I’m writing this in response to a young friend who’s decided he wants to start collecting art and asked for my advice. I don’t consider myself to be an expert in any aspect of art, but I have had a fair amount of experience.

When I began to buy art about 40 years ago, it never occurred to me to think about my new hobby as an investment. I was buying for beauty, not for value.

My first few purchases were of artists I didn’t know. I wandered into a gallery one day, saw a bunch of paintings I liked, and bought them. They could have been (and probably would have been) junk art, except that I was lucky enough to have wandered into a gallery that specialized in Mexican masters like Diego Rivera and Rufino Tamayo.

Those pieces have appreciated dramatically.

Since then, I’ve bought more than 1000 pieces of art – from private dealers, from auctions, from collectors, and from artists. I’ve also owned three galleries. And along the way, I developed a set of ideas about art and the markets for art that guide my buy and sell decisions.

So this is the advice I sent to my friend and the advice I’d give to anyone interested in developing a potentially valuable collection of art.

15 Things You Should Know If You Want to Invest in Art:

1. Art has no intrinsic value. Its value is not determined by how beautiful it is or how masterful the craftsmanship is. Its value is determined entirely by the market.
2. The most important factor in the value of a contemporary work of art is the reputation of the artist among market insiders. (By market insiders, I mean museum curators, major brokers, and to a much lesser extent art critics)
3. The most important factor in the future value of a work of art is the artist’s prominence in art history books. The second most important factor is the importance of the museums that own and display it. The third most important factor is the number of large corporations and wealthy individuals that own it.
4. Understanding this, you should approach an investment in art as you would approach an investment in any historic artifact.
5. The investment-grade art market has certain distinct differences from the financial markets. It is smaller and more controlled and less regulated. In terms of “influencers” (brokers, buyers, and critics), it is very small. In terms of dollar values, it is quite large – in the billions.
6. Contrary to most other investment categories, diversifying does not increase safety with investment-grade art. Specializing does. It’s better to collect 100 pieces of one established artist you know and admire than one piece of art from 100 different artists.
7. Evaluating individual pieces of art is easier than it seems because the factors that affect valuations are easy to understand and easy to gather. (This is especially true now that auction records are available online.)
8. The factors that matter most in valuation are: artist, medium, size, rarity, and style/period.
9. Like most other tangible assets, rarity is a major factor in price appreciation. The work of an established artist whose catalog is only several hundred pieces large will tend to rise faster than the work of an artist whose catalog is in the thousands.
10. “Quality” is another important factor in price appreciation. Quality in the art world has nothing to do with beauty or craft. It identifies pieces that were done during the artist’s “best” period.
11. Medium is also important. As a general rule, oil paintings are more valuable than acrylics, acrylics are more valuable than gouaches, gouaches are more valuable than crayon and ink pieces, crayon and ink pieces are more valuable than ink pieces, and ink pieces are more valuable than pencil sketches.
12. The touted 10% historic return for fine art is somewhat contrived. It was determined retrospectively and based on the pool of artists whose works had appreciated the most. If you are careful and lucky in the art you collect, you can make 10% or more. But it’s safer to assume that the return you get will be closer to the rate of inflation.
13. A good strategy for the beginning collector is to start with an artist who is dead and whose works are in at least several major museums. If you can’t afford to buy the artist’s “best” pieces in the artist’s “best” medium, buy the best pieces you can find in a less expensive medium.
14. After buying a piece, learn everything you can about the artist. Not just his biography, but everything you can about the commercial history of his work, including which brokers deal in his works, which museums hold his works, and how his works have been priced at auction over the years.
15. If you can’t afford to buy a dead artist whose works are already in museums, try to buy pieces that you like or admire. By doing that, you will get an aesthetic return on your money even if the work itself does not appreciate.