Insider trading and conflicts of interest are uncontrolled in this market. The major shows of works of an artist are scheduled long before they are publicly announced. These shows usually increase the value of works by the artists selected. The big donors to the museums that hold the shows are the kind of people who enjoy and buy art and wind up sitting on their boards. It would be bad enough if they steered the museums to schedule shows of the artists whose works they hold, but even if they do not hold any, they may have months of insider knowledge of future shows during which they can acquire some such works before the show is publicly announced and the market prices of the works rise.
Tangentally, I don't think "investing" is the right term here. When you invest in something, you buy/create an asset (like a machine, or stocks in company) that is creating returns. Meanwhile, buying assets that don't create returns, with the hope of selling them for more later, is just speculation, not investing.
There are now companies like Masterworks that let you crowd-fund the purchase of million-dollar artworks. Problem is that the fees are 1.5% a year and 20% of profits and your gain will be realized when they decide to sell at some point in the future.
It would be good to a Vanguard-like trust owned by investors where the trust invests in well-known types of art - a trust for Impressionists, and a trust for Baroque, for example. I'd perhaps invest in an art ETF that's traded on the public market and owned hundreds of works. It's just not clear what should be bought and when they should be sold.
I'd love to make moderate investments in art. The problem is I'm a prime candidate for over-pricing, forgery, etc. Basically I have no idea how to validate or value a piece of work.
Not to sound too cynical, but I am wondering how over-pricing can be a problem when the price for a piece of art is however much someone is willing to pay for it?
Art has no direct utility value. But there is a definite - if approximate - consensus value based on the reputation and history of an artist and the location of a work in their output.
This is often multiplied by speculative hope/greed, which can be manipulated in ways that have nothing to do with any consensus about artistic value or historical interest.
Galleries and collectors are not unfamiliar with the art world's equivalent of pump 'n dump. More direct methods may also be used:
Further, if there is any measurable value to much art other than how much someone pays for it? Which is seemingly driven by hype, not any intrinsic worth such as beauty/utility.
For example, anyone going through Gloucester Road tube station in London might wonder if the platform 'art' there does anything noteworthy but hide the brickwork behind.
>> Further, if there is any measurable value to much art other than how much someone pays for it?
Well, materials cost money, and then there's the time spent producing the work of art. Assuming each artist has her own hourly wage (think minimum wage for a no-name artist), there's your perfectly measurable value of any artwork.
>> the platform 'art' there does anything noteworthy but hide the brickwork behind.
Too true. I guess the value of the platform "art" might be equivalent to the financial cost of actually fixing the hole, which in this case, could be millions if you factor hiring the hole fixers and the lost of revenue due to closing of the tube station.
So the value of art by Jeffrey Koons could be the gainful employment of the people that physically produce it, though their number appears to be dwindling.
If you're interested in the art market and factors which affect price/value, I work for Arthena (YC W17) and we're hiring for a variety of roles. If you're interested check out https://angel.co/arthena or reach out to me directly: adrian@arthena.com
Hey Adrian, I've recently been looking into this area and stumbled upon your site only several weeks ago. I was wondering if musical instruments would fit into the "art" investment category as well, or is it a separate asset class? Stradivarius/Cremona violins, Steinway pianos, etc. Would rare musical instruments yield similar returns on average?
Perhaps not exactly what you are asking, but my grandfather collected antiquarian books. It was quite the collection and even had a first edition of Alice in Wonderland with beautiful colour plate illustrations and one book that looked like it had been signed by Queen Victoria. My mother had previously sold a miniscule little book of (I think) Patrick Kavanagh's poems for around £1000 or £2000, but had opted not to sell the Lewis Carroll because it was so beautiful.
So one summer, many years ago, she tasked me with valuing and selling off some of the rest of these books that had just been collecting dust under their bed and I hopped online to sites like Abe Books, made a little spreadsheet, then set off with a rucksack of what I thought was around €1000 worth of books. Now, as I was quite young and unemployed this seemed like a lot of money.
Alas, my first few trips to various bookshops specialising in this very thing were all futile. I eventually managed to sell a few but for much less than I thought, and to get anything reasonable I ended up having to part with the Alice in Wonderland. Thankfully I read it before.
This is all to say I would not recommend investing in books. They take up a lot of space, gather dust, are not particularly liquid, and most won't even appreciate and you've got to be careful not to damage the ones that will. Anything less interesting than a signed first edition by a renowned author will barely even get a second glance.
