Value Investing in the Third Reich

“ What you are seeing here are the crippled products of madness, impertinence, and lack of talent”
Adolf Ziegler (‘Degenerate Art Exhibition’ Curator)

All great things must come to an end, and after almost a decade, it seems more likely that we are nearer the end of the longest bull market in history than the beginning. It is in these latter stages of a bull market that humans are most susceptible to the behavioral biases that have plagued mankind for centuries.

Growth stocks have outperformed their value peers in ten out of the last eleven years, prompting headlines like ‘Is Value Investing Dead?’. When returns are good, it is easy to get swept up in the exciting narratives behind growth stocks, particularly when it’s repeated every day in financial news outlets.

Unfortunately, however, investors have an exceptionally poor track record realizing they have been swept up by the market. The chart below demonstrates how confident investors felt about future returns just before the Great Financial Crisis sunk the market.

As the tech sector and other growth stocks have soared, their value peers in more ‘boring’ sectors like Consumer Staples, and Utilities, have been discarded. However, the market’s attitude toward these value stocks is not indicative of the underlying company’s quality. In fact, value investing persists entirely because humans ignore the ‘boring’, but high quality businesses.

Investing is quite similar to art. Both fields require patience, discipline, and attention to detail. Additionally, the value of an asset in both disciplines is the subject of many commentators. However, there are numerous examples where these analyses are incorrect, and present an opportunity for profits.


During the Second World War, the Nazi regime looted approximately 20% of Europe’s art. Herman Göring, Hitler’s right hand man, managed to obtain an astounding 1,800 paintings and sculptures during the war. Adolf Hitler even had aspirations to become an artist himself, but was twice rejected by the Academy of Fine Arts in Vienna.

Hitler and Göring admiring their looted artwork

Hitler’s passion for art, coupled with his possible grudge against the artistic elite that rejected him, led to the cleansing of “degenerate” artwork from the Third Reich. This “degenerate” classification primarily consisted of pieces by Jewish artists, liberal thinkers, and anyone that did not adhere to the Nazi philosophy. However, some of the “degenerate” art was the work of renowned artists like van Gogh, Matisse, Monet, and Picasso.

Both at the time, and still today, the notion that paintings by Picasso and van Gogh are “degenerate” is ludicrous. In the 21st century alone, two Picasso paintings have sold for $104.1 million, and $106.5 million. However, Hitler’s proclamation that their paintings were worthless, provided buyers an opportunity to acquire incredibly valuable artwork at extraordinarily cheap prices.

The exact same principle applies to value investing. Whether it be due to an overreaction to short-term news, ignoring ‘boring’ companies, or individual biases, investors repeatedly undervalue and sell-off quality companies. Consequently, disciplined investors are able to purchase the company’s shares at a discount.

An investor’s opinion of a company does not change its intrinsic value, yet many seem to think that the opposite is true. If you believe that van Gogh’s paintings are hideous, though, do they become any less valuable on the art market?


The categorization of “degenerate” artwork under Nazi rule engendered an attractive value play for savvy investors. The Lucerne auction in 1938 provides a standout example of the incredible opportunity, as paintings by van Gogh, Picasso, Klee, Matisse, and Braque were sold for as low as $100.

Hildebrand Gurlitt was one of the four art dealers approved by Hitler to handle the Nazi’s collection, and he took full advantage of the situation. Gurlitt purchased hundreds of “degenerate” paintings for next to nothing, and later sold them at a large profit. In one example, Gurlitt paid just 125 Reichsmarks for an Adolph Menzel drawing, which was substantially below its market value. In January 2017, a similar Menzel drawing sold for $187,000 at Christie’s.

Historian Kim Oosterlink, compiled price indices for both “degenerate”, and “non-degenerate” artwork in France during the Nazi occupation. Interestingly, the best return in terms of lowest price to highest, were the “degenerate” pieces from 1939–1943.

It pays to be a degenerate

Although the word “degenerate” is too harsh a term for value stocks, the same underlying principles apply. In both scenarios, an asset’s price has been heavily influenced by the opinions and biases of humans, rather than its intrinsic worth.

Investors rely too heavily on the narrative behind their investments, positive or negative.

Different factors determine what are considered “degenerate” and “non-degenerate” investments, but the classification appears to have little correlation with the value or quality of the underlying asset.

Investors should remember that just because a stock has been written off by the market, it is no less valuable. In fact, there is usually a great investment to be made. The trick, however, is overcoming behavioral biases to discover these opportunities.