Sunday, September 19, 2010

Numbers don't lie: the wisdom of investing in art

Below are the links to two interesting articles on the risks and potential returns associated with investing in art, the "passion investment." Although neither piece says anything new as such, I nevertheless decided to post the links because their scrutiny of the actual numbers and statistics involved in art investments seemed enlightening. After all, numbers don't lie... though of course, they don't paint the whole picture either. 

Both articles also illustrate how the key is timing and doing the research necessary to mitigate as far as possible the unpredictability of collector demand. For example, despite being a "very appealing image from Monet's early period," according to Nicholas Maclean (dealer and former co-head of Christie's Impressionist and Modern Art department), the sale at auction of Monet's La Plage √† Trouville in 2000 resulted in a loss of £2.9m due to the market having "moved towards later works, in particular the series paintings." Irrespective of the quantity or quality of the research undertaken, however, there is always a certain art to foreseeing future trends in demand for works and/or artists not least because the global art market lacks a comprehensive price register of each and every transaction purported to be "investment grade." The introduction of this much-needed price register would increase market transparency and subsequently reduce (but by no means eliminate) the risks involved in acquiring art for investment purposes. Collectors would be able to draw more accurate conclusions and cast more reliable forecasts by studying such publicly available information. But even then substantial risk would remain because investors are not just guided by potential returns when they acquire art- they are also guided by the intangible and often unforeseeable force that is their own, personal taste in art. The truth of the matter is that, unlike gold bars or stock certificates, you can hang art on your walls and so even those who buy art as a way of hedging the volatile stock or real estate markets are still likely to buy what they love. As they should.

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