INVESTING IN ART

Nearly everything we buy loses value, decreases in value.  Even things that have the reputation of increasing in value such as real estate are subject to earthquakes, volcanic eruptions, floods, fires, industrial pollution, jobs disappearing, the neighborhood going down the drain, or people no longer needing to go to an office.  The same is true of stocks and the quantity of companies that unpredictably go out of business, for a zillion reasons.  

Art is perhaps one of these few categories of things that by and large tend to go up in value rather than down.  Perhaps art is more sheltered from dangers and uncertainties than stocks or even real estate.  Maybe not so many things hurt and reduce the value of art, although some do.  Perhaps what makes art valuable in the first place, is mostly insensitive to the passing of time and impervious to the changing of everything else.

This is why some people make it a hobby to invest in art.  There are also investors who make it their main activity, but you need to build up to much more capital to generate enough profits and liquidity to make it your principal source of income.

Historically, a tremendous quantity of art has continuously increased in value.  Of course, it is the consequence of the population explosion and economic boom that have been going on for 175 years and are still in progress today.  

World economy

It will probably be another 100 -125 years before the population explosion is brought under control and with it, the historic economic boom, and art prices stabilize. 

This means that for as long as you live, art values in general, will continue to go up.   

While an art investor is certainly influenced by what he likes and dislikes, he may buy art he has absolutely no appreciation and no respect for, if he comes to believe that it will substantially increase in value.

There is so much art to choose from, the market is so big and diversified, that to maximize his profits the art investor must specialize in particular art categories or groups of artists.  It is only by specializing that he can be and can remain up to date about all the events and factors that will influence what will go up, what will remain stagnant and what will go down.

The first decision about specializing is whether to invest in artists of the past, or in living artists.

ARTISTS OF THE PAST

The artists themselves are not doing anything being that they are no longer living.

The market as a whole moves in reaction to:

• The constant economic fluctuations.  

The market for specific artists moves in reaction to specific events and to occasional trends such as:

• important retrospective exhibitions are organized.

• traveling exhibitions are set in motion.

• movies, documentaries and TV series are released.

• important books are published.

• sales records are broken on the upside.

• sales records are broken on the downside. Such as an important work failing to sell. 

• an important museum or a Country acquires a work by the artist. 

• unknown works by the artist are discovered.

• an important painting is stolen.

• an important stolen painting is recovered.

• surprising forgeries come to light.

• some important new shocking biographical information is disclosed. Whether true or false is irrelevant.  What matters is that it is news.

• A sudden fashion develops for a particular art school.

• The anniversary year of the artist.

• Some famous person reveals he has been collecting the works of this artist for years and absolutely loves him.

• A corporate collection or institution announces it has decided to sell all its extensive collection of works by Blah Blah.

These and other events, trigger the press to write and talk about the artist. It puts the artist in the news, and to be in the news is to be more important, and to be more important is to sell for more or sometimes for less. It creates market activity, price swings, and investment or selling opportunities.

This is why the art investor -like the stock market investor- keeps track of all the events that influence value. 

One of the benefits of dealing with art of the past is that you know your parents liked it, your grand parents liked it, your great-grand-parents liked it, maybe the last 16 generations liked it.  It means people like it.  It’s called passing the test of time.

This is why the art was always protected, always packed carefully, always transported carefully, always stored and hidden carefully, always displayed carefully, because everyone for generations has always seen and felt the quality, the skill, the beauty in it.

This is why it has made it through the generations, the wars, the depressions.  

This is why it is still here, for you to enjoy it, because everyone before you saw its quality, its artistic value.  

Of course, it is what gave it its financial value, as more wished to own it for a while.

So, it will always be valuable, even though markets fluctuate because it is great art.  Art that touched all those who enjoyed it, for an eternal minute.

LIVING ARTISTS

The investor who wants to invest his money with living artists should not try to pick artists and should not look at their creations.  This would be a money losing approach.

The smart way, the advanced and successful way, is to invest with the most successful dealers, the most successful art galleries. 

When you read that one of the most successful dealers has just signed up a new artist, run to the gallery and buy art from this guy.  Even if you are not sure how to spell his name.

The investor in living artists has some powerful allies and the most important one is the main dealer representing the artist.  Most artists are incapable of making themselves successful.  They are not businesspeople.  They are not marketing people.  This is particularly true since the advent of the Modern era, around 1870, and the birth of Impressionism.  By and large, for most artists, their dealers make them famous and rich.  The dealers give these artists room in their impossibly expensive art galleries, organize exhibitions, participate in costly art shows, publish glossy catalogues, fancy websites, and organize the cocktails, receptions, and champagne vernissages.

The dealers convince their established clients to buy works by these new artists. 

The dealers talk to the art critics and convince them to write favorable reviews.

The dealers pay for advertisements in art periodicals.

The dealers, the dealers, the dealers.  They are the ones who take a nobody and promote him as if he were the second coming.

The success of investing in living artists comes from investing in the dealers who are promoting and pushing and advertising these artists.

This is why it is entirely different to invest in artists-of-the-past, or in what could be called, dealer-promoted-art.

With living artists, it usually takes a few years for values to increase substantially, and the typical holding periods are from two to five years.  

As compared to other forms of investment, the cost of trading art is high.   It is far more than for stocks, bonds, commodities, precious metals, molasses, racehorses, or real estate.  This is why the holding period is longer.  There must be enough increase in value to absorb the buying and selling margins, before a profit can be cashed in.

In terms of how much one can profit from investing in art, it is generally with the dealers who have a reputation for finding and promoting new talent, that values can skyrocket from the pittance level to dizzying heights. 

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