Art is an Investment

Is art a good investment?

By Daniel Gross|Posted Wednesday, June 21, 2006, at 5:28 PM ET

Illustration by Mark Alan Stamaty. Click image to expand.


Fine art is making huge financial news this week, what with cosmetics-heir-turned-super-collector Ronald Lauder paying $135 million for a Gustav Klimt painting and Sotheby’s and Christie’s posting gigantic numbers (Click here to read about Sotheby’s, and see the June 20 release on Christie’s here) at their Impressionist and Modern art auctions.

Rating masterpieces by their sales prices may seem irredeemably gauche and beside the point. Nobody would pay $135 million, or $10 million, for a painting for solely economic reasons (unless it was a dealer who had a buyer lined up). Collectors like Lauder buy paintings for prestige, status, ego, or a passion for collecting. Lauder has spent huge sums of the family’s fortune creating a jewel of a museum devoted to Austrian and German art.


But at these prices, fine art certainly represents a huge investment. And not even billionaires like to see the value of expensive purchases decline over time. So, it’s worth asking: Is fine art a good investment?

For the last several years, two professors at New York University’s Stern School of Business, Michael Moses and Jiangping Mei, have been compiling data that allows them to track the long-term performance of fine art. The result is the Mei Moses Fine Art Index. (Registration is free.)

The Mei Moses index focuses on mature artists whose works command significant prices at auction. They take the original sales price and then subtract it from the most recent sales price at Christie’s and Sotheby’s in New York and calculate an annual return for a single painting. So, for example, a J.M.W. Turner view of Venice sold at auction at Christie’s in London on May 29, 1897, for $35,000 and then sold at Christie’s in New York last April for $35.8 million—which yields about a 6 percent annual return for 109 years. Which is pretty darn good.

Moses and Mei have compiled 9,000 such repeat-sale pairs and add between 300 and 400 every six months, enabling them to compile an index. (The paintings in the index aren’t all blockbusters. Moses estimates that the median size of recent transactions charted is about $200,000 or $300,000.) As their most recent update shows, over the last 50 years, stocks (as represented by the S&P 500) returned 10.9 percent annually, while the art index returned 10.5 percent per annum. And in the five years between 2001 and 2005, art trounced stocks. But not all art performs equally. In recent years, old masters haven’t done so well, while American art before 1950 has been soaring—up 25.2 percent in the last year alone. And across categories, masterpieces (like the Klimt that Lauder just bought) tend to underperform lower-priced paintings by a substantial margin. Why? Like blue-chip stocks, well-known paintings by blue-chip artists are known quantities and offer safety and stability. As with stocks, the greatest opportunity for growth in art values comes when investors suddenly focus their attention on a hot new sector or name.

There are some obvious differences between Van Gogh canvases and Verizon shares. Art is far less liquid than stocks: You can’t simply push a button and sell a Picasso tomorrow. And while you might assume that the fortunes of the art market are closely to tied to the fortunes of the stock market, Moses found that fine art actually has a very low correlation with stocks and a negative correlation with bonds. “In some sense, it’s a good portfolio diversifier,” says Moses.

Like stocks, art is susceptible to fits of irrational exuberance. In 1990, Japanese executive Ryoei Saito capped off the Impressionist art bubble by paying a whopping $82.5 million for Vincent Van Gogh’s Portrait of Dr. Gachet. Between 1985 and 1990, the Moses Mei art index returned about 30 percent a year—the same unsustainable rate at which the Nikkei grew in that period and at which the S&P 500 grew in the second half of the 1990s. Despite today’s massive prices, Moses notes, the mood surrounding the art market is nowhere near as exuberant as it was when Western Europe’s cultural patrimony was flooding into Japanese corporate boardrooms in the late ’80s.

In recent years, financial whizzes have created investment products surrounding all sorts of stock, bond, and commodity indices. But there’s been little effort to turn art into a security. In the 1970s, the British Rail Pension fund, with Sotheby’s assistance, famously committed about $70 million to fine art. The huge portfolio it built up came to include works by Canaletto and El Greco and proved quite profitable—a compound annual return of 11.3 percent between 1974 and 1999. As Scott Reyburn notes, Britain’s rail workers were fortunate that the fund chose to cash in a bunch of Impressionist and Modern works at the height of the bubble in April 1989.

