For Investors in Art, what to do and not to do
Updated: Jul 2, 2018
Since several decades, art is seen in financial circles as an important investment instrument . Our film industry is producing some high end investors in fine art: Steve Martin: Picasso, Georgia O’Keefe, Roy Lichtenstein Steven Spielberg: Norman Rockwell Elton John: Damien Hirst, Picasso, Francis Bacon, Andy Warhol, Jean-Michel Basquiat, Matisse Brad Pitt and Angelina Jolie: Banksy Oprah Winfrey: Faith Ringgold Madonna: Frida Kahlo, Damien Hirst, Picasso Elizabeth Taylor: Van Gogh Gianni Versace: Roy Lichtenstein, Andy Warhol, Jean-Michel Basquiat David Bowie: Balthus, Rubens, Tintoretto The most famous story is the Eric Clapton investment. In 10 years, Clapton made a return of 975% on his investments. He is known to appreciate abstract artist Gerhard Richter. He recently pocketed $ 55 million on selling 2 of the 3 paintings he bought for $ 3.5 million in 2001.
But this is one side of the story, there is also another side: the untold story. About wrong choices of buys in Galleries or from dealers: there are millions of stories people don't speak about, often out of embarrassment, sometimes for financial reasons, IRS problems, or for multiple reasons. A Hollywood movie producer bought 20 years ago 10 gouaches by Erte for $ 750,000. A couple years ago he asked me to make an evaluation of his erte collection in his personal museum. When I showed the results in auctions for similar gouaches, I thought he was going to kill me when I told him they were worth $ 50,000. Truth is, many people are overpaying fine art out of vanity, pride, and stupidity or are the victims of unscrupulous art dealers and galleries.
Is it advised to invest in fine art?
There are 2 possible attitudes for an art investor to adopt.
1/ short-term return on investment 2/ long-term return investment
Short-term investment Making a profit rapidly is possible. But this type of art will not be find in an auction house or a gallery. In both places professionals surround you. In galleries, owners know what they have in their hands, in auctions houses every object is scrutinized by thousands of specialists. So it is very difficult to find that unique moneymaker artwork because many are having the same goal as you. But again there are exceptions; I worked for many years for Charles Bailly of the gallery of the same name in Paris. Experts like Charles Bailly are very rare. He bought in February an Old master in Sotheby’s New York for $ 2 million, and sold the same painting for $ 22 million in November the same year in Sotheby’s London. In 1989, he bought a painting, mentioned in a Parisian auction as a school of Velasquez, estimated in the auction catalog $ 50,00, for $ 5 million at the hammer… after a long battle with a representative of the Louvre Museum. Buying an artwork a 100 fold of the estimated value is not given to everybody. Charles Bailly is a genius and is recognized as is by all his pairs ( who aren’t jealous of him of course). That day was the only day ever I saw Charles Bailly, expressing without retinue his joy in public and claiming he just bought a real Velasquez, executes at the begin of his career. For a return in a short term, you need to find artworks in estates sales, buying artworks directly from artists, or their heirs, in isolated areas, etc. In reality, you will find important artwork in locations where our modern communication instruments aren’t present. Internet is an enormous source of information and communication available to most people, but not to all of them. Cuba is one of these countries where the internet is not present everywhere. Not everybody has a computer.
Long-term investment. In my opinion it makes much more sense to consider an investment in fine art as a long-term investment. Art is an illiquid asset. If you buy a painting today it is not to sell it next week, unlikely, as you would buy stocks today and sell them in 2 weeks. The return on investment will depend on several factors: - The artists you invested in - The quality of the work in comparison with other works by the same artist - The period the artist made the painting. - The size - The state of conservation - The rarity For example: a Picasso 24” X 36” from the Blue period will be at least 10x more expensive than a Picasso 60” x 36” he made after 1958. It is advised to buy upcoming artists. Artists with publications about their work, with at least 10 years of exhibitions on their CV, are usually very good verification systems to decide to invest in them. Investing in upcoming artists, is going to be cheaper than to invest in known artists, and available to a larger spectrum of people.
