Beginner’s Guide to Investing in Art 📰 | Mark Humes Gallery

Beginner’s Guide to Investing in Art 📰

Beginner’s Guide to Investing in Art

Art has become an excellent investment opportunity that you can benefit greatly from. There is a common misconception that collecting artworks is an overly expensive practice reserved solely for those in the high-end circle of the art world. In the past few decades, the concept of art has changed drastically. Now, any art enthusiast who knows how to research can partake in this activity without burning a hole in their pocket. So, the question is less about money and more about your analytical and groundwork skills.

The art industry is somewhat opaque and full of off-centered information. That’s because while art merchants have precise knowledge and expertise in the field, the buyers, on the other hand, are not as well-informed about these matters. And when the investors don’t know what they’re buying from the sellers, there might be a significant chance that they would get ripped off due to their lack of knowledge. The only thing that can prevent you from a massive setback is thorough research.

As long as you know what you’re doing and have a solid action plan, the chances of making a costly mistake with your new investment are almost negligible.

Why Should You Invest in Art?

There are two primary reasons for investing in art - financial profit and emotional connection

Let’s consider a real-life example to understand how making an art investment can exceptionally benefit you in the long run. In 1958, a famous painting by the renowned artist Leonardo da Vinci, ‘Salvator Mundi,’ accumulated only $60 on auction under the suspicion that the painting was a fake. However, the very same painting was auctioned at - wait for it - $450 million in 2017! Going from a mere few dollars to healthy millions in 60 years is what you can call a valuation increase. Even Apple and Microsoft would be jealous of this return and with good reason!

This is just one of the many examples of how investors take an opportunity they think would profit them based on proper groundwork, reaping its benefits afterward. The person who bought the Salvator Mundi spent a relatively low amount, knowing that even if the painting were a fake, it wouldn’t affect him because it didn’t take a toll on his wallet at the time. Making your priorities clear and knowing what you can and can’t afford is the factor that contributes to a successful career path.

On the other hand, we can also refer to investing in art as an emotional practice because art always has an established aesthetic value in addition to an appealing intrinsic worth. Moreover, the role artworks play to soothe our minds is another factor that influences the investors in this field. After all, no mature investor buys an ugly artwork for some incomprehensible reason. Rather, they know the paintings might sell for profit one day. They also think it’s essential to have an emotional connection to the artwork before purchasing it.

Benefits of Investing in Art

In addition to the traditional asset benefits, there are a few other advantages of investing in art that make it different from other investments. These include:

1- Diversification 

When it comes to dealing with financial markets, the risk is almost always on the table. That’s because the systematic risks are inherent to the stock market, and you can’t really do anything to diversify these threats. So, in the end, no matter how cheap index funds you originally buy, you will still take a financial hit when the stock market performs badly.

Contrastingly, the values of art pieces do not correspond with or react to the stock index or market. This means that by investing in art, you would benefit from diversifying away from the major market risks. 

 

2- Aesthetically Promising Assets

Staring at your brokerage account with those shares would never give you a sense of excitement like an artwork does. After all, why would a boring legal document bring anything other than a whole lot of stress as you keep hoping your shares would finally start giving you the traction you want. Unless you know with a hundred percent certainty that they will give you a considerable profit, it isn’t something you can brag about or even get personal satisfaction from.

However, art is something you can hang on your walls and enjoy while everyone else appreciates it until it is time to sell it off to the next owner.

 

3- Zero Depreciation 

Cars break, houses deteriorate, and people age and slow down with time. However, if there’s one thing that not only retains its value but also elevates it with time, that’s art. For instance, a 300-year old painting would be way more valuable now than it did at that time, even if it was wanted by the European King himself then. 

Simply put, art doesn’t depreciate. So, you know for sure that you’ll be compensated extremely well when you sell your painting to someone else, whenever that might happen.

Facts to Consider Before Investing in Art

While there are some very attractive benefits when it comes to investing in art, it’s not all smooth sailing. As you might imagine, there are also a few things to consider before you decide to step into this field. For example:

 

1- A Cloudy Information Channel

As we discussed earlier, an investor who’s not very familiar with the artworks, in general, can face some major issues in this field without proper research. Unless you’re a gallery owner, an art critic, or an artist yourself, you might not be able to judge an artwork’s authenticity just by looking at it. While the seller must have a litany of inside information regarding the art piece, you can only take their word on it to believe what’s real and what’s not. Plus, the artwork doesn’t have an income statement or price-to-earnings ratio that you can investigate to know about its true value.

