the-true-value-of-art

There is an argument that museum and art galleries are our new ‘temples’ – the places we take our families, meet our friends or seek out for periods of quiet contemplation and solace. Art is unquestionably important to humanity; it adds richness and depth to our lives and helps us reflect and define the society we live in. Galleries, auction houses and museums all play a role in influencing what artwork remains in the public domain. 

As a general rule, museums collect art with little concern about financial value but rather approach each purchase with the question: what meaningful role can this work of art play in people’s lives? By contrast, gallerists, dealers and auctioneers allocate value first, worked out by a number of different metrics, not just its importance. It is these art ‘powerhouses’ that largely define the current system of value that we place on an artwork at a particular moment in time.

The global art market is a fascinating industry to work in, and it certainly has the potential to make investors money, as well as providing great joy and pleasure to the collector. Particular areas of the market have maintained their value through recessions and held up well against other investments, while cleverly planned collections are also good for market diversification.  

"Buy what you love, this is my number one golden rule, for all collectors at all price levels"

Brexit implications

We are yet to know the effects of Brexit, as only time will tell. The market is currently uncertain, though the major auction houses in the aftermath of the vote have had a series of successful summer sales. While they may have taken a knock compared to the sales figures of last summer, this is mainly due to reluctant sellers this season. What we do know is that the buyer base remains global, strong and diverse.

According to mid-season reports, there has been a surge of new collectors entering the market and e-commerce sales are growing at a dizzying rate. Artists have also continued to break records in terms of price; for example the former young British artist Jenny Saville saw her painting Shift, 1996-7 – from the groundbreaking Sensation exhibition at the Royal Academy – sold for $9m to the Long Museum in Shanghai – a long way from its $1.5-2m estimate. What is certain is that London continues to be a vibrant epicenter for the art trade. There is also the old adage that the art market is sought out in times of economic uncertainty as a store of value and a buffer against inflation.

Behind the scenes

To further understand how this market works, it helps to grasp the basic principle that the art world is made up of three types of artists and two markets.  

The primary market is made up of emerging artists. These either promote their own work or are represented by galleries. Emerging artists are trying to build recognition, mainly through exhibitions, press coverage, prizes and art fairs. This category is high risk and would be considered a long-term investment; approximately a tenth of emerging artists’ work would significantly increase in value, so you need to have realistic expectations. However, for a collector these artists represent the ‘here and now’ rather than looking backwards.

With this in mind, a world-famous bank makes a point of investing heavily in emerging artists on the basis that they directly relate to society. The head curator collects without investment in mind at all, with most purchases under a threshold of $5,000. When you are buying from emerging artists, the value here is essentially an emotional one – buy what you love. In fact, this is my number one golden rule, for all collectors at all price levels.

art-and-investment

The secondary market consists of auction houses, dealers and galleries who mainly handle work by mid-career and blue chip artists. Mid-career artists will probably have work in institutions, their work would have won prizes (for example The Turner Prize and The Freelands Artist Award) and they may have received a certain amount of notoriety and press coverage – though perhaps not quite the recognition they deserve. Blue chip artists, on the other hand, are well-known figures such as Matisse, Picasso and Gerhard Richter. They will have an established trading history, which translates directly into value. 

It is also important to understand three further basic principles when looking at this sector; it is based entirely on knowledge, timing and relationships.

Education is key and it takes a long time to understand the market, especially if you are buying with investment in mind. Align yourself with experts or an art consultant who can help you comprehend thorny issues such as interpretation of online data, comparative art sales, condition issues and provenance. Study books and art magazines, visit fairs and museums and speak to people in the trade. The more you look, the more you educate your eye. A collector’s tastes are likely to change and getting into collecting takes time and can’t be rushed. 

The art market is cyclical. Presently the market is very fashion driven; people like to collect contemporary art and incorporate it into their living space choosing pieces that reflect their way of life. This will change. Profitability in this market is 100% about timing, and a lot of collectors chose to collect counter cyclically, buying artwork from periods that are currently unpopular and therefore undervalued. Prices go up and down and fashion comes back around (a lot of superior collections have been formed this way). 

Art can be for anyone who enjoys it. You don’t need to have huge funds to amass a world-class collection. For example, the most important collection of minimalist and conceptualist art in the US was formed by a librarian and a postal worker. The Vogels passionately collected over 4,500 works and donated their collection to public museums in 2008, a collection that would be considered virtually priceless in monetary terms today. As we have already mentioned, the really great collections in the past have been formed overwhelmingly by passion and not for investment. However, times have changed and now the modern day collector is much more likely to collect with an eye also on investment returns.

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