Many people think that works of art are merely decorative objects. However, art can also be an excellent investment vehicle. In this article, we are going to see why it is interesting to invest in art and we are going to propose 4 ways to invest in art.
There is a widespread belief that investing in art is reserved exclusively for billionaires who can afford to pay astronomical amounts of money for famous paintings. For example, in 2015 Kenneth Griffin – a well-known American fund manager – paid $500 million for two paintings.
However, with this article, we intend to show that investing in art does not have to be reserved for billionaires. First of all, we are going to see why it can be interesting to invest in art in general, and then we are going to explain 4 ways to invest in art that are within the reach of people with smaller budgets than billionaires.
Also read: How To Invest In Art?
Why invest in art
There are many reasons that make investing in art interesting. Next, we will see the main ones:
- Appreciate over time – Unlike many other assets, works of art don’t lose value over time (unless they go bad, of course). Quite the contrary, they are revalued. That is why it is so interesting to invest in art. In addition, it is an asset that protects us in times of high inflation and/or high volatility in world stock markets.
- It serves as collateral for other investments. For example, if we want to make a real estate investment, we can provide our work of art as collateral for the loan, and thus we can benefit from the leverage effect (in this other article we explain why the financial leverage effect is so interesting for real estate investments) . For those who want to know more about it, we will tell you that the legal term for this type of transaction is “pledge“.
- It is increasingly a more liquid asset, thanks to new technologies. An example is AmazonArt, which since 2013 allows you to sell works of art (in this other article we explain 4 ways to earn money with Amazon). Another example is investing in art through the stock market, a totally liquid investment, as we will see below.
- Each time it is a more accessible asset, since the entry price is lower. As we will see below, there are several ways to invest in art with a capital of just a few hundred euros or dollars.
- In some countries there is a special tax system for works of art. This is particularly true of VAT and inheritance tax, which offer particularly favorable tax rates when investing in art.
- It is not subject to the exchange rate between currencies. Works of art have an intrinsic value, regardless of the currency in which you want to invest.
4 ways to invest in art
1. Purchase of shares of companies active in the art world
An example is Sotheby’s, one of the largest auction houses for works of art worldwide. Although it was founded in London in 1744, it is now listed in the US (on the New York Stock Exchange – NYSE – to be more exact), and its ticket is BID. In the graph below we can see the price of the stock in the last 20 years (quarterly candles). We see that although the action is directly related to the financial markets (significant declines in 2008 and 2011), right now it is anchored in a bullish channel.
Another similar example was Christie’s, a well-known and prestigious auction house that was listed on the stock market between 1973 and 1999, the date on which it was acquired by the Artemis group (which controls – directly or indirectly – other luxury brands such as Gucci, Château Labour, Yves Saint Laurent, etc.). As it is a private capital company right now it is not possible to invest directly in it, but it is not ruled out that it will go public again in the future.
A third example could be artprice.com which is the world’s largest database of art prices. It is listed on the Paris stock exchange and its code is PRC. In the following graph we see that the current price of the share is far from its historical maximum, so it may be an interesting share for those who wish to invest in art through the stock market in the long term.
The great advantage of this way of investing in art compared to others that we will see below is that it is probably the most liquid way of investing in art. You can divest just by selling the shares you own, which can be done in a couple of clicks from your computer.
It is also the way that involves the least input capital since the shares of these companies barely cost a few dozen euros/dollars.
If companies distribute dividends, that will also make our investment give us regular returns. This is a big difference from the other ways of investing in art that we will see below.
If you want to invest in art through the stock market but you still don’t have a good broker to do so, we recommend the InteractiveBrokers platform (in this other article we explain why it is, in our opinion, the best broker to invest in the stock market).
The biggest drawback of this way of investing in art is that since it is an investment in financial markets, we will not diversify our portfolio as much. While the companies we invest in may weather crises better than many other companies, the share price will undoubtedly suffer, just as it did in 2008.
Even so, in our opinion it is one of the most accessible (and possibly most profitable) ways to invest in art for all those people who have not too much capital to invest and/or who do not have exhaustive knowledge of the art world. art.
