How to invest in art wisely?

We will begin this text with an illustrative example. When in 1989 the 29-year-old stockbroker Robert Tibbles bought the recently graduated artist Damien Hirst’s work “The Body“, which consisted of a medicine cabinet, for £600, his colleagues and friends who bought cars and expensive watches mocked him, assuring him that he had been robbed and should return the artwork, i.e. ask for his money back. But Tibbles stayed true to his instincts. In 2020, he sold the work, “The Body“, at auction for £1.2 million.

It’s a pretty drastic example of recognizing the future blue chip art at the ideal stage for investment when the artist, in the case of the great Damien Hirst, was starting his career. And accordingly, the return on investment is also dramatic.

And the past pandemic years have highlighted another side of the value of the artwork as an investment. Many collectors obtained loans with insurance consisting of paintings by famous artists. The explanation is simple – in an environment of obvious financial risk, artworks were attractive to banks as insurance because their valuation, unlike stocks or other types of investment, did not tend to follow market fluctuations.

And Citi’s (Citibank) report “The Global Art Market and Covid-19” confirmed the resilience of the art market in times of economic turmoil; i.e., it showed that in the first 7 months of 2020, art outperformed 10 of the major asset classes, including hedge funds and real estate, in terms of returns.

Incidentally, the pandemic has also changed the way collectors increase their collections. If online art sales jumped to 15.8% in 2020, by the end of 2021, almost two-thirds of art buyers were selecting and purchasing works online.

Unfortunately, we continue to live in economically uncertain years and many are looking for ways to secure financial stability through their investment portfolios. Art, as we have said, is proving particularly resilient in this respect. The art market is independent of the stock market and is often referred to as a ‘neutral currency’; meaning that its resale value, even when the economy is going through bad times, tends to remain high.

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Tips for buying art as an investment

With prior research – so that you are properly informed, and with the right timing for investment, purchased art has the potential to bring great profits.

We’ll highlight two things right away here. First, when we say investing in art, we of course mean primarily contemporary art (leaving the old masters to the few who can afford them). And second, artworks are not inherently as liquid an investment as other asset classes, such as stocks; rather, they are long-term investment that doesn’t always turn into cash quickly. Consequently, some collector-investors hold their art collections as part of a diversified portfolio or as property to pass on to future generations.

Before you start investing in art, set a clear goal. What do you expect from your investment? Profit or personal enjoyment? Ideally, your answer is both. Because if you like the artwork, if you’ve made an informed choice, and if you’re happy with the price at which you bought it, it’s more likely to be a valuable investment when you resell it. In that case, it will also fulfill its primary function of giving you pleasure in your home or office; and at the same time, it will represent a promising opportunity for profit.

Once you have determined your goal, start researching, informing yourself to first find out what kind of art you want to invest in. Painting is the most obvious option, but there’s also printmaking, sculpture, mosaics…

If you consult gallery owners, they often say that buying art is an emotional decision, which is only partly true. Of course, when you buy a work of art, you will choose one with which you will establish an emotional connection; but when we are talking about art as an investment, research well in advance the artist whose work you intend to buy and, based on the knowledge gained, evaluate the investment potential.

When researching, be prepared to face the fact that the art world is quite vast and not exactly easy to navigate. It is always advisable to consult other, more experienced collectors, as well as artists and other connoisseurs, but ones you can trust. Because there’s also the risk that someone will get you to buy a piece that will seem very favorable but will turn out to be substandard or fake in the end.

Visit museums, galleries, and other cultural institutions regularly to get a more plastic view of the art market, i.e. to get a better understanding of its developments.

Works by artists who are at the beginning of their careers are more accessible, but also carry more risk (in the sense that it is harder to guess their future value), unlike works by an already established artist (which have more clearly defined prices, and certain factors, such as increased interest in the artistic movement to which they belong or the eventual discontinuation of the artist’s production, increase demand with an expected effect on prices).

In the spirit of all of the above, it is clear that investing in art goes best with an authentic interest in it on the part of the investor. It goes without saying that when you invest in something you are passionate about, the values don’t just come with profits. And the fact remains that owning an art collection carries a level of prestige that other types of assets do not; furthermore, such a collection, with everything its owner knows about the topic, is an exceptional talking point with partners and friends at dinners, receptions, and other occasions.