With art prices rising higher and higher, speculators wonder if art is and will continue to be a good investment. After all, eleven of the twenty highest prices ever paid at auction have occurred since the financial bubble burst in 2008. Adam Davidson asks this question in this New York Times Magazine article.
He explains that art is difficult to study as an investment because of the “numerous non-financial intangibles, like the pleasure of owning a painting, or its ability to signal the owner’s vast wealth and erudition,” involved in its purchase. It is also hard to assess additional costs of owning the work, such as insurance or other protective measures.
In his study of this issue, Michael Moses compiled fine art auction prices from 1875 to the present and studied their returns in an attempt to streamline results. He found that purchasing the right art work at the right moment and holding it for the right amount of time could lead to substantial returns. For example, a J.M.W. Turner work purchased for $35,000 in 1897 sold for $35.8 million in 2006, giving the owner a 6% return every year.
Unfortunately, that is a lot of “right” choices that need to be made in order to attain that kind of profit. Since he also found that “the more expensive the purchase price, the lower the returns,” buying based on established value seems like a bad idea. An investor really does have to be ahead of the market in choosing works that are not yet overvalued.
Given all of these variables, it is hard to assess whether or not art really is a good investment, so experts recommend just buying based on taste. Of course, this approach does not ring well with many of the speculators now checking out this growing market.
[This entry was drafted with the assistance of Nicole Dornbusch].