The art market has a well-deserved reputation as the playground of passionate investors – art is sometimes expensive, often illiquid and always unpredictable. Nevertheless, it has real appeal for individuals looking for something inspiring them that may also increase in value.
The art market is vast; in 2019, sales worldwide reached $64bn. Nevertheless, it has not been immune to the impact of the Covid-19 pandemic: sales dropped more than 20% to around $50bn in 2020 as restrictions dented auction and exhibition sales, while galleries closed. Auction sales were most affected: at $17.6bn, sales were 30% lower than the previous year. Online sales, a growing market, made up some of the gap, but could not compensate in full.
The market has bounced back in 2021 with around half of dealers reporting an uptick in sales. Of the three main markets – greater China, the UK and US – Asian dealers reported the biggest rise in sales in the first half of the year, up 18% on average over 12 months. By contrast, dealers in Europe are still struggling as confidence remains subdued.
The economics of the art market are complex. Art has no inherent value beyond the cost of paint and canvas or the materials used in a sculpture or an installation. Everything else is taste. This makes it fiendishly difficult to navigate for an amateur buyer. Taste and value are often dictated by powerful galleries. As a result, buyers that are looking to make money need to be aware of prevailing trends in the wider market.
Finding the next Andy Warhol before they have been discovered by the market is rare, if not impossible.
This essentially makes investing in art a hobby for the wealthy amateurs. While there has been a move to online sales, and some digital platforms have achieved significant success, promising artists are often found early by experienced agents and their careers carefully curated. Finding the next Andy Warhol before they have been discovered by the market is rare, if not impossible.
Equally, the upfront cost of investing in valuable art is high. Investors should expect a significant initial outlay, plus dealer commission and maintenance costs, such as cleaning and insurance. Meanwhile, the resale market is unpredictable – a fashionable artist may have many buyers, but tastes and rules (i.e. African art) can change quickly. Investors can never feel the price they will receive for an artwork is guaranteed.
Whatever it takes
Nevertheless, for many these attributes won’t be a deterrent. And there is certainly money to be made. In 2017, Leonardo da Vinci’s Salvator Mundi was sold for $450 million at Christie’s auction house in New York – just 12 years after it had changed hands for a mere $10,000 when its authenticity was disputed. Wealthy buyers with deep pockets that want a piece of trophy art are often willing to pay whatever it takes.
However, at the lower end of the market, many buyers acquire art for the enjoyment of the piece and not out of any ambition to make money. In many cases making a profit is a happy accident rather than the main purpose of buying art.
There are many ways to buy art. Most people will start with galleries and art fairs, while auctions tend to be for more serious and experienced buyers. Art is not a field for impulse purchases, and prior research will stand you in good stead.
If you’re thinking about helping an impoverished artist, remember that around half the price goes to the gallery.
It’s possible to research an artist’s previous selling history on sites such as Artnet, which tracks auction sales back to 1985. The prices asked by galleries are fluid, so prospective buyers shouldn’t be afraid to negotiate. And if you’re thinking about helping an impoverished artist, remember that around half the price goes to the gallery.
The benefits of advice
If you want to try and navigate auctions, it is best to team up with an art adviser, whose job is to help you buy art (for a fee). Auctions can be confusing and daunting, so it is worth sitting through a couple before making any tangible commitments, or letting someone else do it for you.
Many art advisers argue that they are worth their fee in negotiating discounted prices. There are also online art auctions – including one from Sotheby’s and eBay – but you will need to be sure you trust the seller before getting involved.
Advisers often suggest looking at cheaper works by well-known artists. They will often produce limited edition options available at a lower price point. There is an increasing range of online options, which allow investors to browse in a less pressurised environment. Amid declining overall sales in 2020, online sales doubled in value to set a new record of $12.4 billion, and their share of total sales by value soared from 9% in 2019 to 25%.
Artists’ studios and student exhibitions are another route. Again, if you hope to make money, you will need a good eye – you will often be up against experienced talent scouts. However, it can be a way to obtain art you enjoy at reasonable cost.
Investing through funds
Dedicated art funds exist to buy blue-chip art at auction. Many of these are based in China, but vehicles such as MasterWorks are open to investors worldwide. Art indices such as the Sotheby’s Mei Moses Indices aggregate prices at auction, but the market is so varied they can’t tell you much about prospects for individual artists. The art market is too illiquid to make exchange-traded funds feasible.
There are also more specialised options. The Artemundi Global Fund is a private investment fund that allows its investors to access artwork on a revolving basis. They could receive an old master or an up-and-coming star to hang on their wall. This could be a way for buyers to explore and refine their tastes and to get to know specific markets.
Saatchiart offers curated selections of rising stars identified by its experts, usually at prices ranging from $1,000 to $6,000. Investors won’t be uncovering any secrets, but it is a way to follow the experts at a low cost.
Art might make you a lot of money, but in most cases it isn’t the reason people get involved in the market, and its economics are unpredictable. It may be best to buy something you love, and hope that others share your taste.
Most people start with galleries and art fairs, while auctions tend to be for more serious and experienced buyers – art is not a field for impulse purchases.