Evaluating Art

Are you aware that evaluating art is different from evaluating other financial instruments. It is difficult to identify a value. It is about aesthetic appeal and judgment.

Each work of art is different and prices for individual works may vary.
Valuation is based on human emotion. Rival bidders who like the same piece can quickly push the sale price beyond all estimates. Accepted price levels for works of art are established by the interplay between auctioneers, dealers and collectors.

Wolfgang Wilke, a renowned art author says, ‘’There is no ‘objective’ value for works of art. Prices follow overall prosperity, and evaluation varies according to taste. Art that becomes the focus of a change in taste generates the highest yields. Anticyclical investment is the secret of the successful investor.’’ In the end, as the beauty lies in the eyes of the beholder,’ so is the value.

The key for art investment success, like stocks, is predicting which works of art will increase in value. If you are not afraid of risk you make the biggest gains at the lower end of the market by investing in lesser-known and new artists. There are so may artists in the world and finding the one who will become the next Rembrandt or Picasso can be next to impossible. It is like predicting which companies will be the future stars.

There is a consensus that art markets can be divided into five categories: Old Masters (1300-1860), Impressionists (1860-1910), Modern (1940-1970), Contemporary (1970-1985) and Very Contemporary (1985 onwards).
It is the last category that is most difficult. Old Master art tends to hold its value because it embodies the deepest aesthetic and cultural qualities, and requires large investments to buy. In the case of contemporary art, much of it is based on trends, and artists tend to rise and fall very quickly. At the same time, top contemporary art is unlikely to fetch huge gains.

For art value, the work, of course, is the most significant factor, but it is only a starting point. Successful investment in art requires extensive know how about artistic quality and authenticity. Each work of art must be different. Evaluating quality and price requires the ability to determine the craftsmanship of the work you wish to purchase. Is the style unique? Is it one of a kind, or are there many more similar to this style?

A veil of secrecy often cloaks the art markets. There are large differences in expertise between buyers and sellers. Investment horizons may run for years or even decades.

There is no registration office or certification authority that can authenticate the ownership of individual artworks. Other risks include absence of clear title, forgery, mislabeling and auction fraud. These risks have made the art market a place for insiders. Opaque markets make it easy for insiders to artificially inflate prices. For instance, price-fixing collusion in 2000 by the two major auction houses, Sotheby’s and Christie’s, defrauded art investors of millions of dollars. The method is similar to stock market manipulations by major stockbrokers. Investors are very much on their own to perform appropriate ‘due diligence.’

Art is a sound long-term investment. It is a good investment because people with knowledge recognize quality and rarity. These are values that no other investment offers.