10 tips for art investing in 2015
Whether you’re a seasoned investor or a relative newcomer, here are ten tips to help you navigate the art world this year.
- Keep an eye on supply and demand
Artnet’s CEO Jacob Pabst says the dominance of Contemporary art at auction began years ago, and has continued to strengthen due to issues of supply and demand.
“Contemporary totals began surpassing those of Impressionist and Modern works around 2005, reflecting two primary trends,” he says. “One trend is the growth in the number of ultra-high-net-worth individuals around the globe (for example, China) who enjoy art and are looking for ways to diversify their investment portfolios.
It also pays to be aware that certain categories of art are getting scarcer, and their prices are reflecting this.
“One trend we’ve seen is the diminishing supply of Impression and Modern masterpieces, as many of them have found their way into institutions,” says Pabst.
- Take a chance on newer artists – but be aware that it’s risky
As competition increases for ‘blue chip’ artists, one trend worth noting is the interest newer collectors are showing in young artists, who represent more of a gamble but also potential for significant gains. They also provide a way into the market for collectors with a relatively small amount to invest.
This trend is being nurtured at Heritage Auctions in the US: Ed Beardsley, vice president and managing director of Fine & Decorative Arts at Heritage, says younger collectors are more likely to buy strong pieces by newer artists who have been commended to the auction house by curators.
“We’re watching for young emerging artists, and while more risky, the emerging artists field is one thing that young collectors can watch at auction houses,” he says.
- Ask questions
Make sure you really understand what you are buying, and any issues that could affect its value. Beardsley says: “Give the auction house a call and talk to the specialist: they really know the ins and the outs.
“Ask about condition, because that will significantly affect the price. Even though online seems distant, an email or picking up the phone is always possible – that’s why the specialists are here: to get to know their collectors, what they’re looking for and to answer any questions.”
- Buy online
It is clear that online auctions will play an increasingly important role in the global art market. According to artnet, online auctions currently represent a relatively low percentage of all auctions (in the single digits), but they are estimated to be growing at over 20% per year.
Bolstering this growth are key advantages, including low transaction costs, enhanced market liquidity, fast turn-around, and lack of seasonality (when compared to the traditional calendar of brick-and-mortar houses).
- Do your due diligence
Art consultant Victor Wiener of Victor Wiener Associates believes there is considerable scope for improvement in this department: the art world is infamous for its casualness, but buyers can change that by demanding more written information.
“Look at the prospectuses that stockbrokers put out – I think you should get something similar from an art advisor, but generally speaking most of them produce nothing at all – it’s just a phone conversation,” he says.
“You need to be as informed as possible and if you don’t have the confidence in your own expertise you should really hire professionals. This is not only about appraisers; with the art market as growth oriented as it is at the moment I think you should pay careful attention to the condition of an object. A good art appraiser would be able to tell you if there could be a condition issue, and then you should hire an independent conservator to do this.
- Store your work carefully
The need for diligence does not end with your choice of dealers of advisors; Wiener warns against scrimping when it comes to issues such as conservation and storage.
“It always amazes me that people would spend tremendous amounts of money on works of art and may not spend the required amounts of money to have the thing stored and cared for properly. I’ve been called in to look at works of art that have been damaged in storage. There are some brilliant storage facilities around but there are some less than brilliant, so it pays to be aware.”
- Engage fully with the artists you love
David Drake, an art collector and chairman of LDJ Capital, recommends taking your lead from the arts patrons of the past.
“I would encourage people who buy art not to just stop at just buying the art: see if you can engage with and elevate the artist and experience something of their life and the production of the art. That way, the collector gets to live vicariously through the artist, feeling the emotions and stories he is expressing with the art. You also get to enhance the cultural heritage of the times.”
From a financial point of view, he acknowledges that art investment is risky: you need to be able to face losing the capital you have put into buying a piece of art, and you need to be willing to play the long game.
“If you go after a new artist then you have to plan on sitting on that art for five to ten years to see it appreciate. By becoming a patron of the artist you help yourself at the same time as helping them. I’d like to see a resurgence of commissioned pieces.”
- Shop around
As a rule of thumb when deciding where to invest your, Drake recommends an element of shopping around:
“Always try to get three opinions – go to three art shows, talk to three curators and so on – that will increase your chances of buying wisely.
“Also – be fearlessly curious: get involved, ask questions. Fearless curiosity allows us to innovate and find new possibilities without being hampered by societal expectations and limits as to what is possible.”
- Repair with care
The repair of damaged works of art is not just an issue for the conservator. Many art collectors are unaware that the artist may deem the repair to have changed the nature of the work so much that they no longer consider it a piece of their work.
In the light of this, Valarie Jonas, a partner at Meckler Bulger Tilson Marick & Pearson LLP, believes that it is advisable to consider an artist’s attitude towards repairs to his or her work when considering buying a work of art.
“The collector might want to consider looking into how this artist treats damaged pieces: does this artist work with the collector?” she says. “There are many artists that do, and who look at it as all part of the process of a piece changing over time. There are artists that will work with the collectors and conservators and who will want to do the repainting or re-sculpting or whatever it requires. I think that’s something that a collector might want to know about before investing in art: how has the artist handled conservation of works in the past?
- Get analytical
Use sevices such as artnet and artprice to gain a better understanding of the market. Track the performance of your favourite artists and investigate new ways to measure their investment potential.
Be aware that there are different indices that use different methods to measure artists’ performance. A recent and simple technique comes from professor of finance Arturo Cifuentes, who devised Artistist Power Value, or APV in collaboration with applied statistician Ventura Charlin. Essentially the APV metric treats the value of art in a similar way to the value of real estate, measuring its value by dividing price by area.
“It seems intuitive to think about a paining as a reduced real estate, in which you look at price per unit of area. As long as you have secondary market sales by auction houses and you can perform a division, it is possible to compute it. The main issue is you have to have the prices and the dimensions,” says Cifuentes.