“I collect human relationships very much the way others collect fine art.” – Jerzy Kosinski

Collecting Art: The Six Lessons I Had to Learn*  

If done correctly, a first-class art collection will serve as a secondary investment portfolio to fund your retirement, protect you from inflation, insure you against economic or political instability, and provide a lasting legacy for your heirs or a charity of your choice.

My education in buying the right kind of art – art that makes sense as an investment – began when I was lucky enough to wander into an art gallery owned by Bernard Lewin. I didn’t know it when I met him, and he never mentioned it, but he was the most important broker of Mexican art in the world at that time.

I spent a lot of time browsing in his gallery and asking a lot of questions… all of which he answered simply and clearly. With his help, I learned some very important lessons and made what turned out to be some very profitable decisions.

Lesson #1: Don’t Buy on Impulse 

“Fall in love, but don’t buy on impulse.” This was the first big lesson that I learned from Mr. Lewin. This advice, which I barely understood at the time, proved to be invaluable over the years.

The point is, first impressions can be deceiving. You can’t know whether a particular piece will “hold up” (sustain your interest) unless you’ve looked at it at least several times and have thought about it in between.

Lesson #2: Not All Art Is Created Equal 

Some art is, indeed, relatively worthless – just “pictures that you hang on a wall,” as Sid, my surrogate Jewish uncle used to say. Some, like antique paintings and sculpture, has definite and assessable value. And some, fine art, can be an immensely good investment.

When talking to new collectors, I suggest thinking about art in terms of four broad categories: decorator art, commercial art, amateur art, and investment-grade art. (Note: These are my own categories. They are not used across the industry.)

Decorator Art is art (paintings, drawings, photographs, sculpture, prints, and so on) that is created strictly as decoration. The images and colors are often “made to match” (i.e., chosen to blend with or complement the overall interior design of a particular space). It’s the kind of art you see in chain restaurants and budget hotels.

Commercial Art is, in my mind, a touch above decorator art and is meant to appeal to a slightly more sophisticated buyer. It is produced by artists that have developed a competency in their craft and is marketed by dealers for the general public. In other words, it is made to sell well and quickly in the kind of galleries you find in upscale shopping malls, resorts, and cruise ships.

The quality of commercial art varies widely, from pretty good to very bad. And even the best pieces have modest to no investment potential because of the way they are made and sold. The most popular images are replicated by the hundreds or even thousands, and have little value for serious collectors and museums.

Amateur Art is art produced by artists who don’t make a substantial living from their work and are rarely represented by dealers. It is the art that is produced by students and spouses and retirees for the fun of making it. In terms of quantity, amateur art is by far the largest category. You can find it in attics, basements, yard sales, and flea markets – and also in many small galleries and antique shops.

The quality of amateur art ranges from very good to very bad. Good pieces that are old (100 years or more) can be sold as antiques – and as antiques, they will have lasting value. But if it is not antique, amateur art is not good for investment because it is, by definition, produced by “unknowns.” As a result, it is unlikely to appreciate much (if at all) over the long run.

Investment-Grade Art is art that is likely to appreciate in value.

What makes a piece “Investment-Grade”?

For most people, art is all about beauty. But if you think about the history of art, you will recognize that a piece that sells for tens of millions of dollars today isn’t valuable because it’s more beautiful than similar works. It’s valuable because, for whatever reason, the artist who produced it made his way into the small galleries, then the better galleries, then the smaller museums, then the bigger museums, and finally into books on art history.

So, if you think about future historical value, rather than aesthetics, when you buy art, you will have a much better chance of developing a valuable collection. And predicting what will be historically valuable in the future is much easier than predicting what will be considered beautiful in the future.

You do it by asking yourself the following sort of questions when you consider making a purchase:

* How respectable are the critics who support this artist?

* What art-world big shots are buying his work?

* What museums are buying his work?

* What media/images/techniques of his are most sought after?

Now when I happened into Mr. Lewin’s gallery years ago, I did not have this perspective. Nor had I spent much time wondering why some art becomes more valuable over time. I was lucky that my interest in collecting art was stimulated by a gallery owner who happened to be selling investment-grade art. Had I walked into a different gallery, I might have ended up as a different kind of investor than the successful one I’ve become.

Lesson #3: Buy Only Investment-Grade Art 

The first pieces I bought from Mr. Lewin have appreciated considerably over the years. I haven’t done the math, but my guess is that I’ve realized an annualized return of more than 8%.

