Sculptures versus paintings. Contemporary versus Renaissance. Oils versus pastels. The art world is a diverse place, filled with an endless number of fine works to meet anyone’s taste. Investing in art is an endeavor that can be fulfilling and profitable, but one that should be approached with caution and a thorough understanding of the elements.
“Art as an asset class is very different from traditional markets, like the stock and bond market,” says Moneta Group principal Jim Blair. “Art isn’t valued as efficiently or as easily because there’s a component of personal taste and preference, and a person looking at art as an investment needs to be aware of that.”
That personal taste is the first consideration one should use when looking to invest in art, advises Kodner Gallery co-owner David Kodner. “You should buy something you love, with the idea that you’re going to enjoy it for many years and maybe even pass it down for generations to come.”
Beyond the aesthetic value, people should carefully choose pieces that have the best chance of retaining or increasing in price over time. “With art, the inherent value is, what is the next person willing to pay?” Blair explains.
Many factors go into determining what artwork may be ideal to invest in, including period, style, condition and historical importance, Kodner says. “The tested artists who have proven themselves through the years seem to always hold their value. There are so many variables that go into what is going to be more in demand, but quality is the most important.”
When a person is in the financial position to invest in art, both Blair and Kodner recommend using a reliable dealer to avoid the pitfalls of fraud and counterfeiting that occurs in the industry. “You should have someone who is trustworthy and knowledgeable to guide you,” Kodner says. “They should not only have a keen eye, but also be aware of the ins and outs of the market.”
Due to the current economy, now may be a good time to find deals on certain works. “It’s just like the stock market. When the economy is soft and people are in financial trouble, they may sell art cheaper than usual, and it can be an opportunity to get a good bargain,” Blair notes.
However, Bill Carey, president/CIO of Cortland Associates, warns that art investment can be rather difficult for individuals. “The transaction costs for buying and selling art can be very high for most people, so even if the art appreciates, capturing that value is not as easy as they may think,” says Carey, who also is president of Xiling Group, a private Chinese art investment fund.
Carey also cautions against analyzing the value of a work by using a ‘survivor bias’ to look backward at other pieces that have appreciated in the past. “Instead of looking at a cross-section of art, they’re looking at what the winners did without realizing that it is an extremely small group out of a longerterm basis.”
To have the best chance at return on investment, Kodner recommends selling through a private gallery, instead of chancing the loss of value by using the Internet or a public sale. “The art market is a very close-knit group, so the risk of overexposure is great if you shop the piece around too much.”
While art has the potential to be a good diversification for investors, the final variable still comes back to the personal impact the work has on the individual. “It can become a passion for art collectors to make purchases that they think will prove to be good investments, but in the interim, they enjoy the art.” Blair says. “I don’t think anyone enjoys looking at their Apple stock, but most people enjoy looking at the art they own.”