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April 29, 2010

Art As An Asset Class - New Investment Research

Art As An Asset Class - New Investment Research. A new report is out from the CFA Institute, it's in their May/June 2010  Publication.

As most MAO readers know.. you don't just buy art as an investment. It's for the love of it!!

But people all talk about art and money almost simultaneously. Just say hi to an art dealer, gallerina, or worse yet an Artist, and within 5 minutes you'll always hear some aspect of the evil Dollars, doe-rea-mee word MONEY come up. So while almost everyone in the art business hates to admit it,  art and investing are inexplicably linked. MAO has written about art investing many times before. But, now a major financial publication has a 3 page story about it.

In fact, this May/June CFA Institute Magazine features Art Investing as the cover story.

The magazine has a feature story by Ed McCarthy who seems to know almost nothing about the art market is a freelance financial writer in Pascoag, Rhode Island.

CFA_Institute_Art_issue_May_2010 The Fine Art of Investing, Is art a good way to diversify a client's portfolio?

The story is written from a strict investment professional point of view which is refreshing, but sadly the story lacks a lot of details.

Here's the story...  Download Cfa_may_june2010

But the Key points highlighted in the article are

1. The term "Art Market" is misleading because the market encompasses numerous submarkets with distinct characteristics.

2. The unique features of the art market and the transaction costs create additional risk for the casual investors and investment opportunities for more knowledgeable participants.

3. Studies of art's investment properties show that returns vary with the holding period but have exhibited a low or negative correlation with financial markets.

So as you can see, this story is not exactly breaking new ground.. but it's interesting to see a well respected financial journal finally  writing about Art as an acceptable investing asset class.

MAO wonder's if this was how subprime ABS and CDO investing started??

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Really fantastic post. Keep posting the good one.

Good researching of investment. Thanks for benefit.

Fantastic post.I feel enlightened.Thank you

I highly recommend The $12 Million Stuffed Shark by Don Thompson. Thompson is an economist, not involved in the art market at all, but at least he tried to find out what art was all about from the people involved. He cites data showing that, despite a small number of high profile big winners, art is an extremely poor investment.

It's an interesting book otherwise, too.

Chris is correct: Almost all studies of art have shown that most art works drop to zero in value. I think the only exception I've seen is a study of a mutual fund that invested in blue chip art over some period of time. In that case, there was a modest appreciation, but nothing to write home about.

This suggests to me that only the very strongest art appreciates in value and that you can only acquire such a collection if you are deeply involved in the market and work with dealers/artists who are at the center of the market. Otherwise, you are very likely to buy into the 99.999% that will quickly be forgotten.

In other words, buy art because you love it. If you want an investment, get a mutual fund.

I think point 3 is particularly interesting. The question of why auction results continue to beat records while the economy is down can be answered by looking at the unique market restrictions. Buyers have begun to tend away from risky purchases and newer artists, thus the limited quantity of masterpieces causes the prices to skyrocket.

We find it interesting that the buyers are shifting towards the Asian consumer, something like 4 out of the top 10 lots this past sale at Sotheby's was purchased by an Asian buyer.

Well yes.... the Asian market has started to become the preferred one to sell to. That is why clothing designers have also shifted their focus to that market as well. They are willing to spend the most money.

It's like the Japanese back in the day.

I think the only exception I've seen is a study of a mutual fund that invested in blue chip art over some period of time. In that case, there was a modest appreciation, but nothing to write home about. We find it interesting that the buyers are shifting towards the Asian consumer, something like 4 out of the top 10 lots this past sale at Sotheby's was purchased by an Asian buyer.
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Nice post. I am an abstract artist and I create art because of the connection I experience creating it. I hope to sell it to someone for the same reason, the connection they create experiencing it.

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