Considerations in the Debate on How Good an Investment Art Is

Let's face it, art is expensive. So as much as it makes me cringe when folks want to talk about it as an "investment," I'll sigh and then nod and then take a deep breath and offer as solid advice as I can. But such advice is difficult. Even the best considered opinions vary.

Two bloggers I admire have discussed the reality of "art as investment" recently (with solid calculations), outlining some good examples of why it's certainly not a fait complet that you'll ever see that work you love appreciate. First is Todd Gibson, who in a two-part series (part 1; part 2) illustrates how unless you're very fortunate (with a better eye than a former curator at MoMA), you stand better odds perhaps with a well-managed hedge fund. And Felix Salmon advises that unless you're flipping work rather quickly, beating out the other investment options becomes less likely:

The trick, of course, is to sell not only at a large profit, but relatively quickly, too. If you wait more than 50 years, then your CAGR [compound annual growth rate] is going to come down to the 10-15% range even if you sell for 400 times the original purchase price.

But is it only an eye better than a MoMA curator or quick turn around that can work toward good returns, investmentwise? This article by John Dizard (found via artinfo.com who picked it up from the Financial Times) suggests bold choices can also make a difference:

The results of the auction of the Refco photography collection produced one of the few pleasant surprises that have come the way of the bankrupt commodities trader’s creditors. Christie’s conducted three sales between April 24 and May 10 that raised more than $9.7m, almost 50 per cent more than pre-sale estimates and about three times what the collection cost to assemble, mostly between 1998 and 2003. That leaves the creditors only a few hundred million dollars to go in filling the black hole in Refco’s accounts.

The money raised was the main focus of the creditors, of course, but there were also some interesting lessons for the rest of the art collecting world, and corporate collectors in particular.

The first is that while caution and conservatism make good sense when conducting legal and regulatory compliance, they don’t serve as well as boldness and experimentation in putting together an art collection. That applies to both the commercial and aesthetic considerations. Who wants to buy something boring, and who wants to look at it?

The article goes on to explain why Corporations with bold collections are more likely to profit handsomly. In fact, most of the lengendary collectors whose relatively modest investments paid off big time when they passed away and their life's work hit the auction block were more than slightly adventurous, consider the Ganz's for example. Of course, by the time the Ganz collection came up for auction, the artists it represented were famous, but many of them were not when the Ganz's first bought their work. What they all were arguably was bold and daring at the time.

Perhaps the most important, but most difficult to measure, ROI with art is the experience it provides. I know that sounds cliched, but from the dialog it fosters with artists, dealers, other collectors, etc. to the opportunities it provides to start a dialog with friends and acquaintances who are less interested in art, not to mention how it reflects on one's personal priorities and intellectual interests, there are many other measures than CAGR to consider when calculating whether a purchase was a "good investment" or not. What price do you place on joy?

But, as I noted at the top, art is expensive, so a reality check about how good an investment it is remains a service to all art collectors. Thanks to Todd and Felix for doing the math.