When a collector views an artwork for the first time appreciation is usually instinctive, judgment a matter of personal taste; it is an emotional assessment. Rarely is the purpose of such a viewing to determine its future investment value. The recent sums paid for art may, however, easily create inaccurate beliefs regarding the investment potential of art. Buying and selling art for investment purposes is particularly complex
William Baumol, writing in the American Economic Review, is of the opinion that it is difficult, if not impossible to quantify art investment as a rational approach to making money. Furthermore, the art market is also not liquid: one cannot simply push a button to sell a Pierneef the next day.
Distinctions aside, there are similarities in stock market and art market values: both are prone to sudden dramatic declines. The previous major crash in art prices occurred in the early 1990s, prices for works by soughtafter artists losing an estimated two thirds in value – South Africa was not as severely hit as the major art centres. Since this last major dip the art market has bounced back, record prices again being paid for works by top artists. According to Artprice.com, investors who paid high prices for works during the 1989-1991 boom are taking advantage of the current bull market, using it to recover their investments.
It is an open question if and when the present art bubble will burst. Journalistic reports offer little insight and tend to border on the sensational. While reference is often made to the "stratospheric" prices paid by billionaire collectors for paintings, sarcasm is usually offered in explaining why bankers and hedge-fund managers, unable to spend all their money, leak their "excess cash" into art.
But not every individual interested in art is in a position to purchase at the top end of the market, which offers the lowest risk from an investment position. What then should aspiring investors acquire as investment? Although relatively complex, opportunities to generate returns from the art market exist.
Three decisive factors strike me as important when buying art with returns in mind: the mass elements – style, technique, innovation, experimentation and non-conformity – that together produce a good artwork; the artist's ability, or that of their agent, to market and present works to clients; and, importantly, repeat sales on the secondary market.
Art auctions, in particular, are useful for determining exactly what dealers, institutions, as well as private and corporate collectors are prepared to pay for an artist's work.
But is it possible, in the way of the stock market, to accurately chart trends and predict which artists will one day be winners? Indices such as Mei Moses Fine Art Index seem to say you can. Or is buying art as an investment simply a matter of luck? If investment is your only criterion, it is always better to buy work at the top end of the market. Go for Stern, Laubser, Preller, Pierneef, Sekoto, Kentridge and Pemba. These artists offer lower exposure to risk and will, over time, potentially further increase in value. Riskier investment options include looking to past masters whose work and reputation is still undervalued. Currently, artists from the 1960s offer excellent investment value. During his lifetime, only a few collectors recognised the genius of artist Fred Page; today this reclusive Port Elizabeth painter's work is steadily gaining in value. Riskier still, by comparison, is the speculative contemporary market. Gutsy young collectors who normally do not look at their purchases merely as commercