When we think of investments, we seldom think of investing in Art. Yet, collecting good artworks is big business in this part of the world as witness this.
I have been invited to the cocktails of Opera Gallery exhibiting Art Beyond Limits. Judging from the number of connoisseurs that frequent their cocktails and exhibitions, it speaks volumes about buying art as an investment.
Rating art pieces or masterpieces by their sales prices may be beside the point. Nobody would pay $10 million for a painting for economic reasons. Collectors like Lauder buy paintings for prestige, status, ego, or a passion for collecting. Lauder has spent huge sums of the family’s fortune devoted to Austrian (eg Klimt)and German art.
In fact, two professors at New York University’s Stern School of Business, Michael Moses and Jiangping Mei, have been compiling data that allows them to track the long-term performance of fine art. The result is the Mei Moses Fine Art Index.
The median size of recent transactions charted is about $200,000 or $300,000. Over the last 50 years or so, stocks represented by the S&P 500 returned 10.9 percent annually, while the art index returned 10.5 percent per annum. In the five years between 2001 and 2005, art trounced stocks. Across categories, masterpieces like the Klimt that Lauder bought tend to underperform lower-priced paintings by a substantial margin.
Why so? Like blue-chip stocks, well-known paintings by blue-chip artists are known quantities and offer safety and stability. As with stocks, the greatest opportunity for growth in art values comes when investors focus their attention on a hot new name.
Art is far less liquid than stocks. Moses found that fine art actually has a very low correlation with stocks and a negative correlation with bonds. “In some sense, it’s a good portfolio diversifier,” says Moses.
Much of the satisfaction of buying art is being able to hang it on your wall and show it off. Someone who is willing to commit a few hundred thousand dollars to art would probably be more likely to go buy paintings at Christie’s than invest in a private equity fund that buys paintings at Christie’s.
It is ironical that in the art world, artists rarely benefit as the value of their work appreciates over time. But one art fund is aiming to change that. Artists who join the Artist Pension Trust pool their pieces with those of other artists and then receive a stream of income down the road as the trust sells their pieces.
Speaking for myself, yes, I have collected some paintings and sculptures too, although I have painted my own pieces mainly for own consumption, and donated a few for fund-raising events.
CONCLUSION: the best way to make money on art as an investment may be to give it away.
Idkit aka Ana