When I first started in gallery work in 1996, I was a fresh-faced kid straight out of college. I knew I wanted to work in the arts but, like all starving artists, had no idea what direction that might ultimately take. One of my early passions growing up was animation. It proved incredibly laborious and time consuming, so I migrated to comic books and political cartooning while still in school. So when I was coincidentally hired at a gallery specializing in animation cels (Walt Disney, Warner Brothers, Walter Lantz, Dr. Seuss, et cetera, et cetera) an insatiable appetite was created for knowing anything and everything I could about the media, the history and the collectibility of these works. I clinically examined each work within my budget to determine precisely what the best use of my hard-earned (and scarce) funds might be. When I bought Theodor “Dr. Seuss” Geisel’s (1904-1991) “Cat Carnival in West Venice”. My friends looked at me as if I had three heads. “You spent what?”… “On that?” It was $1,200.

As I was fielding offers nearly a decade later for said “Cat Carnival”, a final sale price of $4,500 was settled upon. This sum represented a nearly fourfold increase, despite the worst recession since the Great Depression. Let’s think of it as my own Bailout. While this is not a huge sum by modern investment standards (or, for that matter, the interim of my career), intervening years have proven that I am not too bad at prognosticating the world of art investing, albeit now on a much grander scale.

This is not a science as much as it is educated guess-work. Art is not regulated as a security because it can, and often does, devalue itself. The reason is that art-flippers often know as much about art as they do about quantum mechanics. Stock brokers and fund managers have developed a skill in clinically examining a set of criteria over a long period of time, processing enormous amounts of information which involves many moving parts and often a complex overview of disparate factors. Conversely, day-traders are often arm-chair quarterbacks who throw the occasional touchdown pass. (Even a stopped clock is right twice a day).

Similarly, true art advisers and consultants are examining multitudes of data from auctions, private and gallery sales, authenticity, controversy, forecasting, movements in art, epochs and eras, phases within an artists own career, popularity and rarity of various themes, among other factors. None of these factors can be taken as sole, concrete criteria for an art purchase. The Arts are a living, breathing organism capable of creating the biggest stars and one-hit wonders at the same time. Therefore, speculation about artwork must be ventured with a hearty dose of scrutiny and a trusted, relatively impartial source.

-If you read about the Art auctions… you only get part of the story.

-If you study an artist without knowing his/her most important phases… you only know some of what you will need to know.

-If you speak to one art dealer about purchasing another Art Dealer’s work… you might not get as truthful of an answer as you might hope because there is a disincentive for them to endorse someone else’s product.

The truth is that no art adviser can be an expert in every type, phase or media in art. Further, even the most forthright and honest advisers sometimes simply get it wrong. You would not ask a plastic surgeon to perform neurosurgery, despite the fact both are surgeons. But you would know either way, surgery is always risky.

One of the things I have figured out since the purchase of “Cat Carnival” is that buyers generally striate themselves into several plateaus of purchases. Works which are purchased from $1-5,000 are generally passion-based or impulse purchases. These are things that we like, feel are beautiful, are opportune, but may or may not carry an intrinsic, historical or monetary value into the future. Works between $5-10,000 represent a gray area in which there may be passion-based motives, but also a speculative intention. Whether or not this speculation trends upwards or downwards is dependent on the artist, the diligence with which the specific work was selected and the prospects that the artist will have staying power beyond the time-frame in which it was purchased. (i.e. are they a phase that will fall out of favor in the coming years?) Above $10,000 buyers are generally investors on some level as they demographically disposed to higher income, higher education, higher net-worth and greater risk-assessment capabilities that come from experience with high-end purchases. This does not imply that all buyers are motivated by the desire to “make money” on their art. Many, if not most, would never sell the works they procure through their collecting lifetimes. (By some estimates, only .5% of art is resold by the original owner.) However, along with their greater accumulation of wealth comes pragmatism to critically examine their purchases for some form of monetary security. Even if you do not break even on your purchases, they still should hold some degree of solidity as they are, at a minimum, physical.

According to an article from CNN.com, “In 2005, the Mei/Moses Fine Art Index showed compound annual returns of 14.52%, while total returns for the S&P 500 were 4.9% and the U.S. Treasury 10-year notes returned 2.68%” (“Add Picassos To Your Portfolio?“, February 2006). Mei/Moses generally sticks to auction-only sales of names you may be familiar with if you took a college art history course: Pablo Picasso, Marc Chagall, Salvador Dali, Auguste Rodin, Paul Gauguin, Vincent Van Gogh, Gustav Klimt, Francis Bacon, Amedeo Modigliani, Edouard Manet, Joan Miro Claude Monet, Edgar Degas, and a host of other 19^th and 20^th Century masters. This is because they can serve as a barometer of the auction market as a whole, and while most of us will not rush out to purchase the first Picasso that crosses our path, we may be inclined to locate a well-priced, hand-signed and numbered aquatint or lithograph from him. A bronze from Salvador Dali can be in the $10-50,000 range, whereas a painting can be hundreds of thousands. Each has a prospective upside if you know which works to get, how much to pay for them and what questions to ask to know that the work will endure.

Can any dealer promise a four-fold increase in less than a decade? Not without holding two fingers behind their backs.

But what we can do is serve as honest arbiters of information about the purchases you wish to make, whether they are purely impulse driven or purely investment motivated (or somewhere in between). By giving impartial advice and by building a network of references who will vouch for the record we can, at a minimum, provide you with an honest sounding board from which you can make decisions which will serve you and your heirs for generations to come.

Now… How about a replacement for my Seuss?

Tags: art as investment, ART BASEL, Art Fund, Art Investment, ART MIAMI, Eli Broad Art investment funds

This entry was posted on Tuesday, July 6th, 2010 at 4:50 pm and is filed under Blog Posts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.