Art Investments and the Excessively Wealthy Patrons of the Fine Arts

[onlooker]

What is the Mei/Moses Fine Art Index?

Mei and Moses created the Mei/Moses Fine Art Index (www.MeiMosesFineArtIndex.org) using data on repeat sales of fine art auctions from Sotheby’s and Christie’s. The index includes nearly 6,000 sales. While their index shows that art investing has nearly kept up with stocks, importantly, their index does not include transaction costs or storage costs (which can be quite high for art).

But don’t take Mei/Moses figures to mean that ALL fine art will hold up as an investment, or that art is immune from stock market bubbles. For example, in 1990, a Japanese businessman paid $82.5 million for Van Gogh’s “Dr. Gachet.” It has since sold for nearly 90% less than that. 1990 was the height of Tokyo’s stock market boom, and the Japanese were buying “trophy” artworks, and paying exorbitant prices. On the flip side, Mei and Moses found that American paintings have been a good investment. American art showed high returns and was least affected by world markets.

http://www.investmentu.com/2002/October/20021028.html

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About Christie’s and Sotheby’s Auction Houses

See: 

Time Line: The Rise Of Christie's And Sotheby's
By Anna Rohleder

http://www.forbes.com/2001/11/14/1114timeline.html

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There was a Christie’s and Sotheby’s Auction Houses price-fixing scandal in 2000

See: 

Sotheby's admits 'auction cartel'        5 October, 2000

Auction house Sotheby's faces a $45m (£29m) fine after admitting a price-fixing scheme with rivals Christies.

http://news.bbc.co.uk/2/hi/americas/958635.stm

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The auction houses price-fixing scandal had NO lasting effect.

See: 

Going Once, Going Twice … Glamour, Greed and Fraud at Sotheby’s and Christie’s    Sept 22, 2004

The scandal had no lasting effect on either auction house. They continue to be the destination of choice for the very upscale. Christie's recently auctioned off the possessions of the late tobacco heiress Doris Duke while Sotheby's handled the estate of Katherine Hepburn.

http://www.wharton.universia.net/index.cfm?fa=viewArticle&id=834&language=english&specialId=79

[onlooker]

Art investments are HUGE business deals.   Looking at the extraordinary high to-the-moon prices for auctioned art pieces, one can easily conclude that the bottom line use of investment art is to allow the ultra-affluent to show off their wealth and power.

See: 

Art investments are attractive but only for those with cash to spare: analysts
By Ephraim Seow,  12 February 2010
    
SINGAPORE: Leading auction house Christie's says it has sold S$4.7 billion worth of artworks in 2009, down 24 per cent on year.

Experts said highly recognised pieces such as Picasso and Monet still have strong valuations. But they warn that art is an attractive investment class only for the highly affluent.

Art sales have been booming. In the fourth quarter of last year, the market for artworks grew 13 per cent on-year, according to the Mei Moses Art Index which tracks the value of 15,000 artworks sold at Sotheby's and Christie's auctions.

Christie's said 36 per cent of the pieces it sold worldwide in 2009 were at or above high valuations.

But the picture is mixed since demand from western art collectors has been hit by the economic downturn. And with market uncertainties and the difficulty of selling physical art pieces, art investment could be less suitable for some.

Aaron Smith, managing director, Superfund, said: "If you are ultra high net-worth investor with S$141 million that you have in your own personal net worth, then, I think it is an investing tool.

"You have to prepare for the fact that the liquidity won't be there. So, you can't just sell it the next day, immediately. There is no guarantee that you can sell it. Then, you also have to worry about forfeiting."

Another risk is that art is closely linked to the stock market, making it a poor diversification tool. Art experts said when the stock market goes down, so do funds available for spending on art, leading to falling prices.

But they said for those who can hold out for at least 10 years, art prices could be supported by improving market and compounded valuation. While analysts said it is difficult to pick a rising genre, they advise art investors to balance their portfolio instead.

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1037195/1/.html

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Fine Art Funds: A Beautiful Investment
By Brigitte Yuille   March 3, 2010

Have you ever admired a piece of art and wished you had the money to own it? Are you the type of person who would rather invest in the arts than in traditional Wall Street firms? Then you'll want to check out this relatively new investment vehicle - art investment funds. In recent years, these funds have become a very enticing alternative investment tool, and may even make owning a stake in fine art accessible for the non-wealthy. (For background reading, see Fine Art Can Be A Fine Investment.) 

