Earlier this summer, cosmetics-heir-turned-art-collector Ronald Lauder paid $135 million for a portrait by Gustav Klimt: Adele Bloch-Bauer I. Obviously collectors like Lauder are willing to pay that amount for a painting for other than economic reasons. Perhaps it is prestige, status, ego or even a passion for collecting. In Lauder’s case, he has spent huge sums of money creating a museum for German and Austrian art in New York called Neue Gallerie.
I read two articles in July about the trend, one in Slate magazine by Daniel Gross who determined that yes, indeed art is a good investment and a Bloomberg article by London based writer Linda Sandler that concludes art is not a good investment.
Gross focused on the Mei Moses Fine Art Index compiled by two professors at New York University’s Stern School of Business, Michael Moses and Jiangping Mei, who compile data and track the long-term performance of fine art. The Mei Moses index focuses on mature artists whose works command significant prices and have been sold repeatedly at auction. Mei and Moses then compare their indices to the S&P; 500.
The Mei and Moses All Art Annual Index 2005 shows that over the last 50 years, stocks (S&P; 500) returned 10.95 percent annually, while the art index returned 10.47 percent per annum. Between 200 and 2005, the art index dominated stock performance returning 7.27 percent per annum while stocks dipped into the negative -2.40 percent.
The hottest sector in art performance is American art created before 1950, which is up 25.2 percent in the last year. Masterpieces like the Klimt and old masters haven’t done as well. They are like the blue-chip stocks, limited in quantity, safe and stable. In art, as with stocks, the greatest opportunity for growth comes in finding a hot new sector or artist.
Unlike stocks, art is not liquid. And like stocks, art is susceptible to exuberance.
A few investment wizards have tried to create art investment funds, but most have failed, including Fernwood Art Investments, which was created by a Merrill Lynch executive.
The Bloomberg article utilized a Merrill Lynch study, which concluded “art is one of the worst ways for investors to try to make money.” Merrill Lynch says that art investors “Have a 17 percent chance of losing money over five years.”
In London, they did create the Fine Art Fund, which is still in business but according to Gross “it hasn’t made much of a mark.”
Sandler points out: “Modern art prices have more than doubled since 1998.” But she clarifies that “modern and contemporary prices are being buoyed by a narrowing group of the most expensive paintings.”
According to the Merrill charts, Sandler concludes, that real estate and small U.S. stocks are performing best in the current decade and that art, foreign stocks and the S&P; 500 are the worst performers.
That narrow group of expensive paintings is by artists who most likely died poor. Most artists do not benefit when their work appreciates in value over time. One art fund is hoping to change that.
The Artist Pension Trust allows artists to donate a work of art to the fund and then over time the fund will sell the works and the member artists will receive an income stream from the trust. Currently, this mutual assurance society is available in seven cities around the world and is curated by highly experienced professionals. By giving their art to the fund the artists hope to make money in the future.
While most artists continue to struggle to make ends meet and most art buyers are not billionaires with deep pockets, it seems silly to discuss art as an investment, but working in the art world I see regular people buying art they love while hoping that someday it will increase in value. (That, or god forbid, they are buying art to match their sofa).
The average art buyer should not consider buying art as an investment. Buy it because you love it.
More critically, if you want art you can pass down to your children and grandchildren then buy a real painting and not a giclée or signed and numbered print. Only a real work of art will hold its value.
Don’t confuse a signed and numbered etching with a print. The traditional art of printmaking is the only true way of knowing that you actually have print 5 of 30 because the printmaker destroys the copper plate they used to make the print. There is no way to know that an artist who is printing giclée prints on their inkjet printer at home has only printed 100 of them and will not print another 100 because the image has sold well.
Most galleries offer lay away and it is better to invest in the real work and pay over time than to take home the giclée because it is more affordable.
If you do chose to purchase a giclée find out about the pigments used in the printing and the sealant to protect the work. Certain pigments will only work with certain papers or canvases and there is no guarantee that the work will last without fading. Be sure to use a reputable dealer when buying giclée.