2. Art investment funds
They are colloquially known as art funds.
In general, these are private investment funds that are dedicated to generating returns through the purchase and sale of works of art. These funds are managed by managers specialized in investments in art and receive in return a salary and part of the profits generated by the fund, so their interests are aligned with those of the fund’s investors.
Each mutual fund that invests in art does so differently. While all art funds rely to a greater or lesser extent on the traditional buy and hold strategy, they differ from one another in terms of the size of capital under management (and therefore the value of the works in which they can invest), the duration of the maintenance in the portfolio of the works of art, the sector in which they specialize, the restrictions that the fund has, etc.
The common factor in all these investment vehicles is that they invest exclusively in the art market. The latter is characterized by the absence of a regulatory authority, lack of transparency regarding the purchase price of the works, their subjective value and the illiquid nature of the works of art.
To learn more about art investment funds, we recommend visiting The Art Fund Association page, which contains a lot of very interesting information about it (in English).
The great advantage of this way of investing in art compared to buying works of art physically yourself is that you do not need to have knowledge of art to achieve an interesting return.
The main drawback is that the minimum subscription amount is very high (we are talking about several hundred thousand euros). Other drawbacks are that we are totally at the mercy of the fund managers (this is true for any fund, but in other sectors, it is easier to know how they are doing) and that it is a very non-transparent investment. In some cases, in addition, there is a minimum duration of significant investment (for example, 10 years).
So much so that it is difficult to find profitability statistics for the best-known art investment funds. Below is information about the Art Vantage PCC Limited fund which regularly publishes statistics on its performance and fund value.
3. art crowdfunding
As we have explained in this other article, crowdfunding (collective financing of projects) is an excellent way to invest and diversify our assets.
Today you can invest through crowdfunding in companies from all kinds of sectors and, how could it be otherwise, you can also invest in art through crowdfunding.
Artists may need financing to acquire the materials to make their works, to open a gallery where they can exhibit their works, or simply participate in a festival or contest.
If we want to invest in projects for the simple love of art (pun intended), any of the usual crowdfunding platforms will be convenient. On the other hand, if what we want is to obtain a return on investment, in that case, we have to use platforms dedicated exclusively to crowdequity, such as Crowdcube. Artistic projects do not abound in crowdfunding platforms dedicated to crowdequity, but interesting projects are found from time to time, so we recommend that people who are interested in investing in art through crowdfunding regularly take a look at these platforms.
4. Purchase of physical works of art
This is probably the most “common” and also the most well-known way of investing in art, so we will not dwell too much on it.
It is about physically buying the works of art and reselling them after a certain time when we consider that they have been revalued. It can be paintings, furniture, manuscripts, ceramics, sculptures, photographs, etc.
When you do not have too much capital to invest in art, you can buy works by young artists who are not yet very well known but are beginning to emerge, in the hope that their works will be revalued in the future.
In our opinion, this way of investing in art is interesting because it offers many of the advantages that we talked about at the beginning of this article (revaluation over time, it serves as collateral for other investments, advantageous taxation, it is not subject to the exchange rate of currencies, etc). However, we believe that this way of investing should only be used by people who are true lovers of the art world (or at least of the “segment” they want to invest in). Otherwise, we will have little sensitivity regarding the purchase and sale price of the works of art, which will significantly undermine our profitability. One way to avoid this problem is to turn to art experts (there are many art appraisers),
Conclusion
In this article, we have seen why it can be interesting to invest in art and we have analyzed 4 different ways to invest in art. For those readers who want to know more about how to invest in art, we highly recommend reading Deloitte’s “Art & Finance Report 2017”. It is a report of almost 300 pages where current trends in the world of investment in the art are specified and estimates are made for the coming years.
If you have any questions about how to invest in art or simply want to share your experience investing in art with other readers, don’t hesitate to leave a comment below. And if you think that this article may interest other people in your environment, please share it with them because art is still a little-known investment. Thank you very much in advance!
