The Fine Art of Investing in Fine Art

As an investment, art is growing in acceptance and prevalence. Historically, it has proven to perform better than other asset classes, especially in downturns. Studies by Barclays Capital and The Economist (in 2003 and 2005) showed that art outperformed both equities and property over both short and long periods of time.

But, like wine or stamps, art has always been considered an ‘alternative’ asset. It can be as volatile as the stock market, cannot be easily liquidated and is at its best as a long-term buy, as the last year has — painfully — shown. And, well, it’s art. It’s difficult to put numbers to it.

Milind Sathe, founder-director of Indiaart.com, puts it succinctly: “In a world where you monitor companies and stocks on an hourly basis, well, that does not happen in art. There are no indices on artists.”

As a result, there’s a ferocious amount of pure BS floating around in the art market. So, yes, the downturn means it’s a buyer’s market, and a good time to buy art, but how the heck do you figure out all the nebulous claims and insider jargon?

The Numbers Game
What are the numbers art does give us? When the downturn hit, gallery sales of top contemporary artists were down by up to 50 percent.

Yet the figure for contemporaries has already returned to about 30-35 percent of original retail values of 2007 and 2008, says Sharmistha Ray, director of Bodhi Art Gallery, Mumbai. But wait, Ray cautions: “These are not scientific figures, they are based on a loose average of gallery sales.”

Other unscientific pulse-readers: The Indian Art Market Confidence Indicator by London-based ArtTactic dropped 23 percent from May to October 2008. And since then it’s gotten worse. Art funds that are soon maturing are scared to liquidate. Average auction prices are down too.

Is it all terrible? We can take some comfort in knowing that the seller always expects the best price, that expectations are always higher than the market. “Expectations are built overnight,” says Ray, “but take a long time to dismantle.”

It’s all about perception. Like the Sensex, art market values plummeted due to falling expectations. They are already going back up as perceptions improve. Sotheby’s auction of impressionist and modern art raised $55.1 million at the end of June, well within pre-sale estimates. It’s not all rosy yet, but try to think long term.

The Recession Is Your Friend
Very belatedly, artists are now negotiating prices. Like real estate or oil, art is getting healthier with much-needed price corrections. Aditi Khurana, former Senior Manager of Palette Art Gallery in Delhi and current project head of the arts initiative ‘Contemplate,’ says the boom meant people stopped differentiating between good and bad art, which is correcting itself now.

And the art itself will get better. Khurana says, “When demand was high, artists were producing works at a fast pace, and it affected the quality of their work. In a way, the slowdown is the best thing. Now there is sanity, correction, and maturity.”

Business ethics should also improve. Khurana thinks the art market is becoming Darwinian: Only the best artists will survive.

Beware of Contemporary Art
The bubble has burst. And about time too. Contemporary pai­ntings that were being sold for the price of a Mumbai suburban flat — plus your kids’ education abroad — are now going for much cheaper.
Take contemporary artist Anju Dodiya. In 2000, she was selling at Rs. 1 lakh through galleries. She sold the same kind of work in 2007 for Rs. 50 lakh! And now, prices for her pieces have fallen 30 percent, back to rational levels.

ArtTactic estimated in June that the average auction price of all contemporary art saw a 76.2 percent fall. Contemporary art followed the shape of the sub-prime market. Up breathtakingly fast. Then back down again to sensible levels.

Deepak Shahdadpuri, art collector and board member of SaffronArt, gives a more famous example: Subodh Gupta. The man’s art work took the same rollercoaster as Dodiya (though to even higher levels). Currently, his art is selling at prices between $150,000–$200,000, 85 percent below their peak, and a much more sane level than the boom time.

“But at least his works are selling,” Shahdadpuri says. “Many other artists who rose during the boom have no buyers today at any price.” He attributes the fall not only to inflated prices, but also to the difficulty of assessing how artists with little track record will develop over time.

In early July, a series of auctions at Christie’s and Sotheby’s saw old master paintings outperform the summer’s impressionist, modern and contemporary sales for the first time in several years. Perhaps it’s time to go back to the ancients.

Ignore the Hype
Contemporary art is just one glaring example. Henry Ford’s father, William Ford, famously said, “The world is filled with so much hype and PR bull. Frankly, it all comes out in the end.”

Sathe points out that it’s not very difficult to hype up an artist, a body of work, or a show; investors must try to see through that. “Any investor in art has to develop the ability for himself or find someone he can trust to decide if the work of an artist will stand the test of time.”

Shahdadpuri says the best way to do this is to visit museums, galleries and shows. “Speak to artists, collectors and curators. Read as much as you can about the artists, art history and understand its relevance. You need to have a passion for art. Buy what you like. If it is only about the money, [the investor] will probably end up losing money in this ‘investment.’” And you probably won’t see through the hype.

Erm, What Exactly Stands the Test of Time?
Admittedly, it’s not always easy to tell. Decorative art — art intended for ornamentation purposes, that you buy to match your living room’s shade of paint — certainly doesn’t. As investors’ pockets have gotten shallower, many are falling into the decorative art trap. But experts agree it is never a shrewd investment. It’s just... pretty.

Cheap Is Usually Not Good, and Expensive Has to be History
Collectors and dealers are now being forced to offer art at much better prices than the lunatic levels of years past. Watch out for good deals at competitive prices, but be wary of bad art flooding the market on the cheap, which has been happening for the last few years. Make a promise to yourself only to buy pieces which qualify as high quality art. Sathe says that you should look out for the “thinking artist, an artist who uses his skill to make a comment or express something, and respond to a social situation.” As we said, no decorative art. Ray stresses a mantra she once heard from a French collector: “Only spend $100,000 or more on art work if you are buying a piece of history.”