It's a Beautiful Thing

Stocks plunged during the recent recession, but the economic downturn’s impact on the art market was minimal. At the height of the recession in 2008, the art market fell a slight 4.5%, according to the Mei/Moses All Art Index, which tracks the long-term performance of fine art. This isn’t the first time the art market fared well in a poor economic climate - it also out-performed the stock market during the 2001 recession.

So far, art market has enjoyed seven years of price appreciation. According to Bloomberg, the average compound annual return has been 33% since 2004. The high historical performance has attracted the attention of hedge fund managers, endowments and foundations, and ultra-high-net-worth individuals. 

Even financiers noticed the trend. They eventually gathered together to form art investment funds with assets ranging from the tens of thousands of dollars, to more than $100 million. These funds leverage purchasing power to buy art. Generally, the minimum entry into these funds for an investor has been $250,000. Investors typically receive a diversified portfolio of art, annual statements and appraisals for the artwork.

As the funds emerged, some had trouble raising funds, and struggled with the costs of buying, storing and insuring the art work, such as ABN AMRO, which closed a year after it launched. Most funds are still in their formative years and are developing a track record of success. Here are a few that have prevailed or recently launched with funds in the millions:

1. Anthea 1 Contemporary Art Investment Fund

2. Fine Art Fund Group

3. Artemundi Global Fund

http://financialedge.investopedia.com/financial-edge/0310/Fine-Art-Funds-A-Beautiful-Investment.aspx

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In April 2010, there was an article says that auctioned art pieces were again, fetching high prices.

See: 

Sotheby's Is Back To Pre-Lehman Levels And Buyers Are Taking Note

By Antonina Jedrzeiczak    April 9, 2010

Sotheby's (BID) is back and the sales are as hot as ever. The auction house, a viable predictor of major market turns, is officially telling us its back to pre-Lehman levels.

Many million dollar pieces are even fetching bids twice the amount predicted, as wealthy buyers appear more than ready to spend again.

The newest branch to take the lead is in Hong Kong, where a rare blue diamond from the De Beers Millennium collection was just purchased for over $6 million and just today an imperial white jade seal from the 18th century went home with an Asian buyer for $12.29 million - breaking the world record for both white jade and imperial seal sales.

There's no doubt about the Chinese auction market taking a strong lead, but New York, Paris, and Geneva aren't doing too poorly either.

Brilliant-cut rare blue diamond - Geneva - $ 2.3 Million

Imperial Jade seal - Hong Kong - $12.3 Million

Martin Kippenberger painting (1996 oil on canvas) - Amsterdam - $ 1.4 million

Sketchbook of a British settler (1800s) - Melbourne - $830K

De Beers rare blue diamond - Hong Kong - $6.4 Million

Kadinsky painting (1932 oil painting) - New York - $10.6 Million

Van Dyck oil painting (Old Masters) - New York -$ 7.2 Million

Picasso painting (1945 gauche, wash and ink) – Paris - $1.5 Million

Ming Dynasty flask (1403 - 1424 flask with flowers) - Paris - $2.2 Million

Imperial pearl court necklace (18th century Qing Dynasty necklace) - Hong Kong - $ 8.7 Million

http://www.businessinsider.com/sothebys-auction-items-2010-4

[onlooker]

See: 

The Top 10 Most Expensive Paintings Ever
Submitted by Symple Life   April 12, 2010

Paintings have always been a focus of love, jealousy and desire amongst all sectors of the community, and have seemingly untold ability to generate jaw-dropping prices at auctions with investment from the world’s richest galleries, corporations, private owners and investors.

In this article, we take a look at some of the most expensive paintings ever sold.

No. 5 by Jackson Pollock was sold in 2006 for $140 million.





Woman III by Willem de Kooning was sold in 2006 for $137.5 million.




Adele Bloch-Bauer I by Gustav Klimt was sold in 2006 for $135 million.




Boy with a Pipe by Pablo Picasso was sold in 2004 for $104 million.

Dora Maar with Cat by Pablo Picasso was sold in 2006 for $95.2 million.

Portrait du Dr. Gachet by Vincent van Gogh was sold in 1990 for $82.5 million.

Au Moulin de la Galette by Pierre-Auguste Renoir was sold in 1990 for $78.1 million.

The Massacre of the Innocents by Paul Rubens was sold in 2002 for $76.7 million.

Portrait de L’Artiste sans Barbe by Vincent van Gogh was sold in 1998 for £71.5 million.

Rideau, Cruchon et Compotier by Paul Cézanne was sold in 1999 for $60.5 million.

http://thesymplelife.com/the-top-10-most-expensive-paintings-ever-5/

[onlooker]

Wealthy art investors in developing countries are following the same path as their counterparts in developed countries.

