November 4, 2008

Invest in Art -Reason #1: Diversify Investments

In the current economic downturn, investors are turning to alternative investments such as art, because equities and property are seen to be over-valued. Quality art survives economic downturns because the value never goes down to zero (unless damaged), compared to most other investments and prices bounce-back quicker after crashes than most equities. Investing in art reduces exposure risk as part of an investment portfolio especially in volatile markets. Although careful evaluation of an artist's potential and the credentials of the gallery or dealer are musts. At the minimum, research, cross-check and verify rates from multiple sources.

Art market investments have in fact outperformed the S&P500 and more conservative investments in the long-term according to
Finance professors Jiangping Mei and Michael Moses' (from the Stern School of Business at NYU) extensive research of paintings sold at auction over a 50 year period (vs. US stock market prices). The Mei/Moses Fine Art Index, comprised of 8,000 pieces of art auctioned by Sotheby’s and Christie’s since 1950.

Beware though that art is less liquid (average 10 years holding) compared to equities so it should be viewed as a long term investment except in rare cases when an artist is retiring or is soon to be deceased. Therefore it should be viewed as a long term investment.

"Unlike companies, the trouble with blue-chip art is you can't buy bits of it. But you can still do well buying lesser named artists at suburban and regional auctions, fairs, op-shops and garage sales. And there's also up-and-coming art at small primary galleries."
-David Tribe, Sun Herald



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