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THE
GAME OF ART
Are fluctuations in the art market tied to the stock
market? After all, the art market is bigger than Sotheby's.
According to The Economist.com, The $36 billion value
of the art market beats the online advertising market
of Google and Yahoo, which combined generated sales
only $25 billion in 2006. Economists estimate that Art
Basel Miami Beach brings over $400 million worth of
art sales and related impact to the economy. Howard
Rehs of Rehs Galleries, Inc in New York city states
in his online newsletter, "The art market also
consists of private art galleries and dealers, many
of whom are offering quality paintings at very competitive
prices Ð so the auctioneers, and the buying public,
need to remember that the auctions are not the only
game in town." Yet, the art auctions of Sotheby's
alone account for about 25% of the total art market.
A proxy for the entire market, Sotheby's is the only
publicly traded auction house. Collectors buy paintings
for various reasons, but at astonishing prices, (Ronald
Lauder's acquisition of the Gustav Klimt painting 'Adele'
for $135 million in July 2006), fine art represents
a huge investment. So, the debate continues: Is fine
art a good investment?
In the article "The Big Picture at Sotheby's Auctions"
Marion Maneker reports that the number of lots sold
at auction has more than doubled since 1998. At the
same time, the value of that art sold tripled. Yet,
art work offered at auction is not always good work
to buy - though as Rehs' comments, "with their
own money on the line, the auction houses would like
you to think it is." In 2007, some of the best
sales through auction were fueled by the price the auction
house promised to pay if a certain item didn't sell.
This past fall a 30% drop in U.S. brokerage stocks led
the NYT to raise the spectre on a wave of important
works coming to market, suggesting the sellers were
trying to get ahead of a dive in prices. Despite this,
dealers could not get their sellers to acknowledge that
just the notion of an onslaught of consignments could
create cautious buyers.
Michael Moses and Jiangping Mei have been compiling
data that allows them to track the long-term performance
of fine art. Their data, The Mei Moses Fine Art Index,
focuses on mature artists whose works command significant
prices at auction. In the article, "Painting for
Profit: Is Art a Good Investment," Daniel Gross
writes, "As their most recent update shows, over
the last 50 years, S&P 500 stocks returned 10.9
percent annually, while the art index returned 10.5
percent per annum. And in the five years between 2001
and 2005, art trounced stocks. But not all art performs
equally. In recent years, old masters haven't done so
well, while American art before 1950 has been soaring.
And across categories, masterpieces (like Klimt's 'Adele')
tend to underperform lower-priced paintings by a substantial
margin. Most paintings in the index aren't blockbusters."
Moses estimates that the median size of recent transactions
charted is between $200,000 and $300,000.
As with stocks, the greatest opportunity for growth
in art values comes when investors suddenly focus their
attention on a new artist. And while some assume that
the fortunes of the art market are linked to the fortunes
of the stock market, Moses found that fine art actually
has a very low correlation with stocks. The financial
industry has created investment products surrounding
all sorts of stock, bond, and commodity indices. In
their article about investing in art as an alternative
asset, Kevin Foong and Alex James explain, "Securitization
is an ongoing trend that has gained momentum with the
spread of globalization, to the benefit of increasingly
wider groups of investors. These benefits are typically
enjoyed first by a small, privileged group of insiders,
then by a wider group of sophisticated investors, and
finally become retail investment opportunities available
to all. Equities and bonds made this journey over the
last century. Funds-of-funds are now making more nontraditional
investments, such as hedge funds, REITs and private
equity, accessible to individuals with smaller and smaller
amounts of capital to invest. Art is now beginning down
the same path." |
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