Saturday, August 27, 2005

Collecting Getting More Complicated:
What You Should Know

As I noted in yesterday's post, The Rand Corporation recently released a 152-page report (pdf file) titled "A Portrait of the Visual Arts: Meeting the Challenges of a New Era." (See more about the report on Gallery Hopper and Arts Journal.) The summary of the report suggests the art market is not quite as "rosy" as the conventional wisdom suggests, but I think that's a bit sensationalistic for reasons I'll explain in yet another post (how meta can we get here, eh?). For today, though, although the report contains observations about nearly every corner of the art world, including museums, galleries, artists, and curators, I want to focus on the trends they highlight that collectors should note. From the text of the report:

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]

This last idea gets a fair bit of attention in the report, with Rand summarizing their findings this way:

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).

12 Comments:

Anonymous ML said...

I just hope the current surge in art "investment" doesn't parallel the surge in tulip futures during the Golden Age of Dutch art or even the surge in the mid 1980s. Collapses are painful.

8/27/2005 11:55:00 AM  
Anonymous james leonard said...

that may eventually lead to weaker overall collections

I couldn't agree more with your concern.

Todd, over at From the Floor has posted several times about this art market as a bubble. My intuition tells me that not ALL art is currently overpriced. But there seem to be so many "investors" just gobbling up young artists. I am concerned that these folks don't slow down enough to take in the art. They know the artist's pedigree and they know that they are young and fresh to the market. And they assume that it's all they need to know. I find it similar to the height of the .com bubble when folks would buy stocks because they were attached to a catchy URL. "I mean they got that name, greatstuff.com, so they must be good right? Right?"

I think you are on the money when you say this pushes "serious" collectors to make quick decisions. Not all collectors are bottomless fonts of cash. Most can only by so much art each year. The first two reasons, in my opinion, to ever buy art should be: do you want to live with the work? And do you want to support this artist (if still living)? This competition, though good for the pocket book of the artist caught in its crosshairs, must muddy the decision making process for collectors.

The art that lasts is what is going to be valuable 50 years from now. Unless you see quickly (which the rare critic, collector, dealer, and artist can and do), it takes an extended relationship to really forge an informed opinion about the potential longevity of an artist's work. Especially a young artist or one that is working in new directions.

Just the same, I'd like my slice of bubble pie as well. You can build a nest with extra cash. And nests are good for incubating ideas...

8/27/2005 12:05:00 PM  
Blogger Mark said...

At the Armory press opening there were as many buyers as press. I felt out of place. Many gallerists also seemed out of place, exposed. The quicker the sell the faster they could get the f out of there.

You can't help noticing the feeding frenzie for a select group of artists, either established investments or of the moment young stars.

Not too different than the real estate market right now. But when all is said and done, it's a business cycle we're talking here.

8/27/2005 01:33:00 PM  
Anonymous Todd W. said...

Great to get your insight on this report. Still pouring over the lengthy PDF document. And thanks for the link.

The point you highlighted that is most concerning is how the speculation activity could impact the quality of work being produced. This has been discussed in a number of different art blogs and you and I have exchanged comments here about how to prevent artists, espeically those who are perceived as hot, from playing to the crowd and just churning out editions to pay the bills. Of course, the report also talks about how most artists can't make a living at making art, so its hard to blame anyone who takes advantage of a sudden and unexpected source of income. The danger is that any decline in quality caused by such a gold rush wil actually precipitate the bust. Increasing supply will likely lead to decreasing demand, particularly if the perceived investment value begins to drop when everyone on your block has a piece by fill-in-the-blank.

8/27/2005 10:41:00 PM  
Blogger Edward_ said...

everyone on your block has a piece by fill-in-the-blank

precisely...there's definitely a backlash forming toward this...I'm seeing it in studios

8/27/2005 10:56:00 PM  
Anonymous Anonymous said...

What do you mean? How are you seeing it in the studios?

8/28/2005 11:34:00 AM  
Blogger Edward_ said...

artists who had been thrilled to be in demand are now looking for ways to slow down the production...

also, artists are directly taking on the idea that it's about their name, and not the individual works.

can't say more than that without giving away who I'm talking about (which I won't do)...but it's definitely something the hightened market is bringing to the surface

8/28/2005 11:54:00 AM  
Blogger James W. Bailey said...

