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Art Is Not a Good Investment

A few months ago, art and money were connected in the news when Andreas Gursky’s “Rhein II,” a photograph depicting a still river and walkway, became the highest-valued photograph sold at auction. The buyer paid $4 million to walk away with the larger-than-life print. Art is in the news again today, with one of Edvard Munch’s renditions of “The Scream.” At a recent Sotheby’s auction, “The Scream” was sold for $119.9 million. This price set a record, making “The Scream” the most expensive work of art ever sold at auction.

For those who have the money to spare, art is a popular investment. Trading masterpieces of art among a small subsection of the population, less than 1 percent, is not without criticism, however. Many artists do not live to see their works become valuable, and do not benefit from the high prices sought for their work. I addressed both the criticisms and the benefits of giving art a significant societal value in the article about “Rhein II.”

The Scream - Edvard MunchWhile it may be good for society to value art highly, is it a good investment for any one individual who has millions of dollars to spare?

Well, first of all, there is art accessible at all levels of investment. With research, you might find works available for $50 that could certainly increase in value over time at a rate better than what financial advisers offer as typical long-term stock market returns. Art is not an investment solely for the 1 percent. And with the right buying choices, your smaller investment in living artists has a more direct effect on the artist community.

Investing in art isn’t going to be right for everyone. While some consider art to be one of the best investments outside of real estate, the economy has seen would-be real estate investors struggling when the market isn’t robust. The same is true with art. The market is subject to bubbles, the latest trends play a significant role in determining prices, and you may not be able to sell your art at the price time you need the proceeds. Artists whose work have proven to appreciate and are highly recognized as masters, like Dali and Picasso, have price appreciation almost guaranteed, but the barrier to entry for investments in proven artists is too high for investors without the desire to risk large sums of money.

Outside of artists whose works have proven worth, it’s risky to invest in art with the goal of making a killing between the purchase date and the sale date. Even the best research won’t guarantee performance. To mitigate the chance of loss, when choosing art, find something you like. As long as you enjoy looking at your art collection, you won’t mind as much holding onto it until it has the ability to fetch the price you desire — which may be never. At the auction where “The Scream” sold for $119.9 million, one fifth of the pieces on the auction block failed to sell because no investors were willing to pay the asking prices.

Another problem with investing in art is the due diligence required to avoid scammers and fraud-minded people in the industry. Even experts can be wrong about forgeries. Investments in art are not subject to the same kinds of regulation that allows investors to feel generally safe and confident when investing in stocks and mutual funds.

Unless you have the financial ability to invest in artists whose names you know from high school or your college’s Art History course, you might be better off staying away from investing in art if your purpose is finding the next Rembrandt.

Photo: br1dotcom

Updated May 7, 2012 and originally published May 3, 2012.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar 1 Anonymous

I expect that whoever bought the pastel of The Scream (which also has a poem on the frame I believe, which is cool) wasn’t investing for monetary gain but for the social cachet that comes from showing off trinkets like Bugattis made from porcelain by a teapot company (seriously, google that one – insane), residences in London/Paris/NY, vanity football team ownership and the like. In which case, it probably worked!

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avatar 2 Luke Landes

I agree. I’m sure there is quite a bit of “look at me!” value some investors seek when purchasing high-value art in an auction. Besides the social cachet you mention, there could be something special about owning something so rare and prized by others. This particular buyer is remaining anonymous, at least for now, but you can be sure his or her friends and colleagues know his or her identity.

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avatar 3 Anonymous

Hope he has it hung in his washroom!

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avatar 4 Anonymous

Let’s face it–people who are willing and able to spend $120 mil on a painting live in an entirely different universe than the rest of us. Different rules, different conventions, different culture, different perspective. The conscious and subconscious judgements and priority-setting that naturally accompany finite financial resources simply do not apply.

As for me, my home office is adorned by a large pen & ink drawing done by a high school classmate and an oil painting done by my great grandmother.

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avatar 5 Anonymous

All I want to know for $120 million, is the frame included? :-)

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avatar 6 wylerassociate

I don’t think art is a good financial investment but it’s a good social investment.

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avatar 7 Mike Collins

Reminds me of the Seinfeld episode where George buys some “triangle” art from Elaine’s artist friend who is in the hospital. George figures if the artist dies the art will appreciate in value and he can make a quick profit. Unfortunately for George the artist recovers thanks to a little help from a Junior Mint. :)

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avatar 8 Anonymous

Perhaps art is not a good financial investment, but all the artistic paintings or prints I have purchased at thrift stores, yard sales, going-out-of-business sales, and so on- frugality minded, have been worth a lot more than money. Including a refrigerator magnet of The Scream.

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avatar 9 qixx

My wife and i have picked up one piece of art for our home every year for our Valentine’s Day or for our Anniversary. None of the items we have purchased were purchased as an investment. We get things that we want to hang on our wall.

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avatar 10 Anonymous

Not that there is a real way to invest in it, but the index is actually up against the S&P in recent years:

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