The Business of Art Investing
The acquiring of art for business purposes has increased since the early 80's and has kept
pace with other investments and in sometimes outperformed other investments. It is important for
investors to remember that there is a finite amount of artwork from famous artist waiting to be
bought and sold. Therefore, more moderate returns on art investments should be expected. Art,
like many other investments, can lose or gain value quite quickly. Art is unique from those markets,
though, because the reasons for a change in value are often unforeseen and objective. Unlike
stocks and real estate, an art investor can't go to a single source and find out exactly what an art
investment is worth.
As a business, art investing can mean quite a return if the piece is held for long enough.
Many investors new to the art buying industry have been attracted by the advertising of record art
sales which have taken place in recent years. A large return isn't guaranteed, but it's certainly a
possibility that's intriguing. Besides giving some a very tidy return, the business of art investing isn't
subject to market fluctuations like other investments. Buying art doesn't require as many fees and
related costs that, say, buying stocks does. That is an added benefit for art buyers who are already
seeing higher than average returns. The biggest downside to art investing as a business is not
making the wrong acquisition, but becoming subject to industry fraud. Having phony artwork and
passed off as real has lost art buyers millions of dollars. Usually, the people passing off these
fraudulent pieces are themselves frauds whose brokering credentials are questionable at best.
To prevent fraud and also ensure the value of a piece, authenticating artwork with
documentation, or provenance, can be a great idea. An authorized appraiser can make sure the
proper documentation is in order to determine the pieces true worth. Most new art investments
aren't made with all the pertinent information at hand. Art investing is a business and it's important
to invest in that business aggressively. If it's possible to invest more money in an artist premiere
pieces of art, then that's what should be done. Buying a piece that an investor likes as well as
captures the interest of the industry is quite important. Many critics of the business or art investing
might contend that art is entirely too unrealistic as an investment strategy. They conclude that while
stocks and other conventional investments bring in a steady income, artwork only becomes
profitable if it can be resold. The profit resale value of art is never an exact science. Acquiring art
has quickly become a feasible part of a diversified portfolio. This is not only the case in America,
but in countries worldwide. As of late, the Russian art market has become more prominent as well.
Many a multi million and billionaire foreign business persons have invested steeply in Western art
antiquities and newer creations. It makes sense that the business of art investing intrigues so many
as the world economy broadens and traditional investing becomes less sure.
There is a significant financial tail wind behind contemporary art (as an investment). It has
been whipped up by the boom in self-managed superannuation funds; by a market driven by the
intergenerational transfer of wealth from a conservative, saving pre-war generation to their
inheritors, the free-wheeling baby boomers; by a relatively strong domestic economy, one that has
outperformed so many of our trade partners over the last few years; and, finally, by what I call
'smart money': those collector investors who have foreseen that the returns on orthodox financial
assets are going to be substantially less in the next ten years than they have been over the last
fifteen. The smart money has always figured this one out early and is finding its merry little way into
hard assets. It is a belief that art has appreciated to a point where it should now be looked at from
a portfolio standpoint. The viewing art from the art historical and theory standpoint that is taken as
a given. But the art market has come to a point when art as an asset class - and the tools by which
we understand that asset demand greater consideration. I hope that (this) window of understanding
into the nuts and bolts of buying and selling art will empower all collectors to get down and
amongst it. After all, beauty demands possession.
Buying & Collecting Art as an Investment
When buying and collecting art as an investment it is important foremost that you like what
you buy. Chances are that if you hate a painting, a potential buyer will also hate the painting. Never
buy just a signature. The artwork must stand on its own merits irrespective of the artist's reputation.
A bad painting from a good artist will remain a bad painting, and be treated as such by the art
market. The value of an artwork is indicative of numerous unique subjective considerations. A
potential buyer looking to purchase a quality painting or artwork capable of obtaining strong capital
growth should minimize their art collecting risk and be satisfied that the artwork lives up to or
exceeds each subjective consideration.
The subjective factors are:
• The status or standing of the artist. Is the artist on, or likely to one day be on, the secondary
• Understand and differentiate between the creative periods within any artists’ life. Their productive
output may indeed vary. Focus your attention on those strong artworks or themes from the artist's
• The medium, condition, provenance and exhibition history must impress.
• A painting's subject matter must be neither offensive nor unpopular.
• Whether a painting is signed or not.
• Collectors must take into account the cyclical nature of the art market and the economy itself. Sell
in a boom and buy in a bust.
• Know the availability and value of other works by the same artist.
• Collectors should know the final price settled upon and ensure there are no hidden costs such as
buyer’s premiums which may distort the final cost.
• Understand the vagaries of taste and fashion. An acquired work which delivers a good return on
the purchase price usually exhibits universal themes and emotions.
