Art investment is no longer the domain of eccentric art aficionados or connoisseurs of fine art. Nowadays, it’s easier than ever to use it as a way to diversify investments.
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Before you learn how to invest in art, you need to understand the opportunities presented by art to discerning investors.
Andy Warhol famously said that making money is art. While this statement is profoundly true, the opposite is also exceedingly relevant these days. Art makes for an aesthetically pleasing and beautiful investment strategy.
According to the Deloitte Art and Finance Report 2017, 88% of wealth managers advised apportioning a part of their investment portfolio towards art.
Art investment is no longer the domain of eccentric Warhol aficionados or connoisseurs of fine art. Instead, it is now seen as a serious mainstream strategy to diversify investment.
Art is a significant investment class, which is highly uncorrelated to other asset classes. Such uncorrelated categories in an investment portfolio can offset potential losses and generate good returns, as indicated by the performance of the art market in 2018. During the same period, other conventional markets floundered. Therefore, savvy investors are turning towards art to amplify their returns and safeguard their portfolio in the long run.
Art investment is becoming more critical than ever before since it is a viable choice for diversification. To maintain the financial strength of an investment portfolio during times of economic uncertainty, it is crucial to have asset classes at hand, which move independently of one another.
A statistical correlation of 0 implies that an asset class is uncorrelated to another asset category. +1 suggests a positive correlation, while -1 indicates the perfect inverse relation. Spaenjers and Renneboog found in their study that the correlation coefficient for the art market and the S&P 500 stood at just +0.03, while the correlation for art and the global stock market was +0.2. These figures imply that art investment constitutes a feasible and pragmatic diversification strategy.
The Wall Street Journal declared art to be the best investment class in 2018. The art market performed far better than other markets during 2018, as evidenced by the numbers. Blue-chip artwork posted an average gain of 10.6%, whereas the S&P 500 securities fell by 5.1% on average during the same period. What makes this feat remarkable is that 2018 was an exceedingly difficult year during which several markets declined, including gold.
How resilient is high-end art as compared to stocks? What are the prior precedents to gauge its tenacity in the face of catastrophic economic collapses? The 2008 financial recession will serve as a suitable case study.
While the financial markets plummeted in 2007 and 2008, the art market touched new heights. During 2005, approximately $630 million were spent in the high-end art market for paintings worth over $5 million–termed “masterpieces” for convenience. During the economic recession of 2007-2008, the demand for masterpieces shot to an incredible $2.2 billion. Money flowing into arts had almost quadrupled during one of the toughest financial downturns in history.
The art market then cooled considerably when stock prices stabilized. In 2009, masterpiece sales fell to just $625 million. This brought the high-end art market at par with the 2005 conditions.
And how did the financial market fare during this period? Stocks fell to the trading levels of the early ’90s–a staggering setback. Therefore, the art market displayed enduring resilience during highly austere circumstances.
How has the high-end art market performed since then? The rebound has been spectacular.
By 2015, the masterpiece art market burgeoned to an unprecedented $4.2 billion. It had reached almost twice its previous 2008-record value. The results for other art market segments and collectibles have been relatively mixed so far. But one thing is for sure. Elite art is in a league of its own with market performance.
There is no better investment class than the masterpiece market. Art has distinguished itself as a relatively safe and lucrative haven for investment. Affluent patrons have staunchly championed the Blue-chip art market over the years, which is one of the primary factors behind its growth. With such resolute support and sustained enthusiasm from ultra-high-net-worth individuals, it appears unlikely that the demand for art will drop in the long term.
How much of your investment portfolio should be dedicated to fine art? Professor Michael Moses states that, depending on your risk tolerance, a fair proportion would be in the range between 10% to 20%. Besides enhancing your portfolio, this can mitigate risks.
High-quality art collectibles are fetching astoundingly reasonable prices. For instance, John Manier, an Irish horse breeder, sold an Amedeo Modigliani masterpiece for $157 million at a Sotheby’s auction. He had purchased the painting for $26.9 million at a Christie’s auction.
“Interchange,” an abstract art painting by Willem De Kooning was sold for only $4,000 in 1955 to Edgar Kaufmann. Shigeki Kameyama bought the painting for $20.7 million, which was a record amount for a living artist. It was then purchased by investment billionaire Ken Griffin for $300 million in 2015.
Investing in art is unsurprisingly an art. Art investment can be challenging since it is highly illiquid. Tastes can also change rapidly. Therefore, follow a solid strategy for opulent art investment.
Rapid changes have taken place over the past two decades. The advent and proliferation of the internet have increased competition between art collectors. Ultra-high-net-worth art enthusiasts are now bidding extravagantly from all over the world. This means you have a dramatically reduced time at your disposal to make an informed decision. For instance, at leading art fairs, you have an hour to decide if you want to pay extravagant sums amounting to millions of dollars on a painting.
What to Check Before Investing in Art
Utilize the internet to do research on the artist and investigate past auctions. If their previous artwork has appreciated considerably over the years, then there is a reasonable probability of success on your investment. But what if the artist is relatively new without a significant history? If their work has been purchased by reputable art galleries or displayed in well-known museums, then the likelihood of appreciation is high.
Many novices mistakenly believe that authentic art is always valuable. This is not true. Unfortunately, cruise auctions target novice art investors who say that authenticity equals high future value. As the name implies, cruise auctions are art auctions conducted on cruise ships.
Neophytes who board cruise auctions are immediately met with valuable looking certificates of authenticity and inflated appraisals. These do not guarantee the value of a painting.
