How to Make Money in Art – 5 Golden Rules
Amongst all major alternative investment categories, art is perhaps the most enigmatic and interesting. We often hear of incredible gains in the art market, where a Picasso purchased in the 1980s, sees a thousand percent return when sold a few years later. An anomaly of these success stories would be that of purchasing Google at its IPO or better yet when Google was still a small privately-held company.
Here are five golden rules on perfect art investments.
If you thought that owning stocks was a long-term strategy, art is more like an energy or infrastructure project. With a few exceptions, art prices generally move slowly. Yes, catching a Damien Hirst or Andy Warhol, at their beginning, would have fetched you immense returns; but, usually, most artists take a long time to build their careers and reach their optimal price levels.
Similar to other investment portfolios, art portfolios should be diversified as well. One can diversify art portfolios by combining styles of art (such as, Pop, Conceptual, Realism, etc) with a mix of past masters (eg. Picasso, Miro, etc.), living masters or celebrity artists (Tracey Emin, Murakami, etc.), and current established / emerging artists.
Buying a past master can be compared to a Value Stock (and yes, you can acquire original signed Picasso or Matisse graphic prints for some thousands of dollars), an artwork by a contemporary master can be compared to a Blue-chip Growth company, and established and emerging artists are more like high-risk stocks with high potential gains. The biggest difference between art and stocks would probably be that while stocks can be downwardly volatile as well, you should not see the prices of art drop significantly, unless some gallery or artist has made a fool out of you to begin with (i.e. you have purchased a stock worth $50 for $100). The exceptions to this rule would probably occur during a significant recession or if you were forced to liquidate / sell an artwork, in a rush.
Supply and Demand Rules Apply
Applying simple economics can make you get excessive returns.
Focus on well-known living artists in their 70s and 80s. In a market that is quite imperfect, prices of artworks by such artists, rise by over 100%, upon the death, usually. Even when they are known to be old or unwell, this trend has been noted on art prices for many recent masters.
Keying in on the Winners
I would also recommend on focusing on the well-known artists that are at the top of their generation. Artists like Miquel Barcelo or Damien Hirst or Takashi Murakami. Remember that they need to be leading artists for their country, medium, art style and sex. The real winners will be the ones that have something unique about them and at times could simply be their personality or who they hang out with (eg. Jeff Koons!).
Younger artists that the leading galleries are promoting. By the leading galleries, I mean the top 5 in their game, in each major market, the U.S., UK, France, Germany, Spain, Italy, Japan, and the BRIC (Brazil, Russia, India and China). Each major market needs their star artists, for every generation. Once the star is discovered, they really shine…
Focus on Liquidity
And you though that real estate was illiquid.
There can be nothing as illiquid as art and that is why companies like Sotheby’s and Christies are able to charge really high commissions and fees. Further, most of the time, unless you are talking about the estates of billionaires, they are not that keen in speaking with you.
Hence, when you are acquiring art as an investment, it would be interesting to explore what your opportunities you may have to liquidate the asset in the future.
A suggestion here would be to speak with PicassoMio.com / PicassoMio Galleries on any artwork at any gallery that you are keen on acquiring, informing them of the name of the gallery and the price of the artwork. PicassoMio will speak with the gallery so that you can buy the artwork at the same price as that offered by the gallery from PicassoMio. This enables you to use their Website and resources to re-sell the artwork, anytime you want, at the current market prices, for a minimal commission.
September 30, 2007
Sloan Fellow, London Business School
Non-executive Chair, PicassoMio.com