Knowledge of art and risk reduction in investing

Like all investing opportunities, art collecting will produce increasing financial return, if you systematically expand your knowledge. Here are some helpful steps to keep in mind.

Art by Stuart Meyer-Plath

The first rule in acquiring a work of art is to buy what you like. This is important, but it must be kept in mind that what you like will depend on knowledge and familiarity with a wide range of works of art. For example, if you are not fond of abstract works, this might be due to your lack of understanding of how to take in what might at first seem confusing. Your taste may change if you read about abstract art, go to lectures at a local gallery on the works of abstract artists or talk with a commercial art dealer. One thing to remember is that your tastes can and will change as you become more familiar with the world of fine art.

Acquiring knowledge about art is a two-fold process. The first step is to look, look and look some more. There is no substitute for studying art firsthand. As you visually take in more and more, you will begin to refine your skills at picking out aspects that make a picture, print, photograph or sculpture work. Inspect a series of pieces by a single artist and determine the details that indicate that they are all by the same artist. You will discover a lot on your own, and you will discover even more by talking with someone about a work of art.

The second step in acquiring knowledge about art is much broader. The more conversations you have with experts, curators, art dealers and other collectors the better. Don’t be afraid to ask about whatever comes to mind. Investing in art is not for the timid, not for the shy and not for the overly self-conscious. Everyone has to begin somewhere. As a novice, you will necessarily ask simple questions at first. Sophistication can come later. Always keep an open mind. You never know what you will discover.

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When you are not acquiring knowledge through discussion with those more knowledgeable than yourself, you should read as much as possible. You could start with the fascinating autobiographies of collectors, such as Thomas Hoving’s books on colleting for the Metropolitan Museum of Art and Peggy Guggenheim’s Out of This Century, Confessions of an Art Addict. You can find any number of entertaining books on collectors and collecting. For reading more along the line of what you should know specifically as an art investor, you could dip into Ian Robertson’s book The Art Business or Ron Davis’ Art Dealer’s Field Guide: How to Profit in Art, Buying and Selling Valuable Painting. This kind of general reading will give you a good idea of the ins and outs of your chosen field of investment.

Successful investing in art is predicated on making acquisitions appropriate to your purpose. Because you want the dividends of pleasure in looking at your collection, you should try to acquire as much knowledge as you can about the works you acquire. Read as much as possible about contemporary art and contemporary artists and peruse as many magazines as possible – like this one – to familiarize yourself with work in
various media.

There is no substitute for attentive study of what is available on the art market. Talking, reading and – first and foremost – looking will ensure that you make your decisions on acquisitions for investment from an advantageous position. After all, one of the goals of investing is to reduce risk. This can only be achieved by making an effort to understand what you are investing in and the systems of commerce in art. The more you know, the less the risk.

By Dr. Alan McNairn

Pictured above (frames excluded):
Gokarna Main Street India | Rama Temple India by Stuart Meyer-Plath

How to minimize risk by purchasing art wisely

In bygone days it was common for investors to frame, matt and hang, as cautionary mementos, valueless stock certificates from bankrupt companies. Turning these into art-like interior adornments was a way of bravely facing up to one’s folly. For an investor in art an equivalent might be a wall of fakes and forgeries and otherwise valueless artworks. Avoiding such a wall of shame is not easy for the collector. Even the most skilled make mistakes.

Gazing into a crystal ball is not the best way to predict whether a work of contemporary art will increase in value over time. Chance plays a role in the monetary appreciation of art to be sure, but there are ways to increase the probability of capital gain in art investing. The most important of these is to acquire your work from a dealer with a good reputation. How do you evaluate this?

The business of dealing in art depends on commission sales. Like all good entrepreneurs, art dealers or gallery owners want to complete as many sales as possible. The most successful dealers assemble a stable of artists whose works they consider saleable in the specific market they have chosen. This might be local, novice art collectors, interior decorators or experienced high-end consumers.

Before buying a work of art it is advisable to consider the vendor’s business. Try to get as much information as possible about the stable of artists and their sales. Go to an opening at a commercial gallery and look for the red dots indicating that a work has been sold. Look carefully at the price list. Return to the gallery at the end of the show. Look again for the red dots. This will tell you a lot about the gallery and the market for works of individual artists. Although it is far from invariably true, it is more likely that art that finds a market today will have a market in the future.

An art dealer or gallery owner will allocate a percentage of their commissions to advertising and promotion. An indication of the success of an art dealer and what they consider to be the potential for sales of the work of a specific artist is the amount and quality of publicity and promotion allocated to an individual artist.

Buying a work of art from a dealer or gallery rather than directly from an artist has significant advantages for the collector. Such a work of art has the dealer’s stamp of approval. A dealer, if in business for a long time, will have developed an eye for quality and a nose for commercial success. The degree of a dealer’s commitment to an artist’s works is an indication of what might happen in future years with respect to the value of the work of art you buy. It is no guarantee, just an indication.

Another way to reduce the risk of investing in art is to educate yourself by regularly attending public auctions. Note what sells and what is bought in or unsold. Note what works in the catalogue have a provenance that stretches back to specific commercial galleries. Where a work of art was bought by a collector often has a significant effect on the knock down price. Again – although it is not a hard-and-fast rule – what sells today will sell in the future. What works against this rule is change in taste.

The apparent fickleness of taste is one of those pesky unknowns that confounds every investor in art. Some kinds of art or styles of art have cyclical popularity among collectors and the public. Like fashions in clothing, there are periodic revivals of earlier styles. A revival of a style, technique or medium among contemporary artists has the consequence of increasing the value of similar works created by previous generations of artists. Predicting future taste is extremely difficult; however, the rewards for collectors in getting it right can be significant.

In 1839, when photography was in its infancy, the French painter Paul Delaroche said “from today painting is dead.” Of course he was wrong. If a collector at the time stopped buying French academic painting they missed an opportunity. When mid-20th century critics, collectors and art historians – blinded by their infatuation with modernism – turned up their noses at 19th century academic art, prices for it plummeted. For those who could anticipate a change in taste, this was a great opportunity to buy. It is not unheard of for high-quality French academic paintings, which could be had for a song in the 1950s, to sell today for well over a million dollars. The current revival of taste is connected to a re-evaluation of 19th century academic art and a movement contesting the tyranny of modernism by contemporary artists.

Collectors who consult a crystal ball before making acquisitions are doing themselves a disservice. There are much more reliable ways to determine the likelihood of success in investing in art.

By Dr. Alan McNairn