First, we wish you all a very happy and safe Holiday and New Year’s Eve celebration.
Comments on the Many Recent ‘Investing in Art’ Articles
I planned on giving you a year-end update, but after reading a number of articles in recent papers and magazines I felt like chiming in with our opinion on Investing in Art. I will give my 2004 wrap up next month!
Mr. Eduardo Porter’s recent New York Times article Economists Have Advice for Potential Buyers as the Art Market Heats Up (December 1, 2004) and Forbes’ cover story 2005 Annual Guide: Collecting Smart (December 27, 2004) touch on the investing in art issue. Both bring up interesting points, but fall far short of telling people how to invest properly in the art market.
The main question that needs to be addressed is: How can individuals plot a course for investing in art when most do not understand all the factors used to determine a work’s true value?
Whenever we see the ‘art market’ fuel up – there are always those ‘investment advisors’ who want to get in on the action. Today, as Mr. Porter points out in his article, “… virtually every bank on Wall Street has an art advisory group to assist rich clients”, not to mention the numerous independent art investment firms popping up. The truth is that many of these “advisors” should leave the advising to the professionals – those of us who have not only made a serious lifelong study of it, but have survived the market’s good and bad times. It is impossible to look at a specific artist’s work over a period of time and fully understand why specific pieces sell for the prices they do unless: you have seen each of the works and know their condition; have detailed knowledge not only of the artist’s life but the period in which he/she painted; know the commercial appeal of each particular work; and understand the economic climate at the time they appeared on the market.
New York University professors M. Moses and J. Mei created and maintain an index that plots the prices realized for works of art that have appeared on the market multiple times since 1875. According to their data, art has proven to be a good investment over the long run, and while I applaud their attempt at creating a usable index and I agree with their conclusions, I find some serious flaws in their data. First, it appears that they do not assess the work’s condition and, more importantly, if that condition changed over the years. We all know that a drastic change in condition can, and often will, have a negative impact on a work’s value. Second, they cannot ascertain the ‘freshness’ factor of a work – how new the particular work was to the market? Works of art that have not been seen for long periods of time usually do better than those that have been shopped around – and there is no way for them to know if a work of art was shopped around shortly before it appeared at auction. Third, what about the economic climate on the day of the sale? In recent years there have been numerous events that have had an impact on specific sales results – stock market crashes, wars and terrorist attacks, to name just a few. Fourth, what about changes in authenticity? We have all recently read stories about works that were once considered authentic now being thrown into doubt. These are just some of the many questions that need to be answered and factored into these indexes/studies, before a more complete understanding of art’s true ‘investment potential’ can be achieved.
Buying the works of an artist is not like buying stock in a company. When purchasing shares of common stock in a company like IBM or Intel, each share is exactly alike. An investor can easily research the company and determine: if their business model is a sound one for the current economy; if the products they make and sell are desirable; how the price for their stock has appreciated over time; how other professionals perceive them; and what the overall market thinks using the many charts and graphs that are available. Oh, and by the way … if your stock certificate is lost or damaged, you can replace it with a new one without any monetary loss – try that with an original work of art!
Now, on the other hand, each work of art is an independent entity – almost the equivalent of an independent company; with the artist himself being the market. Additionally, there are many factors that enter into the equation when determining the true value of a specific piece -- quality, size, period, condition, and subject matter, to name a few. Unless you know which periods and subject matters of that artist are the most sought after; the quality and size of one work as compared to the others; and how the condition of the specific work compares to the general condition of the artist’s works; you cannot begin to make an accurate evaluation.
Every artist had his/her bad days and created works they never intended to sell (studies, sketches, etc.). What you need to keep in mind is that just because an artist created something does not mean that it has ‘real’ or, more importantly, ‘potential investment’ value. When the market is super hot, almost anything by the ‘hot’ artists will sell; but do you want to be holding inferior works when the market cools off? I think not.
