The simple guide to art investing

painting of a merchant investing into art
Painting of a Merchant by Jan Gossaert.

Art as an investment type

Art is a dichotomous investment type. From one side, it enjoys almost feverish attention from a rather small group of collectors. From another, the general public rarely gives more than a passing glance to this asset.

Choosing not to invest into art has merit as a decision. However, it is always useful to look into assets which are not directly tied to the stock market.

Moreover, the value of art pieces tend to increase over time. Taking advantage of these factors can be done with the help of a simple guide.

What to look for

For people who have been learning about art for a long time, Money Bear Club advises to trust their instincts. Similar to memorization of musical styles and their main qualities, it is possible to consciously (and even unconsciously) memorize art styles. If a particular painting, sculpture, or textile seems particularly striking for a person who has learned about art, it is useful to trust their instincts.

For others, and those who are just starting to collect art, it is useful to remember several unconventional tips.

It can be helpful to buy “outlier” art. Pieces that are completely different to the time period they belong to, or that are not done in the typical style of the artist.

Outlier art brings attention to itself. Even if an outlier piece isn’t the most technically well done, it will be far more popular than pieces done in the conventional style of the artist (or the time period).

Attention to the outlier pieces, can create a higher demand for it in venues for selling art. Higher demand will then create a nice price boost.

A good or an old copy can be more valuable than an unknown original. There are many artists which may have painted masterpieces – both from technical and sentimental side – but which have been forgotten, or even never were popular in the first place.

Buying art from these painters or sculptors is a gamble. Gamble on the possibility that another collector will recognize their value, or that an artist will become unexpectedly popular.

Copies, especially earlier ones, in comparison to unknown originals, will then provide a far less risky way to invest into art. Their value is more or less stable. With the choice of the right market, they can be sold for a good profit.

What art to dismiss

Buying art as an investment can be a difficult process. Especially, with the variety of paintings that have been painted throughout the years.

Obviously, a painting painted in a factory will only have sentimental value. That’s why it’s important to avoid all paintings where nature is depicted from a certain perspective.

And with a similar style:

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These two landscape paintings by Bierstadt and Lessing are valuable art pieces. However, the thousands of factory made landscapes with the same perspectives are quickly depreciating liabilities. Although they can look good, it is better to avoid landscape paintings because of the likelihood of accidentally buying a mass-produced piece.

Marine paintings also fall into this category of paintings to dismiss. There’s a bigger probability to find a gem in marine paintings, than in paintings of nature. Yet, that probability is still small.

Cheap sculptures are pretty easy to spot. Fake wear and tears marks don’t require deep knowledge to spot them. In general, it’s best to avoid smaller sculptures, and instead to go for larger installations. They have value both as an art piece, and as a home decoration object. This opens more opportunities to sell it.

Oriental art in western countries can be a 50/50 deal. There are many great finds that slip away because of untrained eyes. On the other hand, mass produced eastern art can be harder to recognize for individuals who haven’t lived in Asian countries.

Learning more about art from other cultures can be not only a fun activity, but also a cultivation of a useful skill. Being an expert of a less popular niche, in an area where there are few competitors, could be an useful skill.

Where to find

There are three main ways of acquiring art:

  1. Directly from individuals;
  2. Buying from businesses;
  3. Buying at auctions.

From the risk/reward ratio, buying directly from individuals is one of the highest in relation to acquiring art. Humans are very susceptible to social engineering (Social engineering: investing into people skills?). Likely even more so, when it is performed in person to person interactions. That’s why its useful to be sceptical when buying pieces from individuals.

Buying from businesses can be one of the best ways of finding hidden gems. Businesses selling antique pieces don’t always have the expertise and knowledge to find the origin and authors of those pieces. This causes many average to high value paintings, sculptures and rare objects to be sold at low prices.

In contrast to antiques shops, art sellers and private galleries are a 50/50 shot. A good curator can lead the buyer to acquiring a collection of paintings that will become true assets.

However, curators more interested in making a sale, rather than mutual gain, can lead collectors to buying art that is “on the rise”, but with a low resale value.

Auctions are a worthwhile endeavour for buyers interested in  creating a collection of a specific time period or artist; and for buyers interested in buying pieces with high public recognition.

Many pieces from lesser known artists are sold rather cheaply in auctions. Building a collection of them, and selling them in a group, rather than individually, should net a nice profit.

One less talked about way of acquiring art is through relatives as inheritance. The bulk of stories about “hidden gems” of art finds come from inheritances.