Stay Close to Home
This is a buyer’s market, and the market is at your door. Well, sort of. The total auction size of the Indian art market grew from $5 million in 2003 to $150 million in 2008. Subodh Gupta, M.F. Husain, Tyeb Mehta, Anish Kapoor and Raqib Shaw commanded million dollar sales even after the downturn hit.
(UK-based phenomenon, Damien Hirst, laid off 17 members of his staff that made the pills for his multi-million-dollar medicine cabinet series, according to the Guardian.)

The rest of the world is waking up to the value of Asian art, too. In August, Sotheby’s moved auctions of Asian contemporary art from New York to Hong Kong; dealers said this showed Sotheby’s growing commitment to the Asian art market. But remember: The art market bubble has burst. That includes Indian and Asian art. Ray says an investor shouldn’t focus on whether it’s Indian or Asian — it depends on the artist and the work.

Don’t be Afraid to Buy a Ningyo Doll
Paintings are not even one percent of the art out there, yet somehow they get all the attention. It’s time to balance your portfolio. Crafts, statues, antiques, toys, and other art objects are currently selling at low prices in India. Experts expect they will ascend into the stratosphere in the next 10 years.

Osian’s Auction House recently got into Japanese samurai helmets and armours, African tribal masks, Polish film posters, Chinese and Soviet political propaganda artefacts, magic memorabilia — and those mysterious Japanese ningyo dolls.

Ray suggests investors look at India’s heritage: Miniatures, Picchwais, Bengal School, antique jewelry, and old-period sculptures. And Sathe sees potential for significant growth in the market for memorabilia and photography. Newly popular types of art like these are the best investment right now. Basic investing rules apply, Sathe says. “For any portfolio, an investor needs to spread the risk.”

No More Queues
In the boom period, art collectors were plagued by galleries who refused to sell to buyers not well-known in the art world, forced quick decision-making in the fear of losing the work to someone else, and long lines to wait for artworks. “The artists and galleries may be cribbing about the downturn but collectors, especially collectors who have liquidity are thrilled. They can now focus on building their collections without getting in queue and begging for works,” says Shahdadpuri.

Before You Buy…
Decide how much money you want to spend. “Putting in $100,000 will get you some good buys,” advises Ray. Consider investment timeframe, risk factors, the right price, and authenticity; they all seem pretty obvious, but you’d be surprised how many investors forget them. Too many have bought high-priced art without adequate documentation. And because the art market at present is especially dynamic, risk factors are ever more relevant.

Sathe gives this example: “Some people don’t make sure the material will last and then the painting deteriorates in 10 years so it’s not recognisable.”

More than any asset, it’s important to be sure of longevity. Like a car, it should last at least until the time you want to sell it. “Focus on four-five artists you really believe in and buy them in depth. Be discriminating in selecting only good work by these artists and then pay a bit more to get good works,” suggests Ray.

Not Convinced? You Can Still be Productive in the Interim
If you really want to sell, first get rid of the works you can live without at a price good enough for them. Like those über-trendy, doomed contemporary art pieces (though it’s best to wait for the market to go back up). Network with art connoisseurs; research planned investments; maintain your collection; insure your artworks; catalogue and document them. And may be, just may be, buy a little ningyo doll.

Up, Down, Up, Down...

CONTEMPORARY ART
2007: Jeff Koons’s magenta Hanging Heart (one of five in different colours) sold at Sotheby’s for $23. 6 million, the most expensive piece by a living artist ever auctioned until then.
2009: A violet Hanging Heart sold privately for $11 million.

INDIAN ART
2005: F.N. Souza’s Lovers sold for just under $1.5 million in a Saffron auction.
2008: Souza’s Birth sold for $2.5 million at Christie’s, a new auction record for an Indian work of art.
2006: Tyeb Mehta’s Mahishasura sold for $1.1 million at a Christie’s auction.
2008: Tyeb Mehta’s Mahishasura Mardini reached a new record for the artist, selling at $1.54 million.

NON-INDIAN ART
2007: Christie’s offered a picture by British painter Jenny Saville, known for her depictions of naked fat people, for £900,000.
2009: It was auctioned in London for half that.
2008: Perhaps the most famous contemporary living artist, Damien Hirst, sold 200 new works in the Beautiful Inside My Head Forever auction for £111 million on the day Lehman Brothers collapsed.
2009: At sales in New York in Sotheby’s, Christie’s and Phillips de Pury, 11 out of 17 Hirst lots failed to find buyers. Hirst consigned three big new works from his studio to Sotheby’s first auction in Doha in March. None sold.

CRAFTS
2007: A 17th century bronze head from Benin (now southern Nigeria) in the collection of the Albright-Knox Art Gallery in Buffalo, the US, was estimated to be worth $1-1.5 million.
2007: It sold for $4.74 million at Sotheby’s, New York.

POSTERS
2003: A Russian poster bought by Osian’s for approximately Rs. 10,000
2008: A Russian release poster of the film Kabuliwala sold for Rs. 2,28,000 at the Osian’s ABC Auction in July in New Delhi

MEMORABILIA
1998: First edition of Phillis Wheatley’s 1773 book Poems on Various Subjects, Religious and Moral, one of the first books written in English by an American of African descent, sold for $19,550.
2007: The University of South Carolina paid $35,000 for a first edition for the same book, of which less than 100 known copies still exist.