The art market
Dec 16th 2004
From The Economist print edition
A stunning price—and this time, for something old
IT IS said that people buy contemporary art when they are confident
about the future and old art when they are not. Maybe a few worries are setting
in. On December 9th, a piece of furniture known as the Badminton Cabinet—made,
in pietra dura, ebony and ormolu, in 1720-32 by the Medici workshops for
the third Duke of Beaufort—was sold at Christie's in London for £19m ($36.7m),
a record for a non-pictorial work. The auctioneers had hoped to match the £8.6m
paid by the previous owner in 1990.
The cabinet is the latest of a number of older works going for record prices.
However, in recent years, contemporary art has made all the running. Last month
saw record auction sales of contemporary art in New York. Research by the Art
Sales Index shows that over the past four years the shares of contemporary and
modern art in auction-market turnover have risen, while those of Old Masters
and 19th-century works have declined. That said, Daniele Liberanome of Gabrius,
a company that tracks art prices, considers Old Masters undervalued based on
their performance since 1990.
Conventional wisdom has it that older art holds its value, while
contemporary stuff is for risk-lovers. William Goetzmann, a professor at Yale,
estimates that during the last art-market slump, which set in after 1990,
Impressionist and contemporary works fell by most (51% and 40% respectively),
while Old Masters suffered least (down by 16%). Yet despite the bumps,
contemporary works have been rewarding for those who are prepared to hang on:
according to Jianping Mei and Michael Moses, professors at New York University,
since 1970 the returns on contemporary art have far outstripped those on Old
Masters and 19th-century paintings.
Since the late 1980s, more sophisticated analysis of the art market and
a growing interest in alternative investments have spurred the creation of
several new investment funds focused on art. At a recent conference organised
by one of these, the Fine Art Fund, Rachel Campbell of Maastricht University
pointed out the low correlation between returns on art and on those other
investments. Given that it usually pays to diversify, that is a good argument
for investing in art, whatever your taste. The Fine Art Fund, which began
buying this April (and has 36% of its money in cash), advises that investors
spread their art allocation fairly evenly between Impressionists, Old Masters,
modern art and contemporary works.
Contemporary art, in particular, has served rich investors well in the
past few years. Prices stayed buoyant when stockmarkets slumped. Nevertheless,
one recent academic study has found a correlation with another asset class:
during the last world art boom, in the late 1980s, prices were closely tied to
property values, specifically Japanese land prices. After 1990, art and
property slumped together. Now property prices in several countries are once
again at giddy heights.
Investing in art will always be a risky business. Works of art are by
definition heterogeneous; holding periods vary; the market is illiquid; art
yields no income, producing only capital gain or loss; transaction costs are
high. As for contemporary art in particular, it is a sobering thought that,
according to Mr Moses, each year an average of only two artists emerge whose
work increases in value over time. All this speaks against a big commitment to
speculating in art; better, maybe, simply to buy what you like, if you can:
treat your money, in other words, not as invested but as consumed.
Copyright © 2010 The Economist Newspaper and The Economist Group. All