Art as investment

2012-05-12 13:53

Investing in art is very different from buying a painting that matches your lounge suite. While some investable art may be visually beautiful, like a Claude Monet hanging over a fireplace, more often art is there to provoke a reaction, to question and challenge, and to put a spotlight on the darker side of society.

Edvard Munch’s The Scream, which recently sold for $120 million (R955 million), is not exactly a painting for the bedroom wall, but it is possible to blend aesthetics with investment.

Art is not an investment in the true sense of the word. It does not generate dividends or interest and, in fact, costs you money to maintain.

The value is often only truly recognised when it is sold. The capital value is the only upside and is therefore a store of value rather than an investment.

However, art is certainly an asset class that can provide significant returns, but usually over a long period of time – the average collector holds on to their artwork for about 27 years.

So while it may not be ideal for your basic retirement plan, it certainly can over 30 years develop into a very valuable asset.

The best way of approaching this asset class is to see art as an interest that has the potential of becoming a very valuable asset class.

It is one of the few interests or hobbies where you can educate yourself while at the same time create an asset base of great value.

While there is nothing wrong with buying a piece of art because you like it, it is not the same as investing in it.

One needs to learn about the world of arts just as one would investigate and read up about a share or a unit trust before investing.

Most of us will buy an artwork in our life time, but we seldom take the time to do our homework.

A good starting point is to visit galleries and art auctions. Stephan Welz, founder of Stephan Welz & Co auction house, which represents Sotheby’s interests in South Africa, says when starting an art collection you should stick to the recognised artists, in much the same way as a share portfolio should be made up of blue-chip companies.

A good auction house or gallery will be able to advise you on who the recognised artists are and what they are worth. But you should also be doing your own homework by attending auctions and seeing what prices certain artists are commanding.

It is only in an auction that the true market value of an artist or specific artwork can be determined because art is only physically worth what someone else is prepared to pay for it.

There is, however, also room for a new artist in a collection.

As one may invest a small portion of one’s portfolio in newly listed companies, a well-chosen newcomer can increase significantly in value.

However, this is not for novices and it is, as with investing in a small company, even more important to do homework. New artists also create opportunity for the small-budget collector.

If you are buying into the blue-chip league, you need a starting investment of R50 000.

For half that amount, you could pick up a new artist.

However, the risks are far higher.

The risk with new artists is that sometimes their prices can be overinflated as they are still to be tested in the auction environment and they are harder to resell.

But when it does, the payoff can be immense. For example, a William Kentridge etching in his early days went for R8 000.

Today that is worth about R500 000. But not every new artist is a Kentridge and is far more likely to remain in obscurity than to succeed.

If you have a smaller budget and want to buy into more established artists, you can start with collecting limited edition signed lithographs (prints) of well-known artists.

You don’t need to be rich to be an art collector, although it does help. There are many famous collections by people of ordinary means.

For example, a book-keeper built up a collection worth many tens of millions of rands, yet he never owned a car because he could not afford it. His investment was his passion.

Some people would rather buy an artwork than take an overseas trip.

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