Also an investor needs to be educated in the art business. There are painters who are “hot” in the market today and others that were “hot” and are totally disregard today. For example, the gentle little landscapes of the 19th century, in the after Corot style, were very hot in the US, and totally neglected in the Europe. Also 19th paintings showing a young girl with a couple of Saint Bernard dogs are very hot in the USA , but no longer on the old continent. Avoid to invest in this type of art, it is a bubble that will explode sooner or later.
I’ll advise to buy art you like, because you will have it hanging on your walls for a longtime. Liking an artwork and let your emotions guide your choice are in contradiction in the choice of an investment. Personal emotions should at all time left outside your decision. You may like a painting and buy it, but always after homework completion. If you don’t want to be disappointed, because the value of your painting is not going up, you need to study the painting as mentioned before or take advice form a trusted art expert. It is too often that people come to me with art, they bought several years before and do find out that their investment is still in a negative balance because they overpaid the artwork. For example, I see often people on cruise ships celebrating their wedding anniversary and willing to have something to remember that day. Unfortunately guided by the emotions they buy in these well organized and managed cruise events art sometimes at 10 times the real value of the art.
ART IS NOT A SPECULATIVE VENTURE THAT YOU CAN SELL FOR A PROFIT OVERNIGHT
You have also the possibility to buy a share in mutual funds for art. Usually they will ask an initial investment of $ 250,000 and a commitment to keep your investment for 5 years, in order to build equity.
When you invest in fine art, it is not only the value you add to your assets but you surround yourself with beauty, but not only it can also give the collector a status of culture, increase his social exposure, etc Some benefits fine art can give besides the finacial investment: - add beauty to your environment - may increase a social status of a collector, show his convictions, - may be a solution for a distribution of assets between heirs. It is easy to transmit art, not like houses etc. - may show the personality of the collector, is cultural knowledge - fine art doesn’t request important maintenance costs other than insurance.
If you want to avoid disappointments, a good art expert will help you: To pay the right price for an artwork in a gallery, auction, or private estate To make a research on the provenance and will avoid to have ownership issues To detect fakes, copies, pastiche art To make a condition report of the artwork showing restorations, repairs, over-paint etc. To verify the C.O.A., and request an updated the C.O.A. if it is polder than 6 months.
Where to buy fine art?
1/ Auction houses, yes, even if it is difficult to find artwork at a good price since so many people scrutinize the auctions. Don’t forget that a premium has to be paid, which can sometimes add more than 30 % to the hammer price, shipping costs, etc. Auction houses is a good place to buy upcoming artists. (much more interesting than in galleries)
2/ Antique and art fairs, yes, but the boots the dealers rent for the event are very expensive and it reflects in their asked prices. It is so at the Biennale of Paris, for example, the dealers double the price of an item they would sell in their gallery. Art shows may be interesting to discover upcoming artists.. 3/ Private collectors, definitely yes
4/ Galleries! In my opinion, to avoid! Even for upcoming artists, the sales prices will be distributed 60 % for the gallery 40 % for the artist, 50/50 is more usual. Most of important artworks bought in auctions Sotheby’s and Christie’s are bought by galleries who will increase the value with a minimum of 25% .
5/ Online. Be extremely careful, so much people writing so much “non reality”. “Artists” claiming that they sell fortunes their fine art to rich clients are omni present on the web.
IN CONCLUSION : where ever you buy your art, always hire an art expert, he will make sure your investment is safe and sound, An expert will verify the documents, provenance, owners title, the proper COA made by the right expert, the condition report, make sure that the painting described in the COA is the painting you are going to buy. An expert will advise you and explain why an investment is safe, he will advise you also about the fair market value and the replacement value of the artwork you consider to acquire. Sometimes buyers want to stay anonymous, especially in auction houses, an expert will be representing you at the bidding.