When a collector views an artwork for the first time appreciation is usually instinctive, judgment a matter of personal taste; it is an emotional assessment.
Rarely is the purpose of such a viewing to
determine its future investment value. The recent sums paid for art
may, however, easily create inaccurate beliefs regarding the
investment potential of art. Buying and selling art for investment
purposes is particularly complex.
William Baumol, writing in the American Economic Review, is of the
opinion that it is difficult, if not impossible to quantify art
investment as a rational approach to making money. Furthermore, the
art market is also not liquid: one cannot simply push a button to
sell a Pierneef the next day.
Distinctions aside, there are similarities in stock market and art
market values: both are prone to sudden dramatic declines. The
previous major crash in art prices occurred in the early 1990s,
prices for works by soughtafter artists losing an estimated two
thirds in value — South Africa was not as severely hit as the major
art centres. Since this last major dip the art market has bounced
back, record prices again being paid for works by top artists.
According to Artprice.com, investors who paid high prices for works
during the 1989-1991 boom are taking advantage of the current bull
market, using it to recover their investments.
It is an open question if and when the present art bubble will
burst. Journalistic reports offer little insight and tend to border
on the sensational. While reference is often made to the
“stratospheric” prices paid by billionaire collectors for
paintings, sarcasm is usually offered in explaining why bankers and
hedge-fund managers, unable to spend all their money, leak their
“excess cash” into art.
But not every individual interested in art is in a position to
purchase at the top end of the market, which offers the lowest risk
from an investment position. What then should aspiring investors
acquire as investment? Although relatively complex, opportunities to
generate returns from the art market exist.
Three decisive factors strike me as important when buying art with
returns in mind: the mass elements — style, technique, innovation,
experimentation and non-conformity — that together produce a good
artwork; the artist’s ability, or that of their agent, to market
and present works to clients; and, importantly, repeat sales on the
Art auctions, in particular, are useful for determining exactly
what dealers, institutions, as well as private and corporate
collectors are prepared to pay for an artist’s work.
But is it possible, in the way of the stock market, to accurately
chart trends and predict which artists will one day be winners?
Indices such as Mei Moses Fine Art Index seem to say you can. Or is
buying art as an investment simply a matter of luck? If investment is
your only criterion, it is always better to buy work at the top end
of the market. Go for Stern, Laubser, Preller, Pierneef, Sekoto,
Kentridge and Pemba. These artists offer lower exposure to risk and
will, over time, potentially further increase in value. Riskier
investment options include looking to past masters whose work and
reputation is still undervalued. Currently, artists from the 1960s
offer excellent investment value. During his lifetime, only a few
collectors recognised the genius of artist Fred Page; today this
reclusive Port Elizabeth painter’s work is steadily gaining in
value. Riskier still, by comparison, is the speculative contemporary
market. Gutsy young collectors who normally do not look at their
purchases merely as commercial propositions have contributed greatly
to the rise of this market. Here, my personal choices include artists
like Wayne Barker, Conrad Botes, Marco Cianfanelli, Karl Gietl,
Samson Mnisi, Peter Schütz, Simon Stone and Sandile Zulu, to
mention a few.
These dedicated individuals exploit their talent to the fullest to
create good art.
It is a fact that very large numbers of good artwork, created by
talented artists worldwide will never have any real value in the
market place. It is estimated that only 0.5 % of artworks sold today
will have any meaningful worth after 30 years. While artificial
prices can sustain a great artist as well as a poor painter, the
latter’s work will inevitably fall out of fashion, in effect
defaulting on any supposed investment potential.
Without attempting to define what constitutes ‘good art’,
suffice to say that if an artwork stirs you emotionally, go ahead and
acquire it, but be aware that in 20 years time it may have no
monetary worth. This raises a key insight: for any collector of
substance, the real value of art lies in the pleasure of identifying
a major work which explores the unknown and enriches the soul. Its
appreciation in value over time is simply an added bonus.
Fred Scott is a private art collector and occasional art
consultant based in Johannesburg