Prices for contemporary Russian art are going up at lightning speed. The Russian art
market is topping all sales records at the world’s most famous auction houses, whose Russian
branches are now mushrooming in Moscow. These new developments have illuminated the
territory of contemporary Russian art like a flash. The euphoria caused by the rapid dynamics of
the growing art market has overshadowed the problems associated with two processes
simultaneously unfolding in Russia: governmental institutionalization of contemporary Russian art
and its valorization by the market. Such problems include the neocolonial policy toward native
culture that was particularly evident during the last Moscow biennale, the insufficiency (or rather,
given the country’s immense size, the absence) of contemporary art education, and the extremely
poor infrastructure for fostering young artists. The partial shift in demand from late 19th-century
Russian and Russian avant-garde art to contemporary artists, whose works are currently being sold
by the pound to mostly Russian art collectors, should be explained by the growth of the national
economy as well as by the desire of new collectors to find a new form of self identification. The
new collectors don’t restrict their interest to pure collecting and are keen to open private museums
and contemporary art foundations. However, these collectors tend to buy artworks that are
already part of the contemporary art canon. They also prefer to buy the works of artists who were
internationally famous long before the current price boom. While this does minimize investment
risks, it makes it futile to expect that Russia will experience the breakthrough that has happened in
other countries. Throughout the eighties and nineties the Russian Auctions in the west were focused
on pre-revolutionary Russian art. There was a brief period of activity in the late eighties in the US
and France following Sotheby’s Moscow auction, but this was short lived, possibly because the art
market in general experienced a dip at this time and other smaller markets followed suit. In more
recent times it was the traditional art of the 19th century and modernist periods which first became
attractive to new Russian collectors; over the past five years we have seen many different sectors
within the Russian art market start to grow; the contemporary sector has been the most recent such
phenomenon. Russia’s top contemporary artists were until recently much less appreciated than
those from earlier periods, and this applied not only to nonconformist painters, but also to official
Soviet artists. Emerging Russian artists still command fairly conservative prices on the market
today, though as the market develops these artists’ works may also begin to command higher
prices in the future.
The interest has, in the last several years, made Moscow a hot bed of contemporary
artistry. The capital has been busy bulking up its art world resume and building up its cultural
cache. The scene is definitely growing and the new wave of Russian art that was born in the
nineties has now reached a certain level of maturity, and the big institutions and people have started
to pay attention.
Implications for investing in Contemporary Art
The aim of contemporary art is to prepare art historians with an emphasis on international
exchange in research and art actions. It aims to improve art and art history education for
schoolchildren and improve the current level of research on the methods of teaching activities in this
field. Contemporary arts also aims to improve the level of education in the fields of contemporary
and modern art history for adults (young artists, general public including retirees, etc.) as well as to
strengthen research on the methods of the teaching of present day artistic culture for those who
want to study this in addition to their professional training.
The paradox of investing in art is that its value is mostly intangible, yet it is also a physical
object subject to wear and tear, traded like oil or currency futures, and priced according to the
dictates of fashion. While certain objective standards affect prices, experienced investors
understand that these have little or nothing to do with artistic merit. The art market has ruined many
more investors than it has enriched, perhaps none more so than people who paid too much for
brand-name art in the mistaken belief that it was a safe haven. The auction prices suggest
comparison with unique or limited-edition artwork, yet a photographic negative can produce
unlimited numbers of photographs. These prices will very likely bring additional photographs from
well-preserved negatives onto the market, diluting the value of the buyers' investments. The buyers,
whose identities are unknown, may have failed to consider the fact that they were acquiring one
instance of a potentially unlimited edition. As investments, in other words, the only way they can be
profitable is if they are re-sold before more duplicates appear, and while their glorious provenance
is remembered A more balanced approach is to enjoy the artwork for its visual appeal while taking
reasonable precautions to avoid downside risk. The art market values objective, verifiable factors
more effectively than it does the intangibles, such as artistic merit, though it responds over time to
changing assessments of the intangibles. In this guide, we consider the basic components of value
(which are separate from artistic merit) and their implications for investment in art. These are:
Authenticity, Condition, Rarity, Provenance, Familiarity, Importance, and Technique.
The scholarship had gone into identifying and attributing works of art. In a print, careful
study of the kinds of paper available to the artist, watermarks, plate wear, changes to the
composition during a sequence of ‘states’ each with its own limited edition, printing style, and many
other factors are used to judge who actually made it. Workshop practices in times and places
which valued originality less than we do today also play a part in evaluating authenticity, as it was
often customary for masters to sign works actually made by their students or employees. Russian
contemporary art dealers have staged a determined effort to legitimize prints of unclear authenticity,
by proposing a continuum of the artist's 'involvement' in the production of a 'matrix' which others
use to generate the final product. This of course obscures, or rather denies by omission, the value
of the artist-made print, where the person who signs the print is in fact responsible for all aspects of
its design, creation, and printing. That 'restrikes', or prints from etching plates run off after the
artist's death, are of far less value than those printed by the artist demonstrates this fact.
Auction catalogs are typically compiled in haste by people who must research, document,
and describe a large number of items. They are an excellent source of misattributions with profit
potential for the knowledgeable investor. A print wrongly attributed to a lesser artist or a later
century may be purchased for less than its true value and, if the investor’s judgment is provably
correct, kept as a trophy or sold at a much higher price.