See: 

Investment Portfolio: Investing in Art Funds        May 16, 2010

One popular advice that every investment advisor will give you is to diversify your investment portfolio. One specific asset class that has attracted a lot of attention after the year 2000 is ‘art.’ Considering the high volatility of equity markets, more and more people are investing in art works of internationally recognized Indian artists. Moreover, Indian art is growing tremendously and breaking new trends of unprecedented appreciation due to excess liquidity in the economy.

http://www.lawisgreek.com/investment-portfolio-investing-in-art-funds/

[onlooker]

What’s next for art investments and the excessively wealthy patrons of the fine arts?

IMO, Christie’s and Sotheby’s auction pieces are beautiful high priced, well marketed items which are as risky as derivatives - financial weapons of mass destruction.

Should there be another severe dip in the global economies, I suspect that the original auction prices for many Christie’s and Sotheby's art pieces will go once, go twice, go poof!  - thousands or millions will forever be lopped off.  The same for leveraged fine art funds.

I will find it interesting to see how much the prices of auctioned art pieces can collapse.  And if there will still be die-hard culture vultures who will swoop in and buy up “bargain priced” multi-million dollar fine art pieces.

[sunseeker]

Hi OL

I listened to a TV program only this week.
Most collectables are subject to one sort of tax or another at some point in time (in UK at least).

The two notable exceptions to these rules are:

Time pieces. This includes other mechanical devices too but clocks, and watches are regarded as the best area for investment purposes. Clocks and watches etc (excludes sundials) are given a maximum life expectancy of 50 years (a fine device will go on and on if cared for).

Something deemed to have a life expectancy won't be regarded as an asset under revenue rules.

Fine wine. Since wine is regarded as perishable that also slips through the tax net.

ATB 

[onlooker]

SS quote:

Most collectables are subject to one sort of tax or another at some point in time (in UK at least).

The two notable exceptions to these rules are:

Time pieces. This includes other mechanical devices too but clocks, and watches are regarded as the best area for investment purposes. Clocks and watches etc (excludes sundials) are given a maximum life expectancy of 50 years (a fine device will go on and on if cared for).

Something deemed to have a life expectancy won't be regarded as an asset under revenue rules.

Fine wine. Since wine is regarded as perishable that also slips through the tax net.

I have a common old style clock in a glass bell which I treasure.  But, I doubt it will pass inspection by any appraiser at Christie’s or Sotheby’s.

Interesting enough, some wines which have turned into undrinkable vinegar, are still greatly valued. 

I see such items as nothing more than old wine bottles with fancy labels glued on to them.  But heck, if such bottled wines are accepted and then auctioned off by marketing machine Christie’ or Sotheby's; chances are, the owner will get astronomical prices for them.  I think this is bizarre, but collectors of fine wine (er…bottles), everywhere will adamantly disagree with me.

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According to this July 13, 2010 article, 2010 is going to be an ultra-excellent year to sell some 49 year old bottles of wine.

See: 

Latour '61 Leads Historic Wines at $1.6 Million Sotheby’s Sale
By Guy Collins - Jul 13, 2010

Chateau Latour wines spanning more than four decades back to the Bordeaux producer’s historic 1961 vintage get top billing at a Sotheby’s auction in London this week that may fetch as much as $1.6 million.   

http://www.bloomberg.com/news/2010-07-13/latour-61-leads-historic-wines-at-1-6-million-sotheby-s-sale-in-london.html

Looks like according to Sotheby’s, collecting bottles of wine (drinkable or perishable) can be a great investment plan, and there’s no looming double dip recession or worse on the way.

[Beginner]

Talking of art reminds me of G.K. Chesterton’s history of art. Chesterton said:  “First there was art for God’s sake, and then there was art for man’s sake, then art for art’s sake, and now, no art, for God’s sake.”

[sidewinder]

If you see the fag that paid $140 mil for that Pollock, tell it I have one with a little more zip my grandson just did with his mouse.  He says he will take a million no questions asked.

[sunseeker]

Hi SW
I can’t find the clip of Paul Hogan (of “Crocodile Dundee” fame) in one of the Fosters Larger adverts but it went something like this:-

In the art gallery, looking at a piece of modern "art"

Woman  “I think it's Jackson Pollock's”
Hogan  “Yes it is.”

If you thought that Pollock was a pile of $h!t then ………

Chris Ofili, an artist who creates his work using elephant dung, has won this year's £20,000 Turner Prize.

http://news.bbc.co.uk/1/hi/entertainment/226000.stm

ATB 

Bottom line…
You should buy art and collectables not just for the monetary gain but because they give you pleasure when you look at them or use them. If in time they appreciate in value then so much the better.

