Author Topic: Art as an investment  (Read 5907 times)

Darrell

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Art as an investment
« on: October 22, 2012, 07:36:19 PM »
Hello all.

I'm wondering if there are any other enthusiasts here who see the investment value of owning art? Maybe you own some great first editions of books (I'd love to get into this myself) or some rare furniture with classic lines, or a prized heirloom that was passed to you and which has led you to collect. I love art ... and I will until I can't anymore :)

Being Inuit (Inuvialuit specifically) and always having that connection, or "feel", for pieces that "speak" to me, I've build up a fair collection of Inuit / Aboriginal art over the years. At one time, it was a big part of my career (buying and selling) and I expanded my knowledge base quite quickly. I know that the pieces I own have appreciated over time - especially the carvings and the jewelry. I haven't bought anything recently as was semi-retired and we were using our income for life / living; but now I'm back in the workforce and will surely be selectively buying again soon. I'm comfortable in saying that the art we own is easily worth triple what I purchased it for; if not more. And while it is not a completely liquid investment (it can take time to find appreciative buyers), selling, if need be, can be done fairly easily. The returns on pieces I've sold have always been great ... and even if I don't sell, I get to own some great work. Deep down, I wish I could be an artist and create art like this ... but I know that as a buyer I am a valued part of the production cycle. After finding MMM, I know what I will be doing as a side-hustle when I do get around to FI.

So, are there any other art buffs here amongst the mustachian community? Do you invest in art for pleasure, satisfaction, monetary reasons, maybe some altruism (i.e. helping out that worthwhile new talent), or any other reason(s). Personally, I love holding what I have and "listening" to the story it tells me ... makes me smile every-time. I'd love to read your take on art as an investment.

 

gooki

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Re: Art as an investment
« Reply #1 on: October 23, 2012, 12:35:32 AM »
I find investing in art like investing in gold, but even more dangerous as it appeales to our nature of collecting things.

If you can make money as a dealer, regularly turing over your stock, go for it. But it is too high risk as a buy a hold strategy for me.

Another way to make this work is to limit yourself on the total number of items you can own. This way when you want something new you are forced to sell something existing.
« Last Edit: October 23, 2012, 01:56:45 AM by gooki »

Masha

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Re: Art as an investment
« Reply #2 on: October 23, 2012, 06:16:00 AM »
We have a sizeable amount of stuff(books, artwork, objects) we live with that relates generally to our work. While not an investment per se, we know the market and only purchase good deals, so when we choose to sell, a decent profit is likely.

We work in a pretty low paying field(history), and our income from our day jobs is mostly tied up with living expenses and savings, so this habit of buying and selling is what supports our many hobbies...at the moment restoring a vintage car. My DH in particular has a knack for buying things for a few dollars, and selling them for a lot more. We do this for fun, with the added bonus that it brings in some income.

Gerard

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Re: Art as an investment
« Reply #3 on: October 23, 2012, 08:51:51 AM »
Another way to make this work is to limit yourself on the total number of items you can own. This way when you want something new you are forced to sell something existing.

This, totally. There's also a hedonic adaptation thing with art, I find... if I have a couple of pieces around, I admire them; if I have more, they become tchotchkes.

Darrell, something else you might want to look at, living where you do, is contacting artists directly to buy (I dunno, maybe you already do). They often have pieces that galleries or dealers don't like, for whatever reason (topic, materials), that they'll sell you for much less. The downside is sometimes the artist won't sign them, so they're not good investment pieces, but they're often more interesting artistically.

Generally, though, I would advise against buying art as an investment. Buy what you like. Understand that it's a "want".

Jamesqf

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Re: Art as an investment
« Reply #4 on: October 23, 2012, 11:42:13 AM »
The problem with art as an investment is that it's entirely dependent on the "bigger fool" principle.  That is, if you fork over $12 million for a stuffed shark, there's absolutely no guarantee that you'll later be able to find someone to pay more than that to take it off your hands, or indeed, that you may not wind up paying someone to haul it to a landfill.

