Buying Art as a Financial Strategy

One of the most important things to know about the supply and demand dynamic of art is very basic: When an artist dies, the supply of his work becomes fixed. Demand is determined by a host of factors that boil down to the reputation of the artist among the art-buying public. The “art-buying public” comprises a very large market – i.e., hundreds of millions of people. The great part of that market – like 99% – is involved in buying art whose value is worth exactly what someone is willing to pay for it. And the moment it is sold, its value usually drops by about 70%. Often more. If you want to collect art as an investor, you must eschew that 99% of the market and focus only on art that has support among the 1%. On a global scale, this part of the market is probably limited to fewer than a million people. And that includes not only private collectors, but institutions, critics, and dealers. Since we are talking about investing in art, let’s call this the realm of investment-grade art. What is investment-grade art?  For a work of art to rise to the level of “investment-grade,” two things must happen. First, works by the artist have to make their way into the collections of major institutions and influential collectors. Second, the artist and his/her works must make their way into the pages of respected periodicals and books on art. The longer a piece has been in such books and collections, the more stable its value is likely to be. Like blue chip stocks, art that has a significant and longstanding reputation for being valuable tends to be a safer bet than art that has a short history – i.e., art that is hot now. The Takeaway: If you want to start a collection of art that will appreciate in value over time, you must ignore everything you hear about the piece you are considering in terms of aesthetics. Do not even think of it as art. Think of it as a financial asset. Because ultimately, that’s what it is.