More recently, funds have been created to allow rich people to invest in a portfolio of fine art assets. One of the funds, Fernwood Art Investments, created by a Merrill Lynch executive and a veteran of Sotheby’s, inspired a Harvard Business School case study. But even in this hothouse environment, it failed to launch. The London-based Fine Art Fund, created by a former Christie’s executive, is still in business but hasn’t made much of a mark.

by Dr. Steve Sjuggerud, Investment U Advisory Panelist
Monday, October 28, 2002: Issue #184

The numbers in today’s headline are true. Stocks fell 27% while this investment rose an extraordinary 256%.

No, I’m not talking about our current bear market. I’m talking about 1966-1975the LAST major bear market, which also happened to include the Vietnam War. But this remarkable performance in relation to stocks was not an isolated case…

During the Korean War period (1949-1954), this investment rose 108%, while stocks “only” rose 67%. And in World War II, this investment class beat stocks again.

It has beaten stocks in times of war and in times of recession in the past. And it’s doing so again.

While stocks have lost a third of their values or more since mid-2000, this investment has only fallen by 8%.

It’s not in just bear markets where this works. It’s ALL markets. Since 1960, both stocks AND this investment have grown at 10%+ a year. So what is it? Believe it or not, I’m talking about art as an investment.

Why Fine Art as an Investment Holds Up Well In Bad Times

Contrary to popular belief, art does not tank in value during times of stock market weakness or war. Fine art’s 256% rise in the last great bear market (1966-1975), during the Vietnam War, is a testament to that. According to an exhaustive study by NYU professors Jianping Mei and Michael Moses – using figures from the 27 recessions dating all the way back to 1875 – fine art investments hold up very well in bad times. It is a good store of value.

Mei and Moses created the Mei/Moses Fine Art Index ( using data on repeat sales of fine art auctions from Sotheby’s and Christie’s. The index includes nearly 6,000 sales. While their index shows that art investing has nearly kept up with stocks, importantly, their index does not include transaction costs or storage costs (which can be quite high for art).

But don’t take Mei/Moses figures to mean that ALL fine art will hold up as an investment, or that art is immune from stock market bubbles. For example, in 1990, a Japanese businessman paid $82.5 million for Van Gogh’s “Dr. Gachet.” It has since sold for nearly 90% less than that. 1990 was the height of Tokyo’s stock market boom, and the Japanese were buying “trophy” artworks, and paying exorbitant prices.On the flip side, Mei and Moses found that American paintings have been a good investment. American art showed high returns and was least affected by world markets.

So what can you or I do with this information?

The Secret To Successful Art Investing: Do Your Homework

“What are you writing about?” my wife asked. “Art investing,” I replied. “What do you know about art?” she said. The truth is… not much.

I realized how hopeless I am while in San Francisco’s MOMA (Museum of Modern Art) a few months ago. Among all the half-finished paintings, out-of-focus photographs, and sculptures apparently done by kindergarteners, I was way out of my element. To my rational and mathematical mind, it was hard to see how much of that stuff qualified as modern art.

I don’t invest in things I don’t understand. I don’t understand art. So, obviously, I haven’t invested in art. And in talking to experts, I’ve found that exceptional pitfalls abound in the art world, including the fact that everyone needs a cut: galleries, dealers, brokers, publishers, etc. In addition, markups can be absurd. It’s easy to understand the phrase “starving artist” – even for “successful” artists.

And Yet… The Numbers Add Up

But that doesn’t mean I recommend that you ignore art as an investment. In fact, the numbers suggest that you should consider art investing in your portfolio. But what I’m saying is that in order to succeed (or just not get ripped off), you need to do as much homework as you can. And, when possible, consider turning to an experienced art buyer. Art buyers work on your behalf to cut out the gallery and middlemen in order to get you the lowest price.

If you do not know an experienced art buyer, I would recommend Pillar One Partner Mike Kuschmann of Fine Arts Limited in Winter Park, Florida. If you find a piece of art you’re interested in, definitely call Mike. On your behalf, he’ll probably beat the price you saw – sometimes by as much as 50% or more (especially if you saw it on vacation or at a “tourist trap” gallery). You can reach Mike at 800.229.4322 (toll free) or at 407.702.6638 to talk about a piece you’re looking at now, or just to ask for his free information pack.

Whether you use Mike – or your own local buyer – it’s important to be sure that you explore all avenues to make your art purchase at the lowest price possible. After all, in order to be sure your fine art investment – or any investment – is as successful as possible, you must remember to do your homework or work with someone who has!