Of all the forms of tangible investment art is the most subjective. With stamps and rare coins, for example, the ‘counters’ come in a standardised form, scarcity can be measured, and an item’s objectively-graded condition is normally by far the most important determinant of price.
Art is different. Individual taste in art varies hugely. What generates the best return may not be in a genre that is to every investor’s taste. Art, especially pieces by living artists, is also subject to the whims of fashion and dictates of critics.
Historically too, art has proved to be a cyclical investment. Major troughs were experienced in the 1930s, the mid-1970s early 1990s and in 2008. Peak to trough changes can be 50 per cent or more. Of late trends like this have been exacerbated by the presence of investment bankers’ bonuses as a factor in the market, tying art prices in more closely to the fortunes of the stock market.
Returns from art differ from genre to genre. While the big auction sales capture the headlines, modestly-priced art has often performed better than bigger ticket items. Wallet-busting prices for French Impressionists and other expensive pieces have spawned an interest in more esoteric but cheaper areas. The best cumulative returns in the last 20 years, for example, have been seen, not as you might expect in post war and contemporary art – although this has done well too – but in photography, which became attractive to collectors because of relatively modest price tags.
Overall returns from art tend to suggest annual gains over the long term of around 4 per cent in real terms. This was the return generated, for example, by the Railpen art collection formed in the 1970s, and has been borne out by thorough academic research in other areas since then.
A lot of art is bought and sold at auction, and would-be investors need to bear in mind the transaction costs involved. As with all forms of investing, it pays to do thorough research on the art genre you choose, to get good advice and to cultivate an experienced ‘eye’ before buying.
Nonetheless many auctions contain relatively inexpensive pieces from up and coming artists, and there are several genres - limited edition prints, watercolours, old master drawings – where attractive pieces can be had for modest prices. Art school student shows and exhibitions can be a source of interesting material for those prepared to devote the time to them.
One advantage of art is that it can be displayed at home and be enjoyed by the investor. Care over making sure that art can be displayed in rooms where humidity and temperature can be controlled is important, as is not hanging paintings and other art works in direct sunlight. Proper insurance and other precautions should be taken against theft.
The standard advice remains to buy the best items one can afford, and to buy a few quality pieces rather than a larger number of indifferent ones. Bearing in mind the cyclicality of the market, it is vital to avoid getting sucked into paying high prices for ultra fashionable pieces. Buying during a recession and against the trend of fashion can be rewarding, provided one can buy in ‘timeless’ art genres or judge accurately which areas are likely to be only temporarily out of fashion.
Art that fails to meet the reserve price at auction can sometimes be purchased more cheaply and easily via a private sale. It is also worth bearing in mind that the further down the ‘value chain’ a piece is bought, the cheaper it will be. The more dealers have handled a piece, each taking their margin, the more expensive it will be. Regional dealers and auctions will be cheaper than London ones, and sometimes generate bargains.
Art is subdivided into a number of genres, each of which is a separate market in its own right, with wildly different price behaviour.
Old masters, a self explanatory genre, typically comprises famous painters from the renaissance to the mid 19th century. Some say that ‘old money buys old masters’.
Impressionism, particularly the 19th century French impressionist painters, is well known and perennially popular. Prices reached stratospheric levels in the late 1980s and have only just surpassed them two decades later. German and American impressionists are also widely collected. American impressionists and particularly the more recent school of Abstract Impressionists were a favoured home for dot.com money.
Modern art is generally subdivided into post war (ie after WWII) and contemporary art, which is more recent and typically the work of living artists. Contemporary art has been widely collected by City types.
Photography has been an emerging genre in recent years, and has various sub-categories from scarce early photography from the 19th century and early 20th century to more experimental modern work.
Watercolours have been a neglected market for many years, although they have their adherents. The best Victorian watercolours change hands for tens of thousands, and the small group of so-called Scottish Colourists have some avid followers.