Dear Edward,

I'm also working my way through this Rand report.

I'm curious as to your thoughts about the ability of a collector to actually create a market for an artist by championing at every opportunity an "undiscovered" or "unknown" artist.

I'm personally very familiar with the story of the explosive rise in the market value of the pottery by George E. "The Mad Potter of Biloxi" Ohr.

The story is legendary at this point: an antiques dealer from New Jersey, James Carpenter, bought most of the known collection of Ohr's pottery from Ohr's last surviving children that had been sitting in boxes in a garage in Biloxi, Mississippi.

Mr. Carpenter commissioned Robert W. Blasberg, a pottery expert, to write a monograph on Ohr. Mr. Carpenter then devoted himself to building a market for Ohr's works among collectors and institutions.

The rest, as the say, is history, and now Ohr's pots, which could once be had for $10-15 dollars a piece, sell in the thousands, with some in the tens of thousands.

With the new Gehry museum being built in Biloxi that is devoted to Ohr, the continued rise in the value of his pots seems unlimited.

It seems to me that many collectors simply follow the herd. Few are willingly to take chances and aggressively champion a relatively unknown artist the way Mr. Carpenter did with Ohr - that is, to literally create a market for a particular artist's works.

I'm wondering what your thoughts are about this issue - do you see this Carpenter/Ohr model as viable in the current market? Or is this just a mythical story that can never be repeated?

Sincerely,

James W. Bailey

P.S. I'm an artist from Mississippi who once, in a past life, worked at the Ohr-O'Keefe Museum of Art in Biloxi, Mississippi. I also had an opportunity to meet and discuss at length with Mr. Carpenter his involvement with promoting Ohr's pottery to collectors and museums, including the Smithsonian. He told me that after his success with promoting Ohr that his hope was to find that next artist, which he's yet to discover.

8/28/2005 01:56:00 PM  
Anonymous pd said...

I have had several curators and others come through my gallery of late. I have gone to many a round table discussions as well and I am amazed at how fearful most young curators and dealers are to say what they think about any particular Art work. Cagey. It's as if the responsibility for putting your neck out and, as you said James Bailey--creating a market--has been pushed unto the shoulders of collectors by some-- other than economic-- force. ( and collectors have duboius crendentials for appreciating Art and even more dubious fashion. I totally feel it in my studio. And it's so disfunctional--the curators who have made it big--got there because they had something to say. why are they mute and leaving it to the people in the wrong glasses?

8/28/2005 03:30:00 PM  
Blogger Edward_ said...

Great comments all around here folks...many thanks!

I'm curious as to your thoughts about the ability of a collector to actually create a market for an artist by championing at every opportunity an "undiscovered" or "unknown" artist.

James,

I think you have to be a bit more subtle now than when Carpenter bought up Ohr's surviving work (late 60's, no?)...folks have much more access to information about artists and it's harder to build a mystique in those conditions. In fact, as the Rand report points out, you can't really assume how anything worked pre-1980s is how it will work now.

Stars can be (and are) made overnight all the time, but I can't think of another recent example of anyone who was "discovered" out of nowhere without some input from several parts of the machine...I'm gonna drive the nail in my art dealing coffin if I start naming names, but let's just say there are starmakers but they don't often work alone.

the curators who have made it big--got there because they had something to say. why are they mute and leaving it to the people in the wrong glasses?

Many of them are far too busy being art stars themselves to notice, I suspect. Celebrity has infected the art world, but that's normal when the market's as active as it is right now...money is sexy.

8/28/2005 05:21:00 PM  
Anonymous Anonymous said...

Gimme some!!!

Money, that is.

8/28/2005 05:46:00 PM  
Blogger bill said...

Keep in mind that one of the results of the new capitalization is that the "serious" collectors play with the ones who are looking at things more as an investment, probably the most significant finding to come out of the report. (Think about Ed_'s "you should only buy art that you simply MUST have" remark in light of this.)

The key remark for me was the likening of old masters to gold-edges bonds, modernists to blue chippers, and contemporary works to speculative stocks, as indeed they increasingly resemble. We have, and will, see reputations rise and fall as the market pronounces judgment. In pomo times, as McLuhan dictates, changes in the delivery system for the visual arts will change the works themselves, and there's probably little that can be done about it.

8/29/2005 01:07:00 AM  

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