If they turn out to be a dud then at least you had enjoyment out of owning them.

ATB 

[Uboat]

SS quote:

Most collectables are subject to one sort of tax or another at some point in time (in UK at least).

The two notable exceptions to these rules are:

Time pieces. This includes other mechanical devices too but clocks, and watches are regarded as the best area for investment purposes. Clocks and watches etc (excludes sundials) are given a maximum life expectancy of 50 years (a fine device will go on and on if cared for).

Something deemed to have a life expectancy won't be regarded as an asset under revenue rules.

Fine wine. Since wine is regarded as perishable that also slips through the tax net.

I have a common old style clock in a glass bell which I treasure.  But, I doubt it will pass inspection by any appraiser at Christie’s or Sotheby’s.

Interesting enough, some wines which have turned into undrinkable vinegar, are still greatly valued. 

I see such items as nothing more than old wine bottles with fancy labels glued on to them.  But heck, if such bottled wines are accepted and then auctioned off by marketing machine Christie’ or Sotheby's; chances are, the owner will get astronomical prices for them.  I think this is bizarre, but collectors of fine wine (er…bottles), everywhere will adamantly disagree with me.

~    ~     ~

According to this July 13, 2010 article, 2010 is going to be an ultra-excellent year to sell some 49 year old bottles of wine.

See: 

Latour '61 Leads Historic Wines at $1.6 Million Sotheby’s Sale
By Guy Collins - Jul 13, 2010

Chateau Latour wines spanning more than four decades back to the Bordeaux producer’s historic 1961 vintage get top billing at a Sotheby’s auction in London this week that may fetch as much as $1.6 million.   

http://www.bloomberg.com/news/2010-07-13/latour-61-leads-historic-wines-at-1-6-million-sotheby-s-sale-in-london.html

Looks like according to Sotheby’s, collecting bottles of wine (drinkable or perishable) can be a great investment plan, and there’s no looming double dip recession or worse on the way.

1961 was a fabulous vintage in Bordeaux and the 1961 wines of great chateaus are still outstanding.  A 1961 Chateau Palmer was one of my best wines.  A 1823 Bordeaux I have tasted was still drinkable and a 1795 Madeira was delicious. Nevertheless, there are many old wines at auctions which are not drinkable anymore. The reputation of a vintage year and the grading of a wine chateau are more important than the age and taste of the wine.
 
The intrinsic value of collectable wines are not in drinking, but owning them as pieces of art (the condition of wine bottle labels are also important) and history like many paintings and art collectables. For drinking enjoyment, many collectors at blind tastings would prefer the taste of a $20 young wine  over the taste of an old vintage wine worth thousands of dollars. Rare old vintage wines of famous chateaus are an appreciating investment as recent auctions have shown a continuing rise in prices. 

[sunseeker]

1961 was a fabulous vintage in Bordeaux and the 1961 wines of great chateaus are still outstanding.  A 1961 Chateau Palmer was one of my best wines.  A 1823 Bordeaux I have tasted was still drinkable and a 1795 Madeira was delicious. Nevertheless, there are many old wines at auctions which are not drinkable anymore. The reputation of a vintage year and the grading of a wine chateau are more important than the age and taste of the wine.
 
The intrinsic value of collectable wines are not in drinking, but owning them as pieces of art (the condition of wine bottle labels are also important) and history like many paintings and art collectables. For drinking enjoyment, many collectors at blind tastings would prefer the taste of a $20 young wine  over the taste of an old vintage wine worth thousands of dollars. Rare old vintage wines of famous chateaus are an appreciating investment as recent auctions have shown a continuing rise in prices. 

Wow Uboat I'm impressed.


I remembered hearing that in order to get the best prices at a vintage wine go through a treatment regime:

http://www.letstalkwine.com/topic.asp?TOPIC_ID=1871

“I've been to the Penfolds Recorking Clinic in London. They looked at all the bottles - if the level and cork condition looked good, then they left it untouched. If it needed to be opened, the cork came out, and then a quick squirt of nitrogen went in to the bottle to stop oxidation (the nitrogen is inert and heavier than air, so forms a blanket on top of the wine).
The wine was tasted, and if pronounced still drinkable, then it was topped up with the current vintage of the same wine (this was done on bottles of Grange etc.) - it is legal to have a certain proportion of different vintage wine in a bottle stating another vintage, although it is a very small amount that's allowed.
Then the bottle got a new capsule, and a sticker on the back, signed by the winemaker, certifying that it had been judged OK. These bottles, at auctions in Australia anyway, tend to achieve higher prices than those without the certification.
These clinics seem to be happening more often now, but they're mostly about publicity for the winery, it seems.”

