Art Prices Hold Steady When Stock Markets Crash

There is a relationship between art and stocks that is worth noting. According to the MMAAI (Mei Moses All Art Index), which has been tracking art returns since 1820, prices for art rise when the stock market rises. Not immediately but 12 to 18 months later. But the reverse is not true. When the market declines, art prices don’t always follow. Most of the time they stay put or deflate just a little. That’s because a great deal of the buying and selling of stocks is automatic – governed by computer algorithms to protect institutional investors (and pay for redemptions). Equally important are the millions of mom-and-pop stock investors that buy when they are hopeful and sell when they are fearful. These people can’t tolerate seeing their retirement accounts drop by 20% and 30%, especially when the media is scaring the hell out of them. So they sell and take their losses at the bottom. But computer algorithms do not dominate the art market. Nor do middle- and working-class buyers populate it. The art market is a market of wealthy people that can afford to hold their art when the stock market crashes. And because most of them don’t sell their art when stocks go down, art prices hold up much better than stocks during financial dips. On average, art returns 7.6% to investors each year, according to Artprice.com. Historically, the Standard & Poor’s 500 index delivers an average annual return of 9.8%. What you have to consider is how those higher returns correlate to risk. Stocks are volatile and a bull market can quickly become a bear market if global economic conditions shift