What happens to the value of art collections during a downturn in the economy such as we are seeing now? The answer to this question comes in two parts, buying and selling.
Are there bargains to be had in the art market these days? Despite the fact that television pundits and financial commentators seem to be urging investors to use extreme caution in entering the stock market now there probably are some good deals to be made in the art market these days despite the fact that there have also been some record sales recently (for example, the September Damien Hirst sale at Sotheby’s London.) That is, if you can afford to spare the cash. Many art dealers will tell you, if they are being candid, that business is off though quality investments in high end, blue chip works are still being completed. I would suggest that one way to look for a bargain this fall would be to attend the art auctions in categories of interest to you and follow the estimates and hammer prices being achieved. You might just find that a particular work of art by a quality artist, though not perhaps the star attraction, has few bidders, and you may pick up a work for lower than its estimate. In the private market, you should ask the dealer for some price flexibility (or perhaps more favorable payment terms) and you might just get it. If you are buying unknown artists’ works be sure you are paying only what you are comfortable living with over the mantlepiece as it could be there for a long time.
There is no easy answer to the question of whether fine art values will fall just as there is no easy answer to many of the questions being posed on Wall Street these days. Fine art, like antique cars and furniture, fine wine and other collectibles is often used by investors as a means of diversifying their investment portfolios which they believe will hold or gain value either in the long or short term. It is often the case that quality fine art will retain its value despite downturns in the stock market. Other times, however, where there is a lack of buyers art prices will decline. The value of a work of art may also decline where the prices were highly speculative to begin with – let’s call this a market correction. This is not a common circumstance, but one should be aware of it.
The difficulty with fine art is that even the best works of art are illiquid assets and are often difficult to sell to raise cash in an economic downturn or malaise. In addition to the illiquid nature of artwork, there are generally significant transaction costs involved in trading works of art, such as auction house or art dealers commissions as the market for artwork is diversified and expansive and it takes much work to match a buyer and seller. Add to this equation the element of personal taste and preference in buying or selling artwork and you can see that it is not an easy task to liquify fine art assets – but it can be done. In fact, it is done successfully every day.
Fine art could be a very good investment. The values of many categories of art such as photography or American paintings, for example, have risen significantly in the past fifteen years, and there will always be a category with such growth in value. Most importantly, there are always big names and time-honored artists whose work will sell and hold reasonable value despite turmoil on Wall Street and abroad. There are also those ultra wealthy art patrons who will continue to collect in times of economic distress as they are less effected by day-to-day economic troubles than the average or lower-level investor. The key is to purchase quality works of art and to use caution and smart buying skills whenever you buy, as opposed to speculating on the next big thing, in order to have a solid art investment portfolio.
As is the case with other investments, no one knows for sure which works of art, if any, will turn out to be goldmines for their owners. Buy what you love without overpaying and enjoy it. Investment returns are an added bonus.