Investing in Art

Nikos Hatzikiriakos - Ghikas (1906 - 1994)
Nikos Hatzikiriakos - Ghikas (1906 - 1994)

Many investors are art lovers, own collections or investing in art and are actively buying and selling in the art markets all over the world.

Art and Economic Performance

Through the centuries, many investors have chosen to invest a good part of their wealth in art and other collectibles.

Nikos Hatzikiriakos – Ghikas (1906 – 1994)

Although, putting money into art may not be as straightforward as investing in bonds or equities, the art market is attracting increasing interest.

As a result, we are now seeing a lot more new and old investors that are looking to put their money at art.

The growth of the art market has gone hand in hand with the great wealth creation of the past decade.

Many more investors and art lovers are entering the market and many of them are getting heavily involved in the art market for the very first time.

Only until recently there has been little economic research into the performance of art as an asset class. But with growing interest, this is now changing.

Many financial institutions are now building large databases that cover many segments of the art market ranging from furniture to prehistoric antiquities.

The art market is too fragmented to draw definite conclusions about the overall performance of the entire asset class relative to other markets.

Cycles in the art market are not necessarily linked to those of other asset classes and there is no correlation between art prices and the equity markets, just as there is little correlation between different categories within the art market.

This might make art a good choice for investors that want to diversify their portfolios. It’s true that some staggering returns can be made when art-work goes up i.e. 300%, but generally that is not the case.

Art really shouldn’t be treated solely as another asset class since its value is subjective!

However, there are opportunities where an artist’s work is undervalued and prospective art investors can spot some of the trends.

Contemporary art and old masters, for example, have realized high prices at auction for the past few years, but investment in art should not be solely financially motivated!

Art is certainly a growing asset class, to use financial language, but it is never going to be just about the numbers.

Art speaks a very different language …

A very subjective and unique language!

In the colorful world of art, the business of investing is black and white.

You buy a piece of artwork, and hope the artist’s work goes up in value …

Experts say you might not need to wait long. It can even happen within hours of your purchase!

Trading in art is similar in some ways to dealing in other commodities — it is subject to the market pressures of supply and demand.

But art prices vary with other, sometimes arbitrary, factors — including aesthetics, authenticity, condition, rarity and provenance.

To invest wisely in art you must have both good taste and business sense. Investing in art is investing in your own aesthetic.

You have to want to live with the artwork, but you also have to educate yourself on the business end of it.

Collecting art can be one of the most enjoyable ways to spend your money. An engaging work can provide its owner with a lifetime of visual pleasure — and then fetch cash!

As with any other field, you must do your homework before investing. Art’s unpredictable value makes it as easy to lose as to profit.

The art world is far less regulated than are investment in securities and real estate, so there is often no resource in the event of misrepresentation.

The investor is very much on his own to perform appropriate “due diligence.”

When people think about buying art, they might be initially turned off because they think it is such a pricey investment. This is true at the high end:

How many of us can buy a Renoir for $50 million? The key to art-investing success, experts say, is to find a lesser-known artist and invest early.

Like any investment, art is a gamble, so do your research ...

Buy what you love, because even though it might go through a transitory devaluation, the intrinsic value of the work will always be there!