Risk and Fine Art Investing

Tulips, Lilly Pads and Soup Cans: Risk and Fine Art

Throughout time, fads have spiked demand for underlying assets.  Bitcoin has been the latest in the long list of Tulip “blips.”  And so fine art has been at various times with various artists a speculators bet.   Fortunately, the collector (new and old) has a variety of tools available to help mitigate risk in collecting and investing in the fine arts.  These tools include recent advances in measuring past results.

Measuring Sales:

picassowarhol_chart_2000Big data for the art world exists – at least partially.  For the investor,  a set of fine art indexes based on publicly available auction records can be useful.   It is important to realize that the data set excludes approximately 1/2 of the fine art market (According to a March, 2014 Bloomberg article, the market size for art and antiques in 2013 was $65.9 Billion).     Until recently, a work of fine art was perceived to be more expensive from the primary dealer, gallery or fine artist.   Some are convinced that a work of fine art is like buying a car – the minute it is driven off the lot it loses up to half of its value.   However as results can show in the auction market, the hit and miss nature of secondary markets can produce over priced works as easily as depressing a highly influential artist body of works temporarily because of a narrow audience at the time of the sale.

So which index is best?

The answer will depend on your investing focus of course.   Three indexes to start with today include:

When evaluating an index, keep in mind that each entity has their own motivations for compiling the index in the first place: to sell investors, industry and academics data that supports their own business model or research.  Artnet directly competes with Christies and Sothebys, online art portals and galleries as they attempt to justify the results found in their index.   As correctly reported by Forbes contributing writer Kathryn Tully, which index theory you choose depends on your belief for a specific sector.   Artnet’s goal of being the S&P for the fine art world is reflected by how they weigh the contemporary index with 50 top performing artists.   S&P 500 routinely adds a company and removes another based on the entity success – size, market cap, etc.   The C50 measures across a 5 year trend for the artist – again based on publicly available records.

 

The Mei Moses World All Art Index uses fine art that has made it to auction at least twice.  By showing data on the same work sold at auction, the index is reflecting demand not just for the artist but for the specific work’s importance.  If you are looking for the Zillow of fine art, The World All Art Index is your guide.

Affordability:

The risk in fine art is that you can not afford the work in the first place.  Those on post office salaries would not be expected to look for a quick flip with fine art.  Thinly traded, low volume markets are typically not ideal for short term investors.  Herb and Dorothy can (and have) amass an influential collection by being directly involved with the artists and their movements.  For all others, investing with an experienced and connected fine art professional – gallery, dealer or advisor – still remains a time tested and prudent method for the long term.

 

Author: Mason Hayutin

Founder, Editor and contributing writer, Mr. Mason Hayutin is recognized for his depth of experience and knowledge in technology, energy economics, and the arts (fine and visual). Having worked with recognized world class artists and their estates since 1997, Mason brings a wealth of practical experiences from installations, marketing and private sales.

An active business advocate, he successfully released the fine art documentary film LUBIE LOVE in 2009 ahead of the global auto crisis – in addition to maintaining his tenure as Vice President of GALLERY M INC. Hayutin holds a degree in Economics from Washington University in St. Louis. You can read his insight here at The Art Quarterly as well as in regional and national publications.

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