 

2- Highly Illiquid Assets

Investing in art can be compared to real estate investments as both of them are highly illiquid assets. Selling artwork for quick cash isn’t something you can do easily, and a painting can’t be immediately sold for profit without going through many different channels. So, if you’re looking for something that can give you on-point hard cash, making art investments wouldn’t do you any favors.

 

3- Art Dealers’ High Commissions

Like all other opaque industries, there’re a few things you have to constantly deal with when you step into this field. For instance, art dealers and gallery owners would be more than helpful when you’re selling your art collection. However, they also ask for hefty commissions. In fact, many gallery owners demand as much as 50% commission for selling each artwork! So, if you were thinking about 100% profit gain, you might be in for an eventful sticker shock.

Still, investing in art can provide huge profits if you know where to spend your dollars.

Types of Art Investments to Make

Now that you’ve weighed the industry’s pros and cons, you might have made up your mind about pursuing the field. Generally, people think of the disadvantages as considerations that come with every other industry, not making a big deal out of them. However, if any of these considerations are a deal-breaker for you, you should think about taking a different investment route altogether.

For those of you willing to make promising art investments, you’ll have to understand the purchases you have to make for starting strong. Just like stocks, art can also be broken into different classes. While some art categories return guaranteed significant profits, others need a bit more speculation. Here’s how we have categorized it for your convenience:

 

1- Works of Old Legends

By old legends, we mean 18th-century artists, especially the ones from the Renaissance period. Leonardo da Vinci is one of the classic examples from that era. 

Art pieces from the world’s renowned artists carry a hint of prestige and notoriety, along with a big price tag. That’s why if you have got a considerable budget, you should think about making a big investment with the rarest and most valuable art pieces in the industry, guaranteeing a significant payback. 

 

2- Blue-Chip Arts

A blue-chip company is a well-established, financially sound, and secure corporation with a solid track record of profitability and sustainability. Within the art world, blue-chip art refers to the paintings from well-known artists with definite and lasting profitable value and cultural appeal, regardless of the economic ups and downs.

Pablo Picasso and Andy Warhol are among the top blue-chip artists as their work usually increases its intrinsic value with time. Usually, blue-chip artworks sell for over $10,000 per piece.

 

3- Rising Artists’ Works

Unlike blue-chip artworks that often come at a high price, the up-and-coming artists produce quality work at a fraction of that price. This is where your own judgment and research will prove to be handy if you can locate the next Picasso or Salvador Dali. Since these artists have yet to receive recognition for their work, you can cash in on their paintings for significantly less price.

 

What to Look for in an Art Piece

When investing in art, you can’t just hop onto an Amazon-like site and jumpstart your career. This field requires research, which can be much trickier than you originally think. So, here’s what you should look for when searching for an art piece that could be worth a lot of money for you:

 

1- Authenticity

The very first thing you should ensure is the painting’s originality. If something seems out of place in the painting or if the artwork doesn’t match with the others by the same artist, consider it a red flag.

 

2- A Good Fit in Your Diverse Collection

It would help if you looked for artwork that doesn’t clash with your present collection. You can both admire the aesthetics of the artwork and hope to triple its worth over time.

 

3- Outside Opinion

A trustworthy outside opinion is crucial if you don’t know much about the art industry. Otherwise, the sellers will do their best to get every last dollar out of your pocket. You’ll need a credible advisory source who can guide you to make the right decisions. 

 

4- Artist’s Background

While researching the art’s authenticity is a necessary aspect of investing in art, so does learning about the artist’s history. The more you know about a particular artist’s detail, the better you would know about the art’s value. The information you should gather must include knowing who the artist is trained under and which style of painting they have favored in their past works.

 

The Art Investment Strategies

Most art investments are based on two types of strategies - speculation and buy-and-hold.

Speculation - Purchasing art from lesser-known but rising artists and holding onto them until they become famous.

Buy-and-Hold - Acquiring old legend’s works or blue-chip artworks and holding onto them until their value increases.

 

Sell When You’re Ready

Once you know which strategic route you would be choosing, you can begin browsing auction houses, art galleries (online or otherwise), and individual sellers to start your art collection. Negotiate with the sellers and purchase the art pieces at a price that’s within your budget.

A good rule of thumb is to keep the artwork you purchase for at least three years as it appreciates during that time. Ensure to acquire the paperwork that proves the painting’s authenticity and keep your art collection displayed in a safe place, so they don’t get damaged. Lastly, sell your art pieces when you can make a significant return from them.

As you can see, investing in art takes time, effort, and capital. However, the benefits are also obvious. So, do your research and acquire the best paintings using the right strategies. Remember that patience is always the key when it comes to making sound art investments!