Very few things can give us such a variety of emotions as art. Some fall in love with a piece, while others hate it. Some are enraged by the audacity of an artist, while others are indifferent to what they create. Some artworks make us reflect, dream, or stand in awe. In other words, art creates emotions and passions that are highly subjective to the person who experiences it. Due to this subjectivity, investing in art feels distant or obscure for many people and seems like a shaky prospect at best. Despite this, artworks have regularly outperformed the stock market index. Contemporary artwork has offered an annual return of 14% over the last 25 years, according to the Citi Global Art Market chart. Although those numbers only reflect the best-performing artists who sell at auction, it does give you an idea of why many people are attracted by art investment. There is so much of a gray area in the art world that it is challenging to get a reliable and predictable return on your investment. Nonetheless, there are some key characteristics that are common to valuable art and can help you pick good investment opportunities. This article aims to help you navigate art investment by explaining what brings it value.
Intrinsic value
The price of the material and the number of hours used to research, plan, and execute a piece of art play key roles in determining its base price.
As such, it seems logical that a three-meter-high marble sculpture made over a year would cost more than a simple paper sculpture made in a day. It also seems logical that an artist who has worked for 20 years and is considered an expert in their craft would produce higher quality art than someone just out of art school. This experience and expertise have a cost that will be accounted for in the final price of the work.
Similar work price
The price of a piece of art also depends on what other work by the same artist is selling for. If a painting sold for $10,000, it's logical that a similar one from the same artist would cost about the same. Work from well-known artists often appreciates over time by going from one collector to another at auction. If a famous collector buys a piece of art from a blue-chip artist for $1 million, then decides to sell it at auction years later, they will expect its price to have appreciated over time. The term blue chip is often used to refer to well-established companies or artists. In other words, they are considered safe bets to invest in.
Condition
Like any collectible, the condition is critical in evaluating a piece of art, especially historical pieces. If a canvas is torn or a sculpture damaged, their prices will be negatively affected. On the other hand, an old artifact in perfect condition could be worth a lot because it is rare to find such a piece in that condition. In other words, if you acquire any kind of art, you must preserve it and keep it in the best possible state.
Provenance
Some pieces of art have a significant history—either a pivotal work that brought an artist fame or a piece that defines a new era or genre. Like historical artifacts, art gains value depending on who created and owned the work. So while a piece of art by a famous artist generally commands a high price, the same applies when someone famous purchases a work, owns it for a while and then sells it. If you combine both factors, you can expect a significant increase in price. This was the case for the Tower of the Koutoubia Mosque, painted by Winston Churchill in 1943 after attending the Casablanca Conference with Franklin D. Roosevelt. It was a pivotal moment in the war as the two leaders demanded the unconditional surrender of the Axis powers. The painting was bought in 2011 for just under $3 million by Brad Pitt and reportedly gifted to his wife Angelina Jolie, who then sold it for $11.5 million (£8.3 million) in 2021 after a dramatic nine-minute bidding battle.
Supply and demand
Supply and demand always play a crucial role in pricing an item, and this is also the case with art. If an artist is in demand, the price rises; conversely, the price falls if a famous artist floods the market. There is a saying that artists only get rich after they die, which is unfortunate for the artist in question. But there is a certain market logic at play since the artist won't be able to produce any more work. Furthermore, after a couple of years on the market, the artwork will have had time to change hands and eventually appreciate in price. Another critical point is that most of the artist's life is already known; therefore, there's less risk of ruining their reputation, as is, unfortunately, the case for many artists.
Conclusion
Art investment can be a first-class prospect if you are passionate about it and already have a diversified portfolio of traditional resources such as financial assets, real estate, or gold. Art investment is also an illiquid asset and will take time to sell, so you must ensure that you can store and conserve it properly. Before investing, you must consider all the aspect that gives value to a piece of art as we have just seen it: the intrinsic value, similar work price, condition, provenance, and supply and demand. Remember, there is no guarantee of a reliable return when investing in art. You must think about it as a way to diversify your portfolio, one that could potentially get you a great return while enjoying the art you own.
Sources:
“A poor collector’s guide to buying great art” Erling Kagge
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