Another problem is the perception that the auction rooms are an accurate barometer of the art market’s health. While they do give some indication of where the market is heading, what needs to be understood is that this arena often displays the market to its extremes. The auction environment is a competitive one with many inexperienced, and at times even knowledgeable/professional, buyers getting caught up in the auction frenzy. The adrenalin starts to flow and the ‘I Got to Have it’ mentality kicks in … when this happens, people frequently overpay for a work; often paying more than they would have for a similar or even better piece at a reputable gallery. I cannot tell you how many times I have stood in an auction room shaking my head as I watch inexperienced private individuals competing against one another for a fairly mediocre or poor quality example of an artist's work with the victor paying a ridiculous price! It is both funny and sad.
Now, think back to my comments about the flaws with the Moses/Mei index. When these overpriced works reappear on the market, odds are the results will be disappointing. Since there is no way to factor in the circumstances behind the initial high price, the raw data will not produce a precise picture of the strength or weakness of that artist’s market. So, if you are going to use this, or any other, index in your research, please do so with the understanding that in many instances essential data is not factored in.
It is also important to understand that the auction rooms are in competition with each other and at times are forced to give high estimates on works just to win them. These highly estimated works also come with strong reserves (the price, determined by the owner, below which the work will not be sold). All the auction room needs is one bidder, who will be ‘run up’ by the auctioneer to the reserve price, for that work to sell – does that determine a works true value? I do not think so.
And what about those instances where the auction room was unable to produce an impressive group of works for sale – this does happen. The sale bombs and the press jumps on that stating the ‘art market’ is in trouble. Never is there any mention that the works offered were less than desirable and that what transpired was expected by those in the know.
Please do not get me wrong, a knowledgeable individual can go into the auction forum and buy works of art that are undervalued – it happens everyday. Not only do we do it, but many other professionals do it on a regular basis. However, most of us have a great deal of knowledge on the period and artists in question and can spot those works that are the ‘right ones’. Also, I am not going to tell you that every gallery/art dealer is reliable and truly knowledgeable, but within every field there are those dealers who are true professionals -- buying and selling the right paintings; providing clear and accurate information about the works they offer; and are looking to protect their client’s investments.
In order to succeed in the ‘art market investment’ arena, people need real advice from real experts. They need to understand that participating in the ‘art market’ is not like participating in the stock market and that the ‘art market’ is actually made up of many markets – 19th Century, Impressionist, Old Master, Contemporary, Modern, etc. – and that each of these markets will move to the beat of their own drum. It is also important to keep in mind that works of art are not as liquid as stocks – “investors” need to be long term buyers and need to buy the right works, at the right price, from the right people who know what they are selling. As I have said before … it is a jungle out there and without the right guide, you are not only ripe for the picking but will probably be eaten alive!
Howard L. Rehs
© Rehs Galleries, Inc., New York –January 2005
Gallery Updates: New works by Fritz Zuber-Buhler, Louis Aston Knight, Edouard Leon Cortès, Hippolyte C. Delpy, Gregory Frank Harris and Sally Swatland have been added to our web site this month.
Virtual Exhibitions: December has been a very active month and many of our works have found new homes … among the most recently sold pieces were: Jean B.C. Corot’s La vache et sa gardienne (c.1870-72); Edouard Leon Cortes’ Ominbus on the Place de la Madeleine; Boulevard des Capucines; Arc de Triomphe; Rue Royale, Concorde; Rue de Rivoli; and Boulevard de la Madeleine ; Eugene Galien Laloue’s Foire aux pains d'Epices, La Nation; Antoine Blanchard’s Porte St. Martin; Paris, Les Bouquinistes; and Boulevard de la Madeleine; Louis Aston Knight’s Honfleur and Summer Blossoms, St. Gertrude; Sally Swatland’s Island Garden; The Path Up from the Beach; Looking Our to Sea; Afternoon Shade; Afternoon in the Northwest; and Low Tide, Old Greenwich ; George Clare’s Basket of Primula Flowers & a Bird's Nest; and Gregory Frank Harris’ Flora.
Next Month: Yes --- the year end wrap up!