Can you guess the value of this 1976 work by Francis Bacon entitled Three Studies for Self-Portraits?
At the rate of which the price increased previously—almost 830%, the estimated value of these paintings is around $60 million. What’s more astonishing is that this painting was bought in 1999 for $3 million, a mere 5% of its current price estimate.
There are many similar stories where artwork fetches spectacular returns on investment. As such, it is no surprise that an ever increasing number of people are entering the art world as investors and collectors. Art auction houses have witnessed the number of bidders increase by approximately 50% in the last decade.
Now wait a minute, if you are already envisioning yourself at the next art auction buying artwork, hold up!
Investing in art is a highly lucrative and stable investment prospect, but it is important to gain insight into the art investing world, as well as know the pros and cons before diving in.
Art investing is a win-win because it can both beautify your home and increase in value over the years, which makes it an attractive auction piece that can garner handsome returns. However, just like any other investment opportunities, investing in art has to be done with a certain amount of caution. One also needs to be equipped with the necessary information to make the right decision.
How Does One Determine Which Art Is Worth Investing in?
Although people might suggest purchasing the piece that emotionally speaks to him or her, there are multiple factors that should be taken into consideration.
Here are the ABCs of art investing for your consideration:
Assimilate information: The background of the artist is often a strong influential factor when it comes to resale values and price trends, so it is always good to know the story behind the piece. Websites such as Artprice can also provide a good gauge on the value of paintings. As with any investment, do your research before you decide whether to buy a particular artwork.
Buy: There are many platforms out there where people can purchase art: galleries, online portals, and art fairs. Spend some time to find out about the event and costs involved in purchasing the artwork, such as the sales commissions, transportation, and storage charges. Like an asset, you will also want to consider art insurance to protect your new asset against loss, damage, and theft.
Curate: Creating a collection and maintaining it well over time is integral to ensure that your art collection fetches the best possible sum. Although it is possible to sell one painting by itself, a collection of paintings by the same artist tends to fetch higher returns over time.
Easy there—beyond the ABCs, it is also important to consider the advantages and disadvantages before buying your first Van Gogh.
The Pros and Cons of Investing
Art investing isn’t all landscapes and paint strokes—it is important to note the potential obstacles before deciding whether to take the leap.
Spending money on the fine arts is a stable form of investment that has historically generated returns of between 7.6% and 9.8% per annum; however, artwork is also fairly illiquid. This means that it is hard to sell artwork on short notice. There also many associated costs with this type of investment. These include maintenance costs and insurance/resale charges, which can add up to a hefty sum.
Although downsides include illiquidity and hefty costs, art markets can also be unpredictable and heavily influenced by trends. Taking this into consideration, art markets generally still have lower volatility when compared to equity markets even if the piece is considered “trendy,” meaning larger stability in the short term.
By keeping all of this in mind and following the ABCs of art investing, you can increase the potential returns from the artwork that you purchase. Simply be sure to do your research, know the value, collection, and artist, and in the absolute worst case scenario, just make sure you enjoy looking at the piece (you’d hate to be stuck with a minimalistic dot, but hey—art is perception, right?)
Afterword: The Dark side of the Art Market
It would not be an article on the art market without mentioning the role anonymity plays in the industry. Secrecy and discretion has long been central to the art investing world. It is worth noting that a long standing practice in the art auction industry is the ability of the seller to remain anonymous. Auction houses are under no legal obligation to publicise the name of the seller, often referring to it as from a ‘private collection’, nor are buyers entitled to know this. This is unlike markets for other assets or property where the selling party and previous owners can be identified, and is viewed as one of the last unregulated financial markets in the world.
This has made the art market somewhat of an unwitting partner in crime and increasingly suspected in money laundering. Together with the existence of Freeports in various parts of the world, where the wealthy can safely store artwork and other valuable in temperature-controlled environments, art transactions worth millions can change hands and be moved discreetly and relatively quickly.