Financial markets are in disarray. The stock market is a roller coaster at best, and the subprime mortgage debacle has turned credit markets into a minefield. So, where can you put your money? Try investing in beauty. The art market set records in 2007, and 2008 is off to an amazing start. Forget your visions of somber auctions and upscale galleries. Gaining access to this white-hot market is not as difficult as you think.
Art Beats Stocks Again in 2007
The thought of putting money into art is intimidating. Even the wealthy struggle to come up with the $86 million that a Francis Bacon painting fetched at a Christie's auction last May. But, bringing home the Bacon is a lot like sliding your keys into a Ferrari-it's an aspiration rather than a starting point. There are plenty of art investment opportunities at much lower prices. For the entire spectrum, from emerging artist to blue chip, prices are climbing quickly.
As measured by the Mei Moses All Art Index®, which is based on the sale of art at auction, this asset class grew by more than 20 percent, compared to annual growth of only 5.5 percent for the S&P 500. Actual returns were probably greater, as the S&P 500 statistics used by the Mei Moses All Art Index assume that all dividends are reinvested tax free.
For the most recent five- and 10-year periods, the Mei Moses All Art Index has demonstrated compound annual growth rates (CAGRs) of 16.2 percent and 10.3 percent respectively. This outpaces the 12.7 percent and 5.9 percent CAGRs for the S&P 500 stock index over comparable periods. But, the S&P 500 maintains a substantial edge over art for the most recent 25-year period. Over 50 years, the returns are similar for both measures.
If you are worried about getting in at the top only to see your investment drop in value, the news is mixed. Some experts claim that prices can keep going higher. There is a school of thought that sees the market growing and still another group that sees works from non-masters being at risk. Over the long term, though, the Mei Moses All Art Index seems to indicate that the direction of this market is upward.
How to Join the Party
There is not a cut-off price at which art becomes "investment grade," they all agree. Instead, you'll find the benchmark around your house. Consider the big ticket items that adorn your home: furniture, appliances and electronics. These are goods that you buy with the intention of discarding some day. A painting or sculpture, though, is something you'll keep for the rest of your life. So, the $3,000 you spent for the TV becomes a pretty reasonable starting point for an investment in art. The exact amount will vary with lifestyle, but the method is sound.
After overcoming the sheer intimidation of understanding art and gauging the price of entry, most new collectors struggle to figure out just what to buy. "How do I know if it's any good?" is neither an uncommon nor unreasonable question. Of course, there is no formula to which you can refer. Taste obviously plays a role, but the homeless guy by the subway station probably isn't your best bet ... er, investment. To make a wise choice, rely on a mix of preference, track record and the artist's background.
Artist Bemjamin Kress is blunt: "You have to get something you like. Remember, you'll see it [the painting or sculpture] every day." While art can be an investment, it also should make you happy. If you can't stand to look at your investment, you probably have made the wrong choice. This is where you will find the silver lining if what you buy never appreciates: At least you'll have something that looks nice.
Since a failed investment is not the goal, though, check out the artist's track record. While discovering new talent on a sidewalk can be both thrilling and lucrative, a real payoff is rare. Instead, focus on artists who have been selling, at least privately, for a while. Ask if they are in any galleries or have held exhibitions.
SoHo-based artist Nelson Diaz recommends learning as much as possible about an artist up front and staying in touch after you have made a purchase. "There is nothing as exciting as going to the studio and seeing what the artist has on his walls," he says. "Keep in contact, and you may be invited over when new pieces are available." For artists with steady collectors or whose works are in demand, this can be a crucial advantage. Having an early look at a new collection could mean the difference between getting what you want or what is left over ... if you are able to buy anything at all.
Forming a relationship with the artist in whom you choose to invest will also help you keep track of your collection's value. While sales at auction tend to be the primary method of valuation, many artists-especially the "up and comers"-have not reached this stage yet. Part of the reason may be that collectors want to hold onto pieces they enjoy. Painter and sculptor Julio Aguilera, for example, is interested to see how his work would do at auction but says his collectors are too attached to the pieces they acquire. "It could take a while for my work to go on the block," he explains, "but the longer it takes, the higher the selling price is going to be." The result will be an increase in value for all his collectors.
If you want to get a feel for how much one of your pieces is worth, Aguilera says, just ask. Based on the size, medium and style of newer pieces, you should be able to triangulate the value of what's in your collection. Think about real estate. To put in a bid on a home, prospective buyers look at recent comparable sales. This approach works for art, as well.
Finally, an artist's story can make a difference. More than an interesting tale over a drink, the artist's background will suggest an ability to schmooze future collectors, garner press coverage and spice up a catalog. These factors can push prices higher, which is to your benefit. Diaz, for example, has been awarded the Robert Rauschenberg Foundation prize and The Adolph and Esther Gottlieb Foundation grant for painting. His work has also formed part of the collection at the New York Academy of Art and the Eileen Guggenheim Collection. Krell's work has attracted the interest of several celebrities.
Aguilera, though, has perhaps the most interesting background. The Venezuela-born artist was a four-time international martial arts champion-bare-knuckle. He moved to New York with $20 in his pocket and eventually gained recognition by redesigning the interiors of wealthy friends' homes. Since his arrival 30 years ago, his work has been displayed in Rockefeller Center, the Marriott Marquis Hotel in Times Square and the Venezuela Consulate Gallery. In the adult entertainment community, he is known for his work in progress, "Ladies of San Fernando Valley." Featuring adult industry performers, the series is an homage to Pablo Picasso's "Ladies of Avignon," which featured the sexual entertainers of early twentieth century Spain.
Exit Strategy
The major challenge in art investing is liquidity. Usually, it is pretty easy to sell some stock or cash out of a mutual fund. Unfortunately, stock exchanges do not have an equivalent in the art world. Auctions are the primary commercial venue, but they are not ongoing. You would have to find a house that specializes in the style you want to sell, and then wait for an auction dedicated to that specialty. Some galleries may take a piece (or a collection) on consignment. Even if you can engineer this relationship, though, a sale may take time to close. For both auctions and galleries, expect to pay for the transaction.
Private sales may be easier to effect, and since there is no middleman, you'll get 100 percent of the sale's proceeds. But, you bear the sole responsibility for finding a buyer, negotiating the terms and closing the sale. For artists whose work is in demand, you may want to ask the artist if he can sell the piece for you. Aguilera helps his collectors in this manner from time to time. In fact, if he does not have much inventory available, Aguilera views assisting with these transactions as a way to keep hungry clients happy.
Whether you are buying or selling, the art market does not have to be daunting. Once you learn the basic language of this community, an array of investment opportunities becomes available, and the price of entry is not as high as you may believe. Even when stocks are hot and bonds are paying on time, the art market has one unmatched advantage. A painting looks better on your wall than a brokerage statement.
This article originally appeared in the September 2008 issue of AVN Online. To subscribe, visit AVNMediaNetwork.com/subscribe.