Now if you like collecting art for art's sake, that's fine.  You take your reward in the enjoyment you get from it, and any profit is just gravy.  If you're dealing, OTOH, just remember that staying in business requires finding a stream of new customers willing to buy your stock for more than you paid.

KingCoin

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Re: Art as an investment
« Reply #5 on: October 23, 2012, 02:55:00 PM »
I'm a big art lover. I regularly visit Chelsea galleries, my RSS feed is stuffed with art blogs, and I've probably spent a week in each wing on the Met.

The constant stream of headlines about record breaking auction results notwithstanding, art has been a poor performer as an asset class.  Yes, you might get lucky and collect an early Urs Fischer or develop a love of Ming Dynasty vases before the Chinese billionaires cared, but art in general has pretty dramatically underperformed the S&P (even many old-master household names). Other than the joy you get out of it, art is a non-productive asset and will probably only track inflation. What is the compounded annual return on your art portfolio? Even if your art has appreciated, I suspect the number will be surprisingly low.

I agree with gooki in that we're naturally inclined toward collecting things, and art is especially easy to justify to oneself because it's an "investment" or you want to "support the arts", when you're really just engaged in high-brow hoarding. This is probably especially true of something like 1st edition books. Are some old books sitting on your shelf really going to make you happy? Are they really going to outperform more traditional assets as an investment? I'd suggest the answer is no on both counts. If you can make a living dealing in these objects, fantastic, but remember the large opportunity cost of capital if you maintain a significant inventory.

If you love art, by all means stay involved, but it's probably more rewarding to donate your time and expertise to a local museum or arts organization. Maybe take some art classes. It's never too late to learn.

I've collected some contemporary art myself, but while I enjoy the works I own, I think most of the thrill was in the hunt and purchase.

dragoncar

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Re: Art as an investment
« Reply #6 on: October 23, 2012, 02:58:38 PM »
I look at it as a consumption item.  If I had the kind of money to buy non-speculative investment art (i.e., something that has a documented record of appreciating over multiple auctions), I wouldn't be on this forum.

Darrell

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Re: Art as an investment
« Reply #7 on: October 23, 2012, 08:56:02 PM »
Thanks for all the replies to my query.

I realize that collecting art is a risky investment for some but for myself it is more of a love affair.

Gerald ... I only buy directly from the artists (most of whom I've known for years and have watched their abilities increase and likewise the value of the work they produce has also gone up ... and I never pay the "asking price" :) ... this is part of the fun ... knowing the value as a buyer and haggling to get the price where I want to part with some "employees". Like I mentioned in my OP, everything I have bought over the years has appreciated by at least a factor of three.

Jamesqf ... isn't the correct term "the greater fool" :) ... especially when it comes to real estate? When it comes to the art I'm talking about ... Inuit art (stone carvings, antler carvings, dolls decked out in traditional garb, small jewelry made from bone, etc) there seems to be a never ending demand, especially from European collectors. And yes, I have bought and sold a lot of art over the years, and really never had to work hard at it. When I did it as part of my work it was a great time to learn the details ... what to look for ... how to appraise, etc.

Gooki ... I appreciate what you're saying. I am by no means a "hoarder" ... I will pass on items if they don't meet my criteria for buying ... and I have virtually no "emotional" attachment invested. I'm always ready to deal / sell. As time has passed, I really now appreciate the better works done by the world-recognized artists. I have some pieces that were made by artists who now work only on commission, and I bought work from them while they were on the way up.

Thanks to all who have commented ... art is a subjective area - even when it comes to investing in it.


