A Guide in How to Invest in the Art Market Sensibly

Investing in the Art Market can be lucrative but like with all investments, there is risk involved.  This guide in how to invest in the Art Market is to help you make informed choices.

As small investors, we are probably not in the league of buying a Picasso or Monet.  However, there are still good investments to be made with lesser known and up and coming artists.  The secret is picking the right ones.

What should I Invest in?

I think to begin with we need to have an idea of what is selling and which markets are the most active at this time.  One of the ways to do this is to look at the main auction houses to give us a clue.  A recent study of paintings sold at Christie’s and Sotheby’s discovered that Impressionist and modern art accounted for about 30% of total sales.  25% was represented by 19th century paintings.  Post-War and Contemporary was 16% and lagging behind at 5% were Old Masters.

Henri Hayden ~ Browse & Darby
Henri Hayden ~ Browse & Darby

If we compare the results from the auction houses with the Mei Moses Art indexes ( widely recognized as the pre-eminent measure of the state of the art market) we will get an idea of what will give us the best return.  Researching the Mei Moses index we find that the Post-War Contemporary Index out performs the World Impressionist Modern Index by some margin.  This is especially true over the last 10 years.  Another index, The Art 100 indices also backs up these findings.

This gives us an idea of where the market is at this time.  However, we must remember that things can change.  What is popular now can very quickly become out of favour.  Therefore it is important to keep an eye on trends.

How should I invest?

There are a number of ways you can invest in art.  If you have confidence in your own ability, search out artists you believe might be undervalued at this time.  This takes a bit of research but the rewards can be immence.  Who knows, you might buy a piece for a few hundred pounds to see the artists work take off and you make a killing.  It has been done before and no doubt will happen again.

If you chose to take this route there are three golden rules to follow.

  • Only choose work that is typical of the artist.  Stay away from experimental work.
  • Buy the best example you can afford.  All artists produce good work and work that isn’t so good.  Collectors only want the best.
  • Research the artist and ensure you are paying a fair price.
Maurice Utrillo ~ Rue de Paris
Maurice Utrillo ~ Rue de Paris

 

If you are someone who doesn’t want such a ‘hands-on’ approach, consider investing in an artfund.  There are many around and they take all the hard work out of your hands.  They will make the investment decisions for you and will have art experts that will know the kind of works to invest in.

 

Private Investment Partnership

Alternatively, you can set up your own private investment partnership.  Find people who are interested in investing in art and pool your resources.  This is a great way of being able to buy higher value works.  For example, if you were able to find 10 or 20 people to join you and you each put in £5,000 you would have £50,000 or £100,000 to invest.

Raoul Dufy
Raoul Dufy

Setting up your own private investment partnership is attractive but you must make sure that you set up a framework that is legally binding on all parties.  For instance, what is the minimum period for investment?  How is the exit value calculated?  Who holds the pictures that are bought into the scheme?  These are just some of the conditions that need to be put in place and it would probably be advisable to have the terms drawn up by a lawyer to ensure that the agreement is watertight.

Conclusion

Investing in art can be a lot of fun and profitable.  It can be done as part of your overall investment or stand alone strategy.  The choice is yours.

Investing in art is not a quick way to make money and should be looked upon as a medium to long term investment.  Do not invest money into art that you might need to realise quickly.

If you decide to make investment decisions yourself, you need to have your finger on the pulse of the market.  Alternatvely, you can invest in a fund and let others make the decisions for you.

Rene Magritte ~ Philosopher's Lamp
Rene Magritte ~ Philosopher’s Lamp

The global art market is colossal.  In 2016 the market was worth a staggering $45 billion.

With low interest rates, investors are looking at ways to get a decent return on their money.  Investing in art has caught the headlines recently because it has been revealed that between the years 1985-2012, the art market nearly tripled the return from equities.

Another advantage is that the art market is not so volatile as the stock market.  Bad news can send the stock market in free fall whereas this is not so likely to happen in the art market.

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