A friend once told me, when asked for advice on how to make money in the art market, that the ‘profit was in the buying’ At the time I saw this advice as being somewhat simplistic and no different from the ‘buy low, sell high’ adage bantered around in the stock market, or the realtor’s cry for ‘location, location, location.’ The significance of his words, however, would eventually become apparent.
Art, and especially Canadian art, is a perfect investment alternative. It offers just about everything that other investment vehicles offer, and more. And it is the ‘more’ that makes it so perfect! Most traditional forms of investment involve impassive, unemotional vehicles such as stocks and bonds, mutual funds (where the other guys do all the buying!), money markets, precious metals, and real estate (which we are assured we can do with “no money down!”). Some are high-entry high maintenance investments while others involve little more than a phone call. Most are all but forgotten once acquired except for the daily scanning of stock quotes. All that matters is that they make a profit. And if they don’t we take the loss and move on with little to show for our efforts but a depleted bank account.
There’s nothing impassive or unemotional about art investing, however. True, the basics are the same, and paintings have their fundamentals too: those several important criteria that help us recognize potentially good fine art investments. The investment returns are there, there is a market within which to transact your business, and there are price guides to give you the ‘going rate’ on a particular artist. Of course, you can’t get a spot price on a Lawren Harris Iceberg sketch, and art work is not as liquid as some other investments (although some might question this in today’s extremely active market), but within the art market these are not significant factors. What really sets art apart is the art itself, or perhaps more significantly, the acquisition of the art. There is no greater adrenalin rush than bidding on a work at auction or finding a must-have painting tucked away in the back of a store. And the post-acquisition benefits run the gamut from pride of ownership to decorative and investment functionality. An the best part is you get to enjoy them for years and years, and all the while these marvelous ‘investments’ are appreciating in value. What could be finer than that?
Of course, not all paintings are a good investment, but then neither are all stocks, bonds or plots of land. But the right ones are! Which brings me back to my friend’s sage advice: The profit is in the buying!
It is a popular misconception that all paintings will appreciate in value. They won’t, particularly those purchased on the primary market. The primary market is the retail gallery and its stable of mostly living artists. This is the biggest money producing sector within the marketplace, and it is also the least desirable place to buy art for investment! The secondary market is the resale market which more often than not means the auction industry, but can also include certain secondary market dealers, some art fairs, even garage sales and the internet. This is the recognized investment area of the market.
Of all the many thousands of artists represented in the primary market in galleries across the country very few will ever amount to anything more than decorator status. Only a handful will advance to an eventual investment rating, and trying to pick these few, particularly early in their career when prices are reasonable, is almost like searching for the proverbial needle in the haystack. Buying on the primary market is buying high, and you will almost certainly end up having to sell low.
On the other hand, a large percentage of the 5000 or so artists that currently make up the secondary market have already proven their investment worth. Many are already well known and have a market track record that can be found in price guides such as the Canadian Art Sales Index. All of them have discarded their retail markups and are offered, at auction anyway, in open competition to the highest bidder.
In Canada the market for Canadian art is basically controlled by about 50 artists, most of whom are household names such as the members of the Group of Seven, and historical painters like Paul Peel and Cornelius Krieghoff. These artists are expensive and becoming more so with every day. They are priced in the $50,000 to $5 million range and, for the well-heeled, still present an excellent investment opportunity despite their rapidly rising prices. Outside of these core artists, however, is a marketplace of several hundred artists valued under $50,000, and the majority under $5000, whose work fits all, or most, of the basic fundamentals that comprise a good investment artist: who did the artist study under and with; what societies or institutions was he or she associated with; what is the quality, period, subject matter, medium of their important work; how does this work currently perform on the secondary market, and is the suggested asking price fair and within reasonable market parameters?
For first time investors attracted to the art market by media headlines of multi-million dollar paintings there is, understandably, a tendency to think the market is well beyond their budget and tolerance for risk. But it is not. According to the recently published 2006 edition of the Canadian Art Sales Index, almost 66% of all Canadian paintings sold at auction in the 2004-2005 auction year sold for less than $2,000, and 52% sold for less than $1000! In fact, only 10% of the more than 5,000 works of art sold last year fetched more than $10,000. The entry level is still very attractive, therefore, and the potential for excellent returns on investment remains extremely high.
According to Made in Canada! An Investor’s Guide to the Canadian Art Market, a 25 year business analysis of the Canadian art market published in 2002, several of the WPL Canadian Art Indices (seventeen individual indexes that monitor the performance of specific segments of the Canadian art market) cited in the report posted returns on investment that outpaced most other more recognizable investment vehicles. For example, the WPL Composite Canadian Art Index posted an average annual compound return on investment over five years of 28.9%, and over ten years of 18.92%. The WPL Automatistes Index (an index of Quebec abstract painters whose movement was formed in the late 1940s and 1950s) posted a five year average annual compound rate of return of 38.12%, and a phenomenal 39.47% over ten years.
While successful art investment can offer a multitude of personal and investment benefits, there are nevertheless several pitfalls awaiting the first time buyer and even seasoned collector/investors. Paramount is the fact that the market runs on the principle of caveat emptor – buyer beware! So do your homework, do your research, and listen to that inner alarm bell because “if it looks too good to be true it probably is.” Always deal with reputable dealers or auction houses, and be very leery of buying privately or over the internet unless you really know your market.
Beginners to the art market should attend as many auctions and visit as many secondary market dealers as possible before making that first purchase. It is usually best to find an area of the market – perhaps a subject, period, style or artist - that appeals to you and do as much research on that area as possible so that you can go into the market with a certain degree of knowledge and confidence. Then be patient, disciplined and stay within budget. Don’t get involved in a bidding war. Remember, there’s always another auction, and plenty more paintings, so don’t go mad on the first one you see.
If your interest is Canadian artists then you are in luck because there’s an abundance of undervalued talent out there just waiting to be bought. In my book Made in Canada! An Investor’s Guide to the Canadian Art Market I list about 100 Canadian artists who I think are still very affordable and whose investment fundamentals make them ideal candidates for future returns. Some, like J.W. Beatty, Miller Gore Brittain, Peleg Franklin Brownell, William Brymner, William Paterson Ewen, Adrien Hebert, Randolph Hewton and H. Mabel May are already edging forward quite dramatically. Others, such as H. G. Glyde, Frank Panabaker, Harry Britton, Barker Fairley and Mildred Valley Thornton while on the rise are still awaiting their real market call.
So, take your time, do your research, then get ready for that great adrenalin rush when you go after your first, fiftieth, or five hundredth painting. It’s an experience like no other and, for my money, investing in art is truly The Perfect Investment Alternative!
(An edited version of this article was published earlier this year in the Globe & Mail special supplement on Alternate Investments)