Nords

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Re: Art as an investment
« Reply #8 on: October 23, 2012, 09:27:12 PM »
I'm wondering if there are any other enthusiasts here who see the investment value of owning art? Maybe you own some great first editions of books (I'd love to get into this myself) or some rare furniture with classic lines, or a prized heirloom that was passed to you and which has led you to collect. I love art ... and I will until I can't anymore :)
I realize that collecting art is a risky investment for some but for myself it is more of a love affair.
Thanks to all who have commented ... art is a subjective area - even when it comes to investing in it.
I think you've answered your own question, but as an investment you'd have to look at its return over the length of time that you've owned it... minus its transaction and carrying costs (insurance), of course.  Tripling in value in one year is one thing, but tripling in 37 years is about 3%-- and that assumes no expenses or taxes. 

An aggressive index mutual fund returning 6% after taxes could triple in 19 years. 

If your art is appreciating at about the rate of inflation, then you'd have to wonder whether it's the art gaining value or whether it's just the depreciation of the currency in which the transaction is conducted. 

European collectors:  hard to distinguish between "greater fool" and "foreign exchange currency experts".

Stock index funds are still my favorite collectible, and I hoard them.  I like looking at art, but I don't feel obligated to be responsible for owning it.
« Last Edit: October 23, 2012, 09:35:41 PM by Nords »

KingCoin

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Re: Art as an investment
« Reply #9 on: October 23, 2012, 11:41:43 PM »
You seem to be in a better position than most to profit from art. You have personal relationships with the artists and a long history of buying/selling in a narrow field of expertise.  The fact that you get a ton of enjoyment out of it means you can even suffer some underperformance vs other investable assets without too much regret. I took a look at some Inuit art and some of it is very beautiful indeed:
http://www.ago.net/assets/images/555/14980_594.jpg
http://www.themontrealreview.com/pics2/ShamanisticRitual.jpg

For most however, trying to play the art game is likely to end in tears. When purchasing at a gallery, the gallery sales price will, in a very large majority of cases, be the highest price that work will ever sell for (and only half that money goes to the artist). The most investable primary market art is controlled by a close knit cabal of dealers and wealthy collectors. Buying at auction involves huge transactions fees (usually 12-25%) and means you had the honor of paying more for an artwork than any other knowledgeable dealers and collectors were willing to pay.  Additionally, the art market is flooded with forgeries making stepping on a financial landmine in the secondary market all too common.

I generally have a dim view of collecting broadly speaking (though I'll happily grant that art is probably the best thing to collect). It seems to tie happiness and enjoyment to piles of stuff. It's all too easy to end up pouring tons of money into anything from rare books to baseball cards to beanie babies, justifying the expense as an "investment". Most of this stuff ends up near worthless and sitting in a box in the attic.

Jamesqf

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Re: Art as an investment
« Reply #10 on: October 24, 2012, 12:40:58 AM »
Jamesqf ... isn't the correct term "the greater fool" :) ... especially when it comes to real estate? When it comes to the art I'm talking about ... Inuit art (stone carvings, antler carvings, dolls decked out in traditional garb, small jewelry made from bone, etc) there seems to be a never ending demand, especially from European collectors.

Greater, bigger: they're synonyms, no?  But your comparison to real estate is apt: remember that the housing market had a long history of demand forcng rising prices - until one day it didn't.  And with housing, at the worst case you can live in it.  Stocks represent ownership of real companies producing real products.  Art?  That shark is either "worth" the $12 million, or it's useless junk, entirely on the whims & fads of the art-buying public.


Jamesqf

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Re: Art as an investment
« Reply #12 on: October 24, 2012, 09:35:00 PM »
The difference here is that you are quoting what others have said, I was using my own words.  But if you bother to do a search, you will find a goodly number (Google says about 22,900,000 hits) for the words "bigger fool" to describe exactly the same principle.

Darrell

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Re: Art as an investment
« Reply #13 on: October 24, 2012, 10:43:01 PM »
Jamesqf ... whatever. If you need the point that badly you can have it. I will not respond further to you.

Thanks to all who helped me understand better the various views of "art as an investment".