Tuesday 25 May 2010

Art as investment

Room for Debate takes on art as investment.

First up, Denis Dutton.
Paintings and sculptures remain the locus of yet another kind of value. A painting is in principle the singular physical product of an individual artist’s hand and mind. Its complex textures and color gradations will likely make it impossible to trust the accuracy of any reproduction. As we see it today, “Nude, Green Leaves and Bust” is, down to exquisite detail, exactly what it is because of Picasso’s skill and expressive power.

In this respect, the painting is a perfect, intricate and utterly irreplaceable record of a historic artistic achievement. Whether or not you regard it as a truly great Picasso (personally, I don’t), it is a solid investment: Picasso’s place in the foreseeable future of art seems assured, and with it the interest and value of this painting.

The high prices commanded by top-end works of art are often ridiculed as somehow crazy or even obscene. Why is paying $100 million for an ugly downtown office building acceptable, while the same sum paid for an object of enduring beauty is a scandal? I rather find reassurance in the idea that in at least some of its forms, beauty can be a traded — and sublimely expensive — commodity.
I can agree with Denis that a Picasso is likely to be a better store of value than a random draw emerging artist, but solid investment? I can't buy it. If there are two assets you can purchase, one of which provides only a flow of returns over time while the other provides both a flow of returns and consumption benefits, with a pretty wide distribution of the utility derived from that consumption across individuals, you have to expect that the return on the latter must be lower than that on the former.

I don't worry that the price of the stocks in which the university's superannuation fund invests is artificially inflated (and money returns diminished) by a few weirdos who like to frame stock certificates and hang them on their walls. But if I'm buying a Picasso as investment (and, middle-brow guy at best, drawing minimal consumption benefits from having the thing around), and the next bidder over earns not only capital gains but also a whole pile of smugness benefits from having a Picasso on his wall, well... that's not an auction I want to win.

Next up, Eileen Kinsella.
The abundance of blue-chip artworks available this season sparked global demand. Experts tell me that when rare works like the Picasso, which was from a private collection and had been off the market for 50 years, or the $28.6 million Jasper Johns Flag (from the collection of the late Michael Crichton) come on the block, they will find buyers no matter what the economic backdrop since they are so rare.

The reasoning is that the quality of the work will make the buyer confident in his acquisition, no matter what is going on elsewhere in the art market or in the broader economy. Buying right now seems to be concentrated at the high end of the market where, as one dealer told me, “a relatively small number of international buyers are willing to spend lots of money on a very small number of objects.”

This is why we are seeing a resurgence in the market. Confidence has returned at a rapid rate. Spring sales in the past two weeks were over $1.1 billion, up considerably from the total for last year. Top collectors are fully aware that the best examples of blue-chip art have been snapped up by major museums and important private collections.
Doesn't that sound like "The housing market is bouncing back nicely with lots of buyers being drawn in by all the great mortgagee sales. It's rare that the mansions owned by investment bankers come on the mortgagee market, and so they're snapped up when available."

Third, Donald Kuspit.
Long before the economy almost collapsed a year ago, art-savvy people argued that works of art are the new equities: one can make more money in the art market than in the stock market. The value of Picasso and Giacometti kept increasing while the value of General Motors and General Electric decreased. Stock prices go up and down, but the stock of certain artists keeps going up.

Why? Is it because their works are unique, making them prized possessions, or because they were avant-garde innovators, not to say geniuses? The answer has less to do with the artists’ achievement and more to do with the fact that people are buying the brand name and getting the work along with it.

The name is the high-priced, desirable, one-of-a-kind commodity, not the work, which has a certain incidental relationship to it. This has to do with the celebrity culture: artists have been absorbed into its spectacle. Their creativity has been appropriated by it, making every celebrity seem like a great artist in the making, and every artist a celebrity in the making, aspiring to make spectacular art.
"...certain artists...". Yup. And the same holds true too of "certain stocks". The paintings I did in kindergarten - those have really tanked in value. But shares of Microsoft purchased around 1980: those did really well over the same period. Clearly stocks are great and art is terrible. Ahem.

A fairer test would be for an art expert to pick a bundle of works sold today, then check the appreciation of that bundle against a couple of international stock indexes over time. I'd also worry about liquidity problems. It's always easy to cash out a stock portfolio. But art markets are much thinner.

Finally, Kathryn Graddy.
The art market is alive and well. Should we be surprised? Frankly, there are not a lot of other attractive assets out there. Yields on Treasury bonds are at all time lows, the current risk-reward profile of the stock market appears to be less than ideal, and gold prices are at dizzying heights.

The recent record-breaking prices fetched at auction for blue-chip artworks reflect this sentiment. Giacometti’s “Walking Man” and Picasso’s “Nude, Green Leaves and Bust” are both well-recognized and lasting creations. Even if many art critics complain that Picasso’s Nude is not one of his best, the painting is still a well-known piece by a famous and innovative artist.

The buyer of this work has invested in an asset that could act as a store of value both in the presence of inflation and general economic uncertainty. This buyer will also receive dividends in the form of enjoyment and recognition — among friends if not the public.
I'm no art guy, but I'd thought the Picasso was somewhat less than a well-recognized piece: the press called it "rarely seen", having last been exhibited in 1961. Clearly a Picasso, but "well recognized"?

And, it's the "dividends in the form of enjoyment and recognition" that I worry would reduce the expected value of the money returns, at least for the naive investor, to below what he'd be getting with more standard investments.
Many people did not enjoy the financial turbulence of 2008 and early 2009. If liquidity and income are not important considerations, investing in cultural assets may well be the way to go. Fine musical instruments, another alternative asset, have been a solid investment through both booms and busts, and have largely avoided many of the ups and downs of the art market.

Nonetheless, these fortunate buyers of cultural assets should recognize their moral obligation to make their purchases available at least at times for the public to enjoy.
"If liquidity and income are not important considerations"... some investment! The last paragraph seems distinctly odd. I'd thought these kinds of markets - common value, incomplete information - more plagued by winner's curse than by fortunate buyers. And bundled moral obligations to show the work? I suspect a fair few art collectors get a lot of utility from loaning their works out, if only because of the little plaque that then goes under the piece while it's on exhibition: "On loan from the private collection of X". But unless the work were sold under a restrictive covenant demanding that the work be exhibited, I have a hard time seeing the case for a moral obligation.


  1. You seem to have attracted a philosopher Eric, this one translates as:
    "You cannot control the weather, but you may change the mood"

    On the topic of art as investment, I'm not an economist, but if an investment's value hinges on indeterminate returns such as the warm fuzzy feeling one might get from owning it then I think I'll give art a miss. Mind you, I'm no great "artophile" so I'd receive no more pleasure from having an original grand master hanging on the wall than I'd get from a couple of cheap prints of van Gogh, etc.

  2. @Lats: Another spam comment deleted.

    You're right - for lots of folks, the return to an art investment is the warm fuzzies. That's why it's a bad investment for folks who only want a money return.

    We have more than a few works on our walls. But we've bought them purely as consumption; we'd be deluding ourselves by reckoning them investment.

  3. Referring to your final paragraph, a friend of mine who was in first year architecture at the time told me how a lecturer was describing how many architects would design the furniture as well, and how one particular female owner (I think it was of Farnsworth House) had had the NERVE to display her TOTAL LACK OF CULTURE and DISRESPECT FOR GREAT ART by deciding she didn't like it any more and changing the furniture.

    I was like, "Well, she did pay for it..."