Personally I have never found any need for such a service.


The wine merchant that I use cellars his wines under ideal conditions.

http://www.dbyrne-finewines.co.uk/

Once in my possession I don’t give the wines any chance to deteriorate. LOL



Cheers.

ATB 

[onlooker]

SW:

If you see the fag that paid $140 mil for that Pollock, tell it I have one with a little more zip my grandson just did with his mouse.  He says he will take a million no questions asked.

Wow.  I really like your grandson’s million dollar artwork. 

Like your recent creative ventures into making tasty homemade bread, I have a creative interest in making my own million dollar graphic art pieces.

What computer software and devices were used to produce the zippy artwork?

[onlooker]

SS:

Bottom line…
You should buy art and collectables not just for the monetary gain but because they give you pleasure when you look at them or use them. If in time they appreciate in value then so much the better.

If they turn out to be a dud then at least you had enjoyment out of owning them.

When it comes to fine art, “Beauty is in the Eye of the Beholder”.

Here’s an article which fits your and my view on investing in art pieces.

See: 

“Beauty is in the Eye of the Beholder – But make sure it is your eye”

The point is, for a collector, the heart is in a little different place than the majority of people.

When people come to the gallery to buy art, it is often our first concern to identify where their heart is, so we can assist them to achieve their goal in buying art.  Buying art can be one of the most rewarding things you can do, and combined with some savvy art buying, you can get great potential for future value too.  Should that be a first priority?  In my opinion, no.  You should always buy something that touches you in a special way.
 
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There are many reasons to buy art, but, as I covered in the beginning of this article, unless you are buying purely for investment value, make absolutely sure you are buying from your heart.  When you do this, you will certainly connect with the art for many years to come.  If you buy for the wrong reasons, you will not get your best value because for full enjoyment will diminish in short order.

Good art is timeless and calls us to a place within ourselves that defines who we are and the world we live in.  To make the most of it, make sure you buy smart.

See:  http://www.hallmarkgallery.com/blog/?p=71

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SS:

Chris Ofili, an artist who creates his work using elephant dung, has won this year's £20,000 Turner Prize.
http://news.bbc.co.uk/1/hi/entertainment/226000.stm

My above mentioned response is the same for anyone who buys or greatly praises Chris Ofili’s artwork.  If a buyer or an art committee believes that artwork with elephant dung is beautiful art, then it is so – to them.  I am certainty not going to oppose their point of view.  And I add that the saying “Each to his own” is applicable here.

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In the late 1980s, I saw an Andy Warhol screen print of Mick Jagger for $10,000.00 at a Toronto art gallery.  At that time, I had no money to spend on fine art, and I was not at all into pop art or rock and roll stars.  Of course, I didn’t bother to purchase it.

But I think that same print is now about $65,000.00 US.
See:  http://nga.gov.au/warhol/IMAGES/LRG/113072.jpg

So, if I had brought it, I would have made a modest gain by selling it in 2010.

I am decades older now, and have a bit more money in my piggy bank.  I still have a strong interest in collecting artworks.  So, if there is a severe dip in the global economies the next time around, I will be out hunting for affordable art pieces to own and appreciate.

[onlooker]

Uboat’s June 12, 2010 quote:

anyone ready to bid for the world's largest gold coin?
just 220 pounds auctioned from $4 million plus

http://dailyconvo.com/worlds-largest-gold-coin-to-be-auctioned-at-vienna/11521/

Uboat’s June 26, 2010 quote:

Missed a bargain, 100 kilograms, 1 million Canadian maple leaf gold coin sold at an auction in Vienna yesterday for € 3270000 or US$ 4075728 on only 1 written bid

http://dailyconvo.com/worlds-largest-gold-coin-to-be-auctioned-at-vienna/11521/

Uboat, I quite agree with you that whoever brought the 100 kilograms Canadian maple leaf gold coin made a lucky steal of this century deal for unique recyclable items.

IMO, this coin was way more valuable that any of the higher priced items listed in “The Top 10 Most Expensive Paintings Ever”.

Hummm?  Perhaps, had the owner sold it through the esteemed Christie’s or Sotheby's auction houses; then the coin could have been auctioned off for an astronomical, instead of a modestly higher price than expected, and also, received more than just one bid for it.