Collecting Getting More Complicated:
What You Should Know
This last idea gets a fair bit of attention in the report, with Rand summarizing their findings this way:
Changes in collecting patterns have been even more dramatic than those in appreciation. Although still dwarfed in absolute numbers by the millions who go to museums each year, the number of collectors appears to have increased during the last two decades by an order of magnitude. In addition, the tastes of collectors appear to have become more diverse in terms of what they collect, e.g., periods and styles of work and the media used.
Whether these trends will continue into the future, however, is less certain since they appear to have been driven by three phenomena: first, rapid growth in the most affluent segments of the population; second, that population's increasing attraction to fine art collectibles; and third, a growing tendency to view fine art as an investment. The first and third of these trends will largely be determined by such macrolevel forces as the growth of the economy and the relative returns on different kinds of assets, which are largely beyond the purview of the arts market per se. Therefore, the key questions may well be whether the more affluent will continue to purchase art and what types of art they will purchase. As the prices of fine art have risen, the range of art that collectors have purchased has expanded to include less expensive items that were not formerly prized.... This trend may well continue, but it may also spread to the general commercial and design markets---particularly if purchasing and collecting art becomes more of a middle-class pastime.
In any case, the tremendous growth of the arts market has raised questions about its longer-term effects on the quality of art more generally---particularly among those who fear that continued growth will be driven by speculation. [emphasis mine]
At the same time that prices have reached headline-grabbing heights, the arts market has become increasingly like other asset markets. The value of an artist's work is determined not, as was traditionally the case, by the consensus of experts, but increasingly by a small number of affluent buyers who are drawn to purchase works for their potential investment value.OK, so I'm gonna say this one time and then drop it so that I can discuss the art market in unemotional terms. You should only buy art that you love. No, scratch that, you should only buy art that you simply MUST have. No, let's be clear, you should only buy art you are so obsessed by you nearly cause a 50-car pile up on the interstate so distracted were you by considering whether you could live with sending your child to that third-tier university in order to buy that piece you keep dreaming about. We good on this? OK...
That highlighted observation in the last quote above is the key to understanding how collecting has been impacted by recent trends. In a nutshell, the art market became more like other markets in that it became much, much more transparent. Those who understand how unregulated the art market remains in comparison with other markets may chuckle at that idea, but bear in mind that until a very significant change in strategy by the auction houses (i.e., from predominately wholesale into retail operations) and the resulting increase in access to important information (via their catalogs, symposia to educate potential clients, presale viewings, and lavish entertaining of clients), everything had moved much more slowly. Back then, collectors got their very valuable information by developing intimate relationships with dealers, curators, museum directors, etc. (now that information's on the Internet or in the mail for all to see) and so had a good deal more time to consider their purchases. Today, as evidenced by the scene at the opening of last year's NADA fair, many collectors are more like crazed shoppers at Macy's clearance sales.
But that's just one part of how the art market has changed. The other significant change is a dramatic increase in both prices and volume of artwork (and, as we know there ain't been much of an increase in the volume of new Old Master works, the main market we're discussing here with regard to increases in volume is the Contemporary one). And it's the same with prices...Contemporary Art is what's changing the game:
Although the work of Impressionists and old masters has generally garnered the highest prices (Picasso's Boy with a Pipe sold for $104 million in 2004 and Van Gogh's Portrait of Dr. Gauchet for $82.5 million in 1990), perhaps the most dramatic increases were in the values of contemporary artists. The first $1 million sale of a work by a living artist (Jasper Johns' Three Flags) occurred in 1980. Nine years later, Johns' False Start sold for $17 million, and more recently another work by Johns reportedly was sold for $40 million in a private sale--a forty-fold increase in price in just over 20 years. Today, the size of the market for contemporary work is considered to be equal to or greater than the market for historic works. This phenomenon may be partly because the supply of contemporary work, unlike that of old masters and modern art works, is constantly expanding. Nonetheless, at least ten living artists are known to have one or more works purchased for $5 million and up.Here's a chart that illustrates the increase (from the report, because, let's face it, this piece is text heavy enough [click to see image larger]):
Unlike other markets though, when prices go up in the art market, so does demand. And that brings us to the essence of what's changed: "a major reason for the initial price increases and their subsequent volatility was the trend toward treating contemporary art as an investment."
"Volatile" is putting it lightly.
An interesting side effect of speculators having easier access to the sort of information that used to be the privilege of those who had developed relationships with the insiders (and become insiders themselves) is that speculators are increasingly (and more confidently) competing more openly with "real" collectors for those prized pieces. Especially at the art fairs, where dealers are under tremendous pressure to pay for their booths.
So what does that mean for "real" collectors? Personally, I feel it means they're being pressured to make decisions more quickly (not to mention compete more fiercely themselves), and that may eventually lead to weaker overall collections. (Yes, this is a dealer saying this...but remember, some of my best friends are collectors and I don't want to see them getting burned.)
At a recent panel discussion at an art fair, I asked two of the world's best-known collectors of contemporary art whether they felt the shift in focus from gallery purchases to art fair purchases, where collectors are known to sneak into the fair during set-up (some even posing as maintenance workers or gallery employees to do so) just to get first dibs, has impacted the way they buy their art. In particular, did they feel like they were being rushed.
I should have been more tactful. I don't think they'll be buying from me any time soon. They, of course, denied that there was any negative impact from the trend. A younger collector on the same panel, though, answered that she did indeed feel more pressure to make up her mind more quickly. She resisted the pressure, but she felt it.
So what can a young collector, who can't muscle their way into the fairs early, do to compete and maintain the strength and integrity of their budding collection? That's something I'll tell you in private (Hey, I'm still a dealer).