Investing In Art

Investing In Art

«It is only an auctioneer who can equally and impartially admire all schools of art» - Oscar Wilde.

Wilde's aphorism reminds us that although we usually acquire art to brighten up our lives, there is an industry out there for which creativity is a commodity to be traded like coffee or oil. Whatever our feelings on the matter, most of us would be proud to have spotted the potential for financial gain in a Turner or a Picasso. If only my grandfather had been friends with Vincent Van Gogh ...

If you're one of the Super-Rich
van Gogh
At first sight, the gains can be impressive, for example between 1976 and 2002, the top 2 percent of the art market outperformed various stock indices in the US:

Art Top 2% 11.3%
S&P 500     8.4%
Dow Jones   8.5%

(Sources: Art Market Research and Bloomberg)

So $1m invested in art over the period could have become $16m whereas the same $1m invested in the stock market would have become a paltry $8m. This is fine for the super-rich who can afford to buy into the top 2 percent of the art market but what about the other 99.999...0f us?

If you're Really Quite Rich

If you are somewhat risk-averse or feel you don't have enough expertise to manage your own portfolio, you could consider an art fund - a sort of unit trust of art rather than shares. In the UK an investment vehicle - the Fine Art Fund - was set up in 2004 and has shown some impressive gains. However, this fund is typically for wealthy investors with a minimum stake well into the six figure region. Cold comfort for the prospective small investor.


The Rest of Us

Art for investment's sake (Ars Gratia Pecuniae) is a very risky business. If you are happy with risk then you really need to understand what you're getting into. The maxim that you should never invest more than you can afford to lose is at least as true here as for any other type of speculation.

Many factors affect the price of art, these include:

  • the artist and his/her reputation;
  • art world fads and fashions;
  • the quality of the work compared to others by the same artist;
  • the subject matter of the work;
  • the medium in which the work is executed
  • the physical size of the work;
One strategy might be to look for a good self publicist. Many artists and their agents try to get a 'buzz' going in the art world, perhaps by being provocative or outrageous. It's a trick that's widely used in other arts-related industries and, astonishingly, it still seems to work. Salvador Dali was a great self publicist, with his waxed moustache and pretty female companions dressed in complementary colours he exuded the air of a Bohemian. His obscurantist exclamations only made him seem more mysterious and interesting.

Be warned however that reputations can be broken overnight. A recent example is that of Mark Kostabi whose work was collected by Sylvester Stallone amongst others and whose prices were in the $10K plus region. An unfortunate non-PC remark made to Vanity Fair back in 1989 (about gay museum curators who controlled the art world dying from AIDS) led to his ostracism by some of those curators (the ones who survived) and a collapse in price. You may take the view that these things will pass and Kostabi's work is worth investing in, or you may decide to look elsewhere.

Be sure that you know in which direction the market is moving; what is becoming fashionable; what is dropping back. For example, according to Forbes Index, French Impressionist paintings fell badly towards the end of the nineties, but recovered strongly in the first couple of years of this century. It's easy to get stuck with a piece for a long time while fashion rotates beneath it. (Personally, I wouldn't have a problem being stuck with a Renoir).

Paradoxically, the physical characteristics of a painting seem to carry less weight. Oils have been traditionally considered to be more permanent than watercolours and so are generally more highly valued. Oils and acrylics can be applied impasto (i.e. thickly!) and so are less likely to be affected by poor display conditions like bright light. In general larger works are more difficult to execute and so command higher prices. An overly large size restricts the market for the piece but for the right artist that could include the wealthier end: institutional and corporate buyers, and rich private individuals.

People tend to buy into their own culture when they can. As economies grow and people get a higher disposable income, they begin to patronise local art producers. Art experts are watching China and India whose quota of wealthy art patrons is growing along with their economic wealth.

Art Market Research
John Singer Sargent - Carnation, Lily, Lily, Rose (1885-6)
The successful art investor, like Wilde's auctioneer, must divorce his or her personal likes and dislikes from his business sense. Market research and 'insider' knowledge are critical.
Buying art is easy. Selling art is hard. The investor must know what to sell, who to sell to, and when to sell.

It can take a while to turn over works of art so the investor must budget for increased insurance premiums and perhaps, additional security measures. Comprehensive research is essential before investing.

Some research resources:

  • The Forbes Index compares various types of art in relation to the S&P 500 index.
  • The Mei/Moses index is perhaps more up to date and authoritative but requires registration.
  • Website Artnet offers market trends analyses, a price database and a valuation service.

Caveat Emptor

The foregoing is only a rough guide to the sort of considerations art investors must make and live with. It does not constitute advice or recommendations. All investors are responsible for their own decisions in that it is the investor and no one else who benefits or loses.

My personal opinion? Art is for pleasure, enlightenment, the satisfaction of owning something completely unique. If you like a work, buy it and enjoy it. Don't pay over the odds and don't lose sleep over it. Who knows? - you might just pick a winner.
 
by The Impressionist on Sun, 24 Sep 2006, 11:20
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