The knowledge about art or valuable creators is not always equal between family members. What could have been a sentimental piece to the deceased, could be recognised as a masterpiece by the inheritor.

A piece’s value increases with time that has passed from a) its creation and b) from death of its creator. Inherited pieces are more likely to match both of these two criteria.

Whose services to use

There are three levels of service a collector can use when buying art as an investment, or selling it:

  1. Internet experts;
  2. Art experts and agencies;
  3. Auction houses.

Internet experts can be very useful in instances when the collector needs to identify obscure artwork (there even exists a community for that: What Is This Painting?).

Using the help of strangers on the internet also brings relative anonymity and, of course, it saves money. It’s important to remember that free advice does not always equal good advice. Verifying the free advice by using other services is important.

Art experts and agencies offer the best value proposition to buyers, rather than to sellers.

Forgeries will never disappear. Hence, when buying art for investment, it is useful to verify at least the year or the century when the piece was created.

For pieces with unknown authorship, it’s possible to identify them through own research. However, for most collectors, there comes a point where own knowledge and research does not help any more. Starting to use the services of experts, would be the most rational and cost effective decision at this point.

Auction houses tend to have the best teams with a wide breath of knowledge. It’s important to remember just one rule related to auction houses: never go to a local one, and never bring art not related to the location it is in.

Not going to a local auction is a sensible action in relation to security. From the side of security, workers (or their relatives, or their friends), easily find out who is the person selling. If it is a small city auction house, the sale could become the talk of town. Who needs the negative consequences from this?

It’s not rare to see foreign art sold in unrelated to that country auctions. There’s nothing wrong with. Yet, by bringing art which is not related to the local auction house, the seller increases the risk that the painting will be underappreciated or undervalued by the personnel.

The rules about art and auction houses do not apply to famous auction houses with a long history. They aren’t the best place to sell less popular art, but are the best place for top art.

In the case of buying art, auctions do have the best teams to advise about the real value of a potential purchase.

When to buy

As with any investment, the best time to buy art is when it is at its cheapest. Times when foreclosures become common, borrowers have to downsize to be able to return their loans, and when businesses start to worry about bankruptcies, are the times to buy art.

Art is underappreciated by many. It is one of the first things to be thrown away when people are moving, or are trying to make additional money. Times when people are desperate for money are the best times to buy art. Valuable art is as its cheapest then.

It’s important to not jump into purchasing art at the first sign of a downturn. That’s when low quality art is mostly being sold. Because individuals with low incomes and small asset sizes are hit first by any unfavourable economic conditions, art sold by them is unlikely to be of high value.

When a downturn hits at the full force, it is the time to go all in.

Art insurance is important

After the piece(s) are bought, it should be the time to take care of art insurance. Discussed in the article Art insurance and intelligent strategies for insuring fine art, this type of insurance is important for every collector.

For collectors with smaller collections, insurance is good protection in case of a loss that would set them back severely. For collectors with larger collections, the insurance is even more valuable, because of security concerns that come with larger collections.

The reason why art insurance should concern every collector is not necessarily security-related. Natural phenomena and their outcomes, explained in the article about art insurance, can be far more significant than security breaches to collectors.

Moreover, there are easy ways to protect assets from any outcomes of illegal activities of outsiders. For outcomes of natural phenomena, the protection against it is far more difficult. This make insurance very valuable to art collectors.

When to sell

If buying should be ideally done during downturns, the best time to sell is in times of high GDP growth and moderately growing inflation.

When the economy’s doing well, the demand and the prices paid for art pieces grows. Why not take advantage of these conditions?

For art collections of families, or those kept for inheritance, or as a safeguard against any negative economic events, Money Bear Club suggests to wait double the time of a chosen selling time frame.

If the chosen time frame to sell is one year, for an object in a family art collection, it is useful to wait another one. The same rule can be applied to paintings received through inheritance or sold for generating cash flow. In these cases, the sellers are rarely in a hurry. Waiting longer to sell can create a larger buzz and demand for them.

The fine line between assets and liabilities

Without a doubt, as an expression of feelings and ideas, art is a valuable asset for the humanity. Even factory made art, shows what ideas and concerns have been important for individuals at a certain period of time.

As assets for collectors, art pieces frequently turn into liabilities after more research is done. It can happen to any collector. Beginners can easily overestimate their knowledge. Experts can believe they have seen it all, and trust only their gut instinct.

Therefore, it is very useful to always operate with certain scepticism. It should help to extract the most value from the asset that is art.

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