MONEY COMMENT
Making Money From Art

By David Kuo (TMFDragon)
June 29, 2004

Is art a good investment?

According to Peter Temple's book Superhobby Investing, many astute City bankers and brokers collect art, using it as an alternative to the stock market and property.

Many companies also collect art. Some may remember Railpen, formerly the British Rail Pension Fund, which controversially sank £40m into art in the 1970s. That £40m investment appreciated to over £170m in twenty years - beating inflation by four percentage points.

Evidently, there can be some financial benefits to collecting art. Furthermore, with a million art collectors around the world, the market for art is plainly quite substantial. But where does a novice art investor start?

As with any investment, knowing your onions, or in this case, your Degas from your Picasso is absolutely essential. Temple points out that the art market is not one market but many, with each big name artist a market in his or her own right. Furthermore, particular schools of artists and artistic movements are also separate markets. Consequently, art is difficult to standardise but that could work in the novice collector's favour.

By focusing on specific areas, it is possible, over time, to specialise in certain identifiable sectors. For example, it is possible to hone your skills in watercolours or contemporary art. Limited edition prints are another possibility, and some of these works can be quite affordable too - costing as little as £100 a piece.

Quite apart from their affordability, the prices of limited edition prints have been much less volatile than the original works of art. According to artprice.com prints costing less that €1,000 produced an average return of 16% from 1996 to 2002, outperforming paintings costing over €100,000, which appreciated 12%.

In fact, academic researchers appear to be in agreement that art has shown a consistent positive real return over time. However, there is some disagreement over the actual levels of those returns. These vary from 0.6% per year in real terms to a cluster of figures around the 5% level.

Personally, I like art, though I have never look upon the paintings that hang on my walls as serious investments. I tend to buy what I like because, after all, I have to look at them every day of the week. But if one day I find that what I like happens to dovetail with what art collectors of the future like, then so be it.