and reselling trainers to clients including the rappers Dizzee Rascal and M Huncho. He started while at school and does it for a living, launching his 5upplied business in 2018 and working from a studio in Shoreditch, east London. He sold a pair of Back to the Future Nike Air Mags that lace themselves for £62,000 in 2019 after flying to Los Angeles to buy them from a collector for £45,000. During lockdown, sales of his most exclusive trainers have soared, with orders from Dubai and Russia.
“People that are dropping £20,000, £30,000, £40,000 on trainers have not been affected by the pandemic — in fact, they’ve benefited from it,” Franklin says. “I have sold more exclusive trainers this year than ever before because they are sitting around and have all this free time.”
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The global resale market in trainers has been valued at $1 billion. An autographed pair of Michael Jordan’s basketball shoes sold for $560,000 last year. Footwear companies are cashing in by limiting the supply of sought-after models. Adidas produces only 40,000 pairs at a time of its Kanye West Yeezy range.
The American investment bank Cowen describes trainers as “an emerging alternative asset class”. “Flipping” trainers, where you buy and then sell them on, is an industry that has the potential to reach $30 billion in value globally by 2030, Cowen estimates.
Then there are designer handbags. Knight Frank, which monitors luxury assets, says that the value of Hermès handbags rose by 17 per cent last year (the FTSE-100 index fell by 14.3 per cent in the same period). A Hermès Himalaya Kelly bag made of crocodile hide was bought at a Christie’s sale in Hong Kong for $437,330 in November.
Other investors — particularly baby boomer and Generation X executives — have piled into the classic car market, with prices for the best rising and cheap loans of up to £4 million available. Tom Senior, director of classic car finance at Cambridge & Counties Bank, says applications have risen sharply. “Covid has probably focused most people’s minds so they think: ‘Life is too short to put off something I have been wanting to do for years.’” His bank has lent £750,000 to a customer buying a 1933 Alfa Romeo 8C Touring, £350,000 towards a 1966 Aston Martin DB6 and £600,000 for a 1960s Shelby Mustang GT500. The Brazilian jet-maker Embraer and Porsche are creating matching private business jets and supercars. Just ten pairs will be made of the Phenom 300E aircraft and Porsche 911 Turbo S. Which is a slightly more exciting investment than a stocks and shares ISA.
And then there’s good old bricks and mortar. Rich buyers are falling over themselves to outbid each other for the most expensive second, third and fourth homes in exclusive roads, from Surrey to Hampstead. Some were encouraged by Rishi Sunak’s stamp duty holiday on the first £500,000 of a property price (this will fall to £250,000 on July 1). Others were simply bored and saving vast amounts of cash.
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Trevor Abrahmsohn, founder of Glentree estate agents near Hampstead in north London, says that while international buyers have not been able to fly in to see properties, wealthy Britons are snapping up many of the properties they would have bought. In one road, Compton Avenue in Highgate, four properties have been sold in six months with prices up to £11 million. “Last March, we thought it would be the end of the world as we know it. We were cutting expenses with a knife,” he says. “Then, suddenly, everyone came out to play.”
Coutts, the Queen’s bank and a famously conservative institution, has reported a flurry of clients demanding opportunities outside the stock market. “They say: ‘I was chatting to my friend on the golf course and he knows a guy who knows a guy who owns this small Bolivian gold mine operator, and how do I access this stock,’” Natalie Merrens, its head of client investment management, says. “He has no knowledge, he has done no due diligence. He has just heard that it’s a good buy right now.”
This all adds up to classic top-of-the-market behaviour. So are we in a bubble that is dangerously close to bursting? Andrew Shirley, editor of the Knight Frank wealth report, suspects NFTs, for example, will end up being “a real-life version of the emperor’s new clothes”, saying: “It’s very difficult to put a meaningful figure on the value of NFTs. To a degree, there will never be one — because they don’t exist.”
The rising stock market and a flurry of fashionable flotations have led many of the young cash-rich to take a punt on shares for the first time, spurred on by stock tips on TikTok and Instagram, as well as forums such as Reddit.
Merrens suggests many are throwing away their money on get-rich-quick schemes. She says trading patterns have become bizarre. “You can’t necessarily tell whether that stock that fell 10 per cent yesterday and is bouncing 12 per cent today is bouncing on real, fundamental analysis or whether it’s bouncing on something that has been said on Reddit.”
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Jason Hollands, a wealth manager at Tilney, says those using social media to make stock market investments they do not properly understand face a rude awakening as the economy changes after the pandemic. “There is no doubt in my mind that younger, less experienced investors are being too sanguine about risk,” he says.
If governments are going to continue to offer bailouts and interest rates remain low, what could cause all this to end? Hollands believes the threat of inflation, as we all start spending when lockdowns end, could prove a nasty wake-up call to millions of people. He says: “A new generation of investors who went chasing fast returns might be left in a position where they are backing loss-making companies.”
For Jake Lazarus, this particular investment spree went wrong. Having sold three of his Grimes animations at £6,179 each, he and his fellow investors were stuck with the rest at a loss of £107,058.
He says he’ll hold them for now and see if they grow in value. “It’s the worst investment decision I’ve ever made,” says the entrepreneur, who last May launched a streaming service called Keakie that has 400,000 listeners. “But it’s a good anecdote.”
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