What to Look for When Buying Art
Rarity – the Key Criterion
Another principle in the realm of art, which can hardly be overemphasized, is a rarity. Rare art equals valuable art. Rareness is the prime factor that bestows excellent value to art pieces. Precious commodities are invaluable anywhere–nowhere is it more real than art. So before impulsively making a purchase, you must do your research to investigate how rare the painting in question is.
You must exercise due diligence to discover facts about the rarity of the artwork you are interested in. Conduct research on the artist and discover the history of similar artwork. If similar artwork has sold well, then you may have a good deal on your hands. You can even go to eBay to discover the prices of representative samples. Websites, such as artfact.com elucidate facts about specific artwork categories and their history.
If you are a new investor, you can start by investing in art posters. Posters are reproductions of a masterpiece. However, they do not have the qualities of the fine art print, which is often available in block prints, lithographs or hand-pulled silkscreens. Posters are different from the original. Hence, they will not bring a high amount of future value. However, they cost less and represent a lower risk for new art investors. They can even be sold off for a reasonable profit.
To obtain high-value artistic prints, consider several factors. Once again, rarity is a crucial factor. So if your print is part of a limited edition, then it holds brighter prospects for you. Mass-produced prints are less likely to be worthwhile.
The quality and condition of the print also carry weight. The value of a print can be increased if it has been numbered and signed by the artist. Even the number can make a print more valuable. For instance, print number 1 may be more precious than a number 100 print.
The prestige of the artist matters. If the artist is new, then you should investigate whether their art is being displayed by established galleries. This can help provide invaluable insight into future trends.
As with all investments, you will face losses along the way. But with a smart strategy, your gains will be much higher than your losses.
As with all domains, you must have in-depth knowledge to be a successful art investor. A responsible investor will not channel their funds into a market they do not know of. The world of art is no exception to this rule.
To gain as much knowledge as possible, read up on art. The internet is a productive conduit of free information on art. Visit authentic online resources, such as Artprice and Artnet, to gain valuable information on art sales, auctions, art history, and more. Also, visit leading auction sites like Sotheby’s and Christie’s. Viewing the live auctions on these sites is quite an experience.
You should familiarize yourself with everything about art.
Websites and books will not provide all the information you need. Acquaint yourself with expert and knowledgeable people in the field. Socialize and build a good rapport with experienced art investors, art consultants, critics, curators, and artists.
Nothing can beat the power of networking for gaining invaluable insights and inside market information on art. Build and foster connections with leading people in the industry to remain one step ahead. The more active you are in the art community, the better your chances of making the right buying decisions.
As with other experts, you should not expect authorities on art to divulge their secrets overnight. Be patient and play the waiting game. The dividends will be worth the time and effort you have expended. Gain their trust and build a genuine relationship with them. Show your zeal and love for everything related to art. Be sincere, courteous, and eager. It will take some time to show genuine commitment and devotion to the subject. These are the prerequisites to gain the respect of leading personages.
Building strong social relationships can take you a long way in business and technology. The same goes for art. If you act wisely, you can gain the trust of the most influential and eminent personalities in the art community. You will gain access to exclusive knowledge of art investments.
Be Aware of Market Risks
Many people commit the mistake of relying solely on their gut feeling to make investment decisions in art. Your own preferences and intuitions do not guarantee success. Thinking that other people will identify with and share your sentiments is an all too common blunder. Although art relies heavily on intuition and personal judgment, the same does not hold true for investing in art pieces.
Take into account the factors mentioned, such as rarity, due diligence, and research. Immerse yourself in the art community to understand the zeitgeist.
Also, be wary of the risks involved in arts. Remember that art is a highly illiquid medium. It is not uncommon to face a shortage of buyers for art collectibles, especially if you made the wrong choices.
Don’t presume that everything connected to art will accrue value. Also, be wise and diversify your art investments just as you would diversify any other investment. Make a selection of the most promising and talented artists and monitor their progress. Divide your investments across the brightest prospects. Hence, you can diversify your spending and mitigate risks. Don’t commit the blunder of putting all your eggs in one basket. This is important when beginning to invest in art pieces. As you grow more proficient, astute, and savvy in your judgment, you can narrow down the list of prospects.
How to Buy Works of Art
Finally, follow the masters with a scintillating track record in art investments. Masterworks is an art investment platform that makes the highly exclusive and elite world of art accessible to the masses.
The business model of the company is to purchase promising works of art and sell them off at a profit (when the value accrues).
The firm purchases artwork from leading auctions and transfers ownership to shareholders. A small investor cannot hope to purchase expensive works of art. Before the inauguration of the firm, investors had few choices for reliable art investment firms. But now, the company allows investors to pool in their resources and share the proceeds of lucrative investments.
Masterworks specializes in blue-chip art investment, the most wealthy and rewarding segment of the art world, which has seen astounding growth in the past decade. Finally, this super-elite investment class is now available for ordinary investors.
Masterworks’ investment strategy is built on the premise that blue-chip artwork is safer than stocks and more profitable. This is backed up by the historical performance of the two markets.
Masterworks also cites low correlation with high-risk markets, which renders blue-chip art investment as a viable diversification and risk mitigation alternative during economic turmoil. This again has been dwelled upon in previous sections.
Masterworks further mentions that the demand for artwork is a worldwide phenomenon driven by ultra-high-net-worth families. Blue art prices are also more stable than S&P stocks as manifested by historical performance.
The market research team of Masterworks has a combined experience of 75 years as art professionals, dealers, collectors, and curators.
You can purchase stocks at Masterworks to get your share of wealth from the rich world of art.
Read More: Masterworks Review
Investing in art is no easy task. As you can see, there’s a lot to think about. Unless you know what you’re doing and have an experienced mentor to guide you, I’d strongly suggest checking out Masterworks so you can begin diversifying your portfolio with art.Topics: Investing • wealth