I thought it was time to return to “Art as an Investment “ since the current state of the stock market leaves one with a lot of questions about the safety and security of their money and what to do during this time of uncertainty.
Now to be quite honest, I have no idea what to do with my own funds that are invested in the stock market and I, for one, have made very few ‘new’ investments over the past few years. Like many of you, I just watch the blue chip stocks (some of which seem to be colored RED these days) I have owned ride the daily roller coaster of Wall Street … and from my perspective, it is one wild and sickening ride! While I do take personal comfort in knowing that currently I am not relying on the appreciation or better yet depreciation of these assets for my daily existence, the continuous erosion of my ‘rainy day funds’ does not make me feel very good; since I do know that at some point I might need them to pay for my bread and water.
I began writing this article the day after the 300 point decline in the market (oh, that day saw another 59 point drop and the following Tuesday saw an additional 128 point decline) and as of today (January 31) my portfolio has seen a 7% decrease since the beginning of the year. For a quick recap, last year my portfolio was up a measly 5%, so the way I am currently looking at it is, during the month of January I lost all of the appreciation of 2007 and part of my 2006 gains … I know, I know … I need to look at this as a long run investment … and to be honest, I do. I know that in 20 years it really will not matter what happened on January 17, 2008 … the market will, I hope, make a reasonable rate of return in the long run. But in this non-stop information age, it is hard to just put it out of your mind for a few weeks while the Wall Street gurus, and their political counterparts, (ha ha) deal with it.
By now most of you are probably wondering about the art market ... and so am I. We all know that in times of uncertainty people hold off on big purchases and I do believe that if this happens in the art market, we may finally see the much needed correction in a few of the ‘high flying’ markets. I will go out on a limb here and say that should the current economic phase we are going through not improve in the near term, the first market to see a serious correction will most likely be the 'Emerging Artist' market; because we all know that in the end, for every 100 Emerging Artists, less than 1 will make it in the long run.
This correction should then be followed by the high flying, and somewhat (I use that work jokingly) overpriced, 'New Chip' artists; those painters that some 10-15 years ago never made it to the headlines and are currently selling for hundreds of thousands, if not millions, of dollars (more than many of the ‘Blue Chip’ artists from other movements and periods). Look, there are only so many dead animals suspended in formaldehyde or hanging from ceilings; rooms filled with dirt; toy animals sewn together; diamond studded platinum skulls; dots on a canvas; or cookies piled into a corner that I, and many of our readers, can take – and I will add that the artistic merit of many of these works has gone way beyond my level of comprehension. This is not to say that some of these 'New Chip' artists will not be household names in the future and a number of them will become the ‘Blue Chip’ artists of the future -- but at some point their works will take a much needed spin on Kingda Ka (for those of you who are unfamiliar with that ride, it is Six Flags premier roller coaster which rises to a height of 456 feet, drops 418 feet, and hits speeds in excess of 125 mph) ... a nauseating ride that I would not be looking forward to. You might say that those high-flying ‘New Chip’ artists will quickly be known, for period of time, as the ‘Red Chip’ artists.
Look, it is inevitable that at some point, people will begin the old 'flight to quality' (stealing a phrase from Wall Street) ... favoring those artists, in many of the movements, that have a long proven track record of displaying a reasonable rate of return --- boy, I am really starting to talk like an investment advisor; which I am not! I will stress at this point, as I always do, that one needs to buy a work of art because they want to own it, because it speaks to them and because of the emotional reaction it creates ... and not because they feel it will be a good investment (though as we all know that is part of the equation). Art is meant to be looked at and enjoyed; it is meant to stimulate your mind and to bring its owner pleasure and pride. In the end, the big added bonus is that it should bring a nice financial return as well.
As for the other markets -- specifically Modern, Impressionist, 19th Century, and Old Master -- I think that some of these, in general, are still rather undervalued while others are fairly priced. I also believe that in each of these markets there are artists, or groups of artists, that may have gotten ahead of themselves. Good examples of this are the Russian painters whose works, over the last 10 – 15 years, have seen unfathomable increases in their values. But overall, when buyers decide that it is time to look towards more stable investments, some of these markets should see an increased level of activity; and as long as you keep your cool, buy quality works, by the right artists and from the right period, you should do well in the long run. Remember that most areas of the art market do follow the principals of supply and demand … and when collecting works by dead artists, the supply is limited and demand is increasing.
We all know that in times of excess, people are very free with their money and are willing to take levels of risk that they would not be willing to take in more normal times … something consistently seen in the stock market and, over the past few years, in certain areas of the art market. Stories abound of the work that just sold for a record multimillion dollar price at auction that was bought just 10 or 15 years ago for $20,000 or $30,000. Come on … this is only real during times of excess, when people have more money than they know what to do with.
The real interesting story will be how the auction rooms … whose press departments have not only over-hyped many of these markets, but aided in the unbelievable price increases for many of the Modern and Contemporary artists … will handle the fallout. The sales start in February and will run through the summer. Should the auction rooms continue to over saturate the market with mediocre works carrying high estimates, their fall will be quick and painful; and should these volatile markets take a hit, the press will be all over it exclaiming that the art market is in trouble. What you need to remember is that there are many sub-markets within the global art market and just because the high-flying ones are having some problems, does not mean that the more stable ones are in the same boat.
What I am really waiting for is to hear someone from the ‘inner circle’ of the Contemporary market (I know there must be an inner circle) come out and say that the prices for many of these ‘New Chip’ artists are a bunch of B.S. and it is now time to get back to reality … paying a premium price for great quality works and not just because some hot and over-hyped artist created it.
In the end, there is really no reason to panic … especially if you bought the art for the right reasons --- because you wanted to own it and enjoy it! And who knows, I may be standing on that limb all by my lonesome and the global art market, including the Contemporary and Emerging, may continue rolling along and turn out to be ‘the place’ to park your money in these wild a uncertain times.
As always, enjoy the hunt … because that is what it is all about!