Considering the fact that I knew so little about collecting at the time, I’m very happy with that. So, the third lesson I have for you is this: If you want to build a financially valuable art collection, you must limit yourself to investment-grade art.

You may think that you don’t have the money for that. In fact, you probably do. One of the first pieces that I bought from Mr. Lewin was a pencil sketch by Rufino Tamayo, the great Mexican master. It cost me $750 – equivalent to about $1000 today.

You couldn’t buy that drawing today for $1000. (It is worth more than 10 times that.) But for $1000, you can find plenty of good pencil drawings by other artists whose works are in museums. And you can buy their pastels and gouaches for a bit more.

Lesson #4: Buy Unique Pieces by Established Artists 

After helping me narrow down my choices to four investment-grade works that I could afford, Mr. Lewin surprised me by telling me that he’d be happy to buy them back in the future. (This is something I’d never heard a salesman say.)

He explained that I was buying pieces that had a very high chance of appreciating nicely. He had no doubt that I could sell any of them back to him for a profit… and that he, in turn, could eventually sell them for even more.

“You see,” he said, “you are buying original pieces by established masters.”

He picked up the Tamayo sketch. Pencil on rough paper. Hardly a masterpiece, but still one of a kind.

“For the same price,” he said, pointing to a print leaning against the wall, “you could buy that limited edition print of one of Tamayo’s paintings. But,” he said, holding the sketch up to the light, “there is one – and only one – of these. And there are 199 additional versions of the print. Which do you think will be worth more in the future?”

Lesson #5: Buy the Best Pieces You Can Afford… Then Trade Up 

Another one of my early purchases from Mr. Lewin was a watercolor  by José Clemente Orozco. It wasn’t the best Orozco Mr. Lewin had in his gallery, but it was better than some, and it was the best I could afford. I paid $18,000 for it, and it’s recently been appraised at between $125,000 and $150,000.

Fact is, better-quality pieces tend to appreciate more and faster than inferior ones. So, had I bought a lesser Orozco, I suspect I might not have gotten that same return. And that brings me to the second part of this lesson…

As you develop your collection, gradually sell off the mediocre pieces and use the proceeds to buy better ones that are likely to give you a higher ROI. (This, by the way, is the same strategy I use with my real estate properties.)

To develop the sort of collection I want, I need at least two or three major pieces by each of the Central American masters that I’m now focused on. Right now, for example, I have about 15 works by the great El Salvador master Carlos Cañas. Half of them are fairly minor works – smallish drawings or pastels on paper. A few are good, medium-sized paintings. And two are masterpieces, the sort of paintings that the Museum of Modern Art would display to show Cañas’s genius.

I’m happy to sell all of my mediocre Cañas pieces and a few of his good ones. But I will never sell the two masterpieces. I intend to enjoy them – and watch their values rise – as long as I live.

One Final Lesson…

If you do an internet search for “art investing,” you will find many articles and essays by dealers that eschew buying art as an investment. Instead, they say, you should “just buy what you like.”

This is not good advice… for several reasons.

First, it is illogical. It presumes that there is a difference between an art object that you like and one that has investment potential.

Second, it is harmful to the novice collector. It presumes that the art you are likely to “like” as a novice investor will continue to please you after you’ve been at the game for some time. And that is not, usually, what happens. Novice collectors like art that they see as “beautiful.” But what is beautiful to the inexperienced eye often looks derivative and obvious to the experienced eye.

You might, for example, absolutely love the $5000 Peter Max you bought when you were on that Caribbean cruise. But 10 years later, you may be embarrassed to have that thing on your wall. And then when you discover that you can get – at best – only $2000 for it (after 10 years), you’ll feel doubly duped.

Third, the statement itself is disingenuous. Dealers usually throw it in as a sort of disclaimer after pitching you on a particular commercial-grade artist or work of art. It translates to: “If this doesn’t appreciate as I’ve led you to believe, don’t complain. At least you like it.”

So why are all those “experts” telling you to buy what you like?

Here’s the thing about buying what you like: Tastes mature. The more exposure you have to art, the more sophisticated your tastes will become. Your goal as an art collector is to buy pieces that you like now and will likely still like in 10-20 years. And guess what? Most investment-grade art has that durability.

* This series of essays gives you an advance look at a new book that I’m working on, based on my experiences over the past 40+ years as a collector and investor in fine art.  

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