“All those $40 million Warhols were just $300 and $500 once.” (Forbes)
Not everyone buys art for the beauty that it offers. More and more people chose to acquire pieces of art as a form of investment. In this article I offer you a few beginners tips taken from publications of the Financial Times, Forbes, J.P. Morgan Chase, Stanford Graduate School of Business and a modern UK-US artist Lisa Cirenza.
1. Why should you consider investing in Art?
JP Morgan Chase: Art has long been considered an investment of passion, one that not only offers aesthetic pleasure but the potential for economic benefit. Art provides collectors with social status and prestige — an outlet to signal their wealth or lifestyle to others. There are also the philanthropic benefits of purchasing art, from financing up-and-coming artists to building a collection to preserve cultural heritage. The obvious monetary benefit is the opportunity to gain a return on investment, though investors also recognize art as a way to store value, to hedge inflation and to diversify their portfolio allocation.
2. Can’t afford to invest millions?
Financial Times: Certainly not everyone can buy Monet, Green or alike artists. Therefore, you might consider investing in modern art as an alternative. Take a look at auction houses, such as Christie’s and Sotheby’s, for their list of upcoming auctions. However, it is important to remember that although modern art can make you huge returns to the investments, the market is the most volatile and therefore you might end up not getting anything in return.
Forbes: A massive amount of artworks sold in the primary market will never be sold again. But many will. And while the chances that your own discovery of a new artist will prove financially rewarding may be smaller than the chance of an increase in value of a Picasso drawing, the cost of a work by a young artist is also a small fraction of the cost of said Picasso; in other words, you are intrinsically buying low.
3. Where should you start if I want to invest in modern art? Advice from Lisa Cirenza, a recognized modern artist:
Lisa Cirenza: First off, enjoy the process. Enjoy the process of exploring art, and getting to know some of the artists you might be interested in. If you get to know the artist, the depth of enjoying their work can increase exponentially. There’s a plethora of artist led fairs these days where emerging artists are keen to share there work, ideas and processes with the public. Some, like The Other Art Fair in London, have over 13,000 visitors, with food and live events. Sign up to gallery email lists so you get invited to private views. Artists are usually present at these and again keen to discuss and share their work. Artists can also be better understood through their blogs, twitter feeds, and websites. Don’t just buy art because someone told you to, or because it looks good over your sofa, or as a tax write-off—buy it because it makes you think, or because it makes you relax, or feel something other than the ordinary day to day “blah blah blah…” If you love the art you buy, you’ll get something back from it everyday it’s with you, and chances are it’ll be worth a lot more should you choose to sell it, as that intrinsic value will still be part of it years later (even when the colours of sofas change, and the tax laws change!)
4. How long should you wait before you sell?
Financial Times: Mohammad Kamal Syed, head of strategic solutions at Coutts, the private bank, recommends holding on to art investments for a minimum of five years.
5. How much can I make if I invest in art?
Financial Times: It is an illiquid investment and prices can go down as well as up. There are a number of art indices, such as Mei Moses and the Art Market Research, but it remains hard to accurately measure the market because as much as 60 per cent of art is estimated to be traded privately, which makes it harder for indices to paint the real picture of returns.
6. Other things to consider:
Financial Times: Don’t’ forget to thing about insurance premiums and cost of storing the artwork. Also, when buying artwork as an investment, it needs to be kept in pristine condition. One way of doing this is by placing it in storage. Experts say it worth checking regularly that the conditions of storage are appropriate as disasters can strike.
Forbes suggests to diversify your investment: “As Bocart pointed out, a drop in the value of Warhols may pave the way for a drop in value of Basquiats. It may or may not lead to a drop in the value of, say, works by Minimalists like Sol LeWitt or Abstract Expressionists like Jackson Pollock. It will certainly not affect the values of Renaissance Masters. For this reason, diversification is key. Diversification can also mean moving beyond fine art into decorative art. Philip Hoffman has made investments into Chinese porcelain, for instance, that have served his clients well.”
Stanford Business School (): “Research we completed recently and presented in August 2013 at the European Finance Association conference shows investors would be wise to be wary. The returns of fine art have been significantly overestimated, and the risk, underestimated. Our research, based on the most complete auction database, BASI (Blouin Art Sales Index) shows the true annual return of art as an asset class over 1972 to 2010 was closer to 6.5%, instead of the 10% that the index shows. Moreover, holding an art fund in your portfolio does not increase the chances that the portfolio will outperform. The underlying cause of the overestimation of returns (and an accompanying underestimation of risk) is what is known as selection bias.”
8. Final Remarks:
Forbes: Bocart notes that one can always “invest confidently in art, because an artwork will never be bankrupt.” My own advice to collectors is this: if you love it, buy it. If you choose well, one day you will be able to sell it for a profit. And if you choose very well, you won’t want to.