The art market can be opaque and volatile, making investment an uncertain venture. Here, we detail some of the common mistakes to avoid
In its 2016 annual report, the European Fine Art Foundation (TEFAF) confirmed that the international art market has stuttered—contracting by seven percent in what is its first downturn since 2011. This news, however, is not necessarily an occasion for doom-laden predictions. Regular, cyclical contractions in the art market are natural (and arguably necessary), and the recent string of boom years, with their accelerated growth, would not have been sustainable. There are also signs of positivity: the U.S. art market has surged, growing by four percent, putting it in a dominant position in the international art market. Furthermore, China’s dramatic shrinkage (its art market contracted by 23 percent last year) made the U.K. the second biggest art market centre in 2015.
Thanks to some record-breaking sales last year (such as Picasso’s Women of Algiers, which sold for a stupendous $179 million at a Christie’s auction in New York), the high-end part of the art market has risen by 19 percent and as a sector, modern art outperformed everything else, only falling by one percent in overall value. It’s also worth noting that the online art market has expanded, growing by seven percent during 2015.
While it’s reasonable to conclude that the art market is no longer booming, there are still profits to be made for the canny investor—as long as you keep in mind the following.
See also: The Nervous Investor
Failing to do your homework on the piece you’re buying could result in a foolish investment, which is why meticulous research is key. Start by investigating the artist’s life and background. Awards, education, large exhibitions and major collectors can all be indicators of a piece’s long-term value. Be sure to research the sale price of comparable works—reputable art advisors can help with this, as well as steering you away from dubious ‘bargains’.
Establishing provenance and authenticity is crucial. This isn’t difficult to prove if the artist is alive, but if the artist is deceased you may find this a challenge. Make sure you see proof of authenticity well before any money changes hands. The same can be said of appraisals—an expert should appraise your piece so you can firmly establish its worth before committing to a purchase. Think carefully about where you want to source your artwork: whether it’s a dealer, broker, gallery or auction house, they need to have a good reputation.
Opting for a quick deal is unwise. Buying a piece and selling it a year later for a large profit may seem lucrative, but that profit can quickly be eaten up by sales commissions from auction houses, as well as the maintenance costs involved in owning an artwork—such as storage, insurance and framing. It’s more prudent to allow an artwork to gradually appreciate in value so that these costs don’t eat away at most of your profits.
Avoiding hype is crucial when it comes to investing in art. Purchasing artwork before an artist is ‘discovered’ in the hope that you can sell it for a profit once they reach success is a risk, and one that rarely reaches fruition. Some art experts would argue that when it comes to investing in art it’s important that you don’t view the piece as an investment—however illogical that sounds. Any piece you buy could in theory appreciate in value, but the art market as a whole is notoriously fickle and unstable, and many sales happen behind closed doors so prices aren’t recorded. Fashion can also dictate what does increase in value—different styles, artists and mediums can rapidly swing in and out of vogue, meaning that what you buy one year may be out of favour the next. Only buy art that you truly love, because you may be stuck with it permanently.
See also: Wine Investment: Pros and Cons