The art of investing in art by Timothy McKenna

The global economy is expanding at a healthy pace and interest rates are at historically low levels. So investors around the globe have created a high tide of funds seeking alternatives to traditional investment in stocks and bonds. In the past 10 years, investors have fueled dramatic growth in high-risk, high-return hedge funds (now estimated to exceed $1 trillion in the US), and they have doubled the price of real estate in major US and European cities. They have also poured surplus funds into the world of fine art and collectibles, with dramatic effect.
According to the business magazine Forbes, which regularly reports on collecting trends, prices for even lesser modern artists, such as Lee Krasner, the wife of Jackson Pollock, have increased ten-fold in the past decade and now command multi-million dollar prices. Prices for art and collectibles of all kinds - from photographs to sports memorabilia to Eric Clapton’s old guitars - have risen to new records. A single print by photographer Edward Weston sold this past fall for more than $800,000 at Sotheby’s, and not long ago a baseball bat swung by Babe Ruth in the 1920s fetched $1.3 million. The super-rich have so intensified demand for fine art that publicly-funded museums in the US have begun to auction off prized paintings. In May 2005, the New York Public Library raised eyebrows by selling “Kindred Spirits,” an 1849 landscape by Asher B. Durand of the Hudson River School, for $35 million. The buyer, Wal-Mart heiress Alice L. Walton, plans to move the painting to a museum in Arkansas.

In such a heated climate, the individual art collector can be forgiven for feeling bewildered. However, collectors with ordinary means can successfully participate in the art market, if they are willing to follow a few fundamental rules. A collector who is guided by common sense and due diligence - the principles of all intelligent investing - can find both psychic and economic rewards. Here are a few back rules that should guide anyone who wishes to invest in the vast market for art and collectibles.

Know what you buy/Buy what you know: The first principle is the most basic: understand what you are buying. A sensible investor would not buy one share of stock in any company without gaining a thorough understanding of the company’s products, markets, management and finances. The same rule applies to investment in fine art. If you are buying a painting you should know: who is the artist? Is the artist a protégé of a famous teacher? Where did the artist study? Is the artist’s work in fashion (suggesting there is potential for future appreciation)? Is it out of fashion (possibly creating a buying opportunity)? Is the artist living or dead?

The smart collector, especially one who is not wealthy, will retain a wide range of interests but focus his investment on a narrow, manageable segment of the art world. He or she will try to become an expert in one field, say post-World War II color photography, and then concentrate on one or two artists. An individual investor can never match the experts in knowledge of the old masters, but he can become a true expert in the work of artists whose work has been neglected or is just arriving on the scene.

For example, a collector with an interest in photography could focus on the work of Saul Leiter. Leiter, a successful photojournalist and fashion photographer who came to New York in 1946, produced a large collection of color photographs of New York City. A current exhibition at a New York gallery displays photos from the 1950s and 1960s, depicting a colorful cityscape often photographed through plate glass windows, through doorways or reflected in mirrors. Color prints from this collection, signed by the photographer, can be purchased for $2,000. That is not inexpensive, but anyone who knows this artist or the steady appreciation in the price of photography knows these prints are likely to increase in value.

Be sensible - buy what you can afford: Investing in art should be part of an investment plan. The best returns over time will come from conventional investments in stocks and bonds. So the smart investor will place only a portion of savings into the arts. In addition, painting, photographs and collectibles are illiquid investments and cannot be disposed of at will - a reason to buy what you can afford and want to live with.

But not all art is expensive, especially if it is the work of younger, up-and-coming artists. For example, a New York City show, Quattrocento, by Franco Mondini-Ruiz, a young American who is the son of an Italian father and Mexican mother, featured 400 small paintings, each selling for $400. Mondini-Ruiz is a painter and multi-media artist with a sense of humor, and his work is designed to poke fun at the self-importance of the art world. But again, his $400 paintings are likely to hold their value or increase.

Buy what you like: Just as the smart collector will invest in art that he understands, he will also invest in what he likes. Art is subjective, and it is far better to trust one’s own instincts about what is good and satisfying than to buy what is trendy. Second, a collector should be investing in art because he enjoys its. Unlike stocks and bonds, which are locked away for safe-keeping, paintings, photographs and sculpture are placed on display to enrich our daily lives. An interest in painting or sculpture should provide personal rewards at least equal to the investment gain.

Know your dealer: Buyers of art must be cautious, especially in an internet age. It is best to buy from galleries or dealers who are established, whose reputation can be checked. It is worthwhile to get to know the dealer. The dealer should be able to verify the provenance and authenticity of any work of art and, in the case of on-line purchases, be willing to accept payment in a form that leaves the buyer with recourse in the event that the work is not delivered as expected.

The arts fuel our imagination, and so it is natural that we view individual works of art with mystery. But as investors we need to sweep the mystery aside and put our common sense into play. The good news is that browsing galleries and museums is rewarding in itself, and even the most humble paintings and photographs can immeasurably enhance our daily life. Using common sense, the smart collector will invest in art for the pure enjoyment of building a collection, and then let the financial rewards be icing on the cake. More about Timothy McKenna

Comments

• I do not agree with Mr. McKenna's analysis.I only can share my evaluation of the United States market, not having shown or traveled in Europe for a few years. I do not agree with him about going through dealers or galleries. I live in New York and there are a thousand galleries here. It is hard to find a gallery that will sell art at an affordable price.
  How would a person without the connections that he has know about this artist- Mondini-Ruiz Most galleries are not even money making businesses. They are often hobby shops or tax-write-off losses. Most cities and towns do not have galleries for so-called emerging artists. Hey- I am a middle-aged guy with 50 solo shows, 35 shows I curated and hundreds of group shows, and I am still an emerging artist. I believe that the Internet is a much better way to find the kind of art an individual or collector might want to buy. I think a collector should seek out the kind of art, art genre, folk, outsider, material they like and make personal contact with that group or individual. I think they should correspond with them, and ask for a reasonable price. The problem for an artist, who is not Picasso, is storage of older work. If a artist has a contract with a gallery they are not allowed to sell work on their own.
  There are many issues and I would like to expand them into an article to counter Mr. McKenna's views.

  by frank - 10/30/2007 5:47:37 PM

• Thanks Frank and Mr. Mc Kenna,
  I agree gallery openings are fun and place me in the art community, art field but I've learned galleries follow people from schools, fame, etc. and it is difficult to break the ice, especially with paint on your clothes.
  I had a one man show which opened on the day of the Tronto summit, riots several hundred jailed and hurt browsing is fun , I went to art school,and developoed my career in Detroit and even was part of a new movement, Cass Coriridor Rtibes, little know but there.

  by barbaragreenemann - 4/26/2011 3:51:55 AM

• Thanks Frank and Mr. Mc Kenna,
  I agree gallery openings are fun and place me in the art community, art field but I've learned galleries follow people from schools, fame, etc. and it is difficult to break the ice, especially with paint on your clothes.
  I had a one man show which opened on the day of the Tronto summit, riots several hundred jailed and hurt browsing is fun , I went to art school,and developoed my career in Detroit and even was part of a new movement, Cass Coriridor Rtibes, little know but there.

  by barbaragreenemann - 4/26/2011 3:55:52 AM