Investors advised to give art market the brush-off
Allen B Falcon
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[ Article crossposted from
clari.biz.features,clari.world.europe.uk,clari.living.arts,clari.biz.market.misc ]
[ Author was Reuter / Caroline Drees ]
[ Posted on Mon, 26 Dec 94 22:50:14 PST ]
LONDON, Dec 27 (Reuter) - If you want to get rich quick,
forget Picasso and Van Gogh. Buying old masters is no longer the
key to instant riches that it was in the opulent 1980s.
Art experts say those heady days are over. If you want to
dabble in a notoriously fickle market, stick to lesser names and
keep the paintings for at least 20 years.
What began in 1974 as a novelty amid a depressed stock
market, weak land values and 30 percent inflation became the
biggest financial gambit the art market had ever seen with
annual returns on investment of almost 14 percent.
The biggest art boom in hundreds of years sent prices
through the roof in the 1980s, setting records at virtually
every major sale. Investors spent millions on single paintings
and more than $50 million for each Van Gogh and Picasso.
The boom was so great that it was often compared to the 17th
century Dutch tulip craze, when frenetic speculators sold entire
farms for a single flower bulb.
The scale of the bull market convinced many that art
investment was a foolproof get-rich-quick scheme, an assumption
that was abruptly proved wrong at the end of the 1980s.
Despite the glamour, frenzy and some substantial gains made
in the 1980s, art investment has historically proven to be a
poor financial bet compared with alternatives such as
government securities.
It is a high-risk investment but its returns tend to be much
lower than those on government bonds.
Studies tracking data over hundreds of years show that at
best, paintings provide an average real rate of return of 1.5
percent, barely half that of bonds.
Most securities provide income as well as capital gain but
art does not. For a pure speculator, profit margins on art need
to be much higher for it to be considered a good investment.
Art is also less liquid and more risky than other
securities. Besides price volatility, there are the difficulties
of attribution -- distinguishing between works of masters and
their students -- and the risk of theft and damage.
In spite of advanced technology, forgeries abound and good
fakes are becoming harder to spot. Hence a joke that of the 19th
century landscape painter Corot's 3,000 works, 5,000 are in
America.
Alexander Bell, director of the old masters department at
Sotheby's auction house in London, advised against investment in
paintings but offered advice to those willing to take the risk.
He told Reuters the key was to invest in a broad portfolio
of good quality, signed paintings with good provenance -- a
secure record of ownership. He said it was wiser to invest in a
signed, second-rate painting than an unsigned, damaged
first-rate one.
Potential investors should also note that short-run
speculation is not generally profitable, partly because of
commission fees and transaction costs linked with auctions.
Bell said investment in art provided a worthwhile return
only over longer periods and recommended holding on to a work
for at least 20 years.
So if you're looking for alternative investments, it is best
to steer clear of art.
The British Rail Pension Fund's success -- it has made 80
million pounds ($125 million) from art works and wants to sell
off the remainder in the next two years -- was the exception,
not par for the course.
``We are trying to move out as soon as possible, as and when
market conditions allow,'' said Judith Charlton, the fund's works
of art officer.
A good rule of thumb is not to buy a work as an investment
unless you are willing to look at it on your living room wall
for the rest of your life if it doesn't sell.
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ABF's Definition Du Jour:
Political Correctness -- Censorship by proponents of