Ten Tips for Investing in Art
If you put any faith in conventional wisdom, the best time to invest is when the market is at the bottom. So, there's no time like the present to put some cash into the fine art asset class. Hey, what passes for a solid performance these days is more than 70 percent off last year's levels. Before you invest anywhere, it pays (sometimes literally) to do your homework, and this is especially true with the art market. A fourth grade math education equips you to watch a stock prices ups and downs – and it is supplemented by what we pick up on the nightly news and (I hope) on the likes of BloggingStocks and DailyFinance.
Art, however, is different.
To understand this market, you're staring down the task of learning thousands of years of product history, in addition to a relatively illiquid marketplace in which prevailing tastes play a major role. You can carve this mammoth amount of information into smaller pieces, but you still need to identify a starting place. It's easy to get intimidated ... and also unnecessary. Take a look at the 10 tips below to make the art market a bit more accessible.
1. Take a recreational interest in art
If you're going to commit several thousand dollars to an art investment, you really ought to be interested in it. Start by going to museums, just to get a sense of the breadth available to you ... and to decide what you like. Some of the most attractive pieces may be way out of your price range. I love Francis Bacon's work, but there's no way it will grace my walls anytime soon, not even with the help of the current art market slump. But, you can use the masters to get a sense of the styles that turn you on, which you can use to choose pieces that are closer to your price range.
2. Know where to find insights
Okay, my bias toward Luxist's art market reporting is pretty obvious, but the articles here can help you get started. Also, check out art market publications like ArtInfo, ArtPrice and Art Market Blog. Bloomberg also provides solid art market coverage. Once you have the basics nailed down, spend some time on the auction house websites, like Sotheby's and Christie's. Get a feel for how the marketplace operates.
Gallery: The artwork of Julio Aguilera
3. Decide how much you have to invest
It's important to understand the market before you put some money aside. If you don't have enough money to enter the space (it really takes about $10,000 to get started), maybe you should keep your interest recreational for a while. But, if you have the resources to enter the market, figure out how much you can afford to have tied up for a while. Art is not a market for flippers; it's decidedly "buy and hold" for the foreseeable future.
4. Understand the differences in media
The barriers to entry vary with medium. Sculpture tends to be the toughest, since the cost to create the artwork is so high. Intricate pieces in bronze can cost $20,000 to start and go much higher, even for emerging artists. Paintings tend to be easier for entry-level artists. And, don't be afraid to search outside your comfort zone. Glass art is often overlooked, despite being one of the most collected art media, and the cost to enter can be as little as a few hundred dollars, even to pick up a piece by a well-known artist such as Charley Keila.
5. Hunt for your first positions
To invest in art, you need to find some art to buy. Unless you have a few hundred thousand dollars to put into play, you may not want to start with the auction scene. Look for local art fairs (not flea markets) that feature artists selling works for more than $1,000. The threshold for investment grade is around $10,000, but if you have a decent eye, you can find artists on the cusp of becoming emerging (i.e., artists who are about to matter) at a 1/10 of that amount.
6. Explore the artist's financial accomplishments
For an artist, an appearance at auction is like an initial public offering (IPO) in the financial markets. In the art world, selling at auction provides a public and transparent valuation. The best way to find out what something is worth is to see what someone else has paid for it. Artists whose work has been sold at auction make it easier for you to do some due diligence. Absent an auction history, look for artists who have displayed at art shows and galleries, and try to find out how much the pieces sold for.
7. Learn the artist's personal story
As much as an artist creates, his story can drive future sales. Interesting artists will have an easier time engaging collectors, which means they will sell more pieces ... and at higher prices. New York artist Julio Aguilera, for example, was an international martial arts champion before turning to painting and sculpture. This makes a sales pitch more interesting, which translates to future returns.
8. Pedigree matters
Artists who have been through the right training programs and apprenticeships are more likely to find bigger opportunities. The Eden Rock Gallery in St. Barth's, for example, tends to draw artists from the New York Academy of Arts. So, if you invest early in artists who have been through this program, you are positioning yourself for a higher likelihood of success. Also, explore which collections hold works by the artist who interests you. Nelson Diaz, a strong emerging artist, has created works held in the Guggenheim Collection ... which is a good reason to put it in your collection, too.
Gallery: Nelson Diaz and The Isolated Christ
9. Stay in touch with your artist
Especially for emerging artists, the latest prices aren't published daily, unlike the financial market results. The best way to stay on top of what your collection is worth is to call the artist every now and then. Ask what he's created lately, how many pieces he's sold and whether the price point has moved. This will help you understand what your art portfolio is worth.
10. Manage downside risk
Like any investment, there's no guarantee that your art collection will appreciate ... but there are steps you can take to make sure you'll always appreciate it. When I spoke with art market guru Michael Moses, of Beautiful Asset Advisors a few years ago, he suggested using your preferences as the first measure of whether to purchase a piece. Even if it never goes up in value, at least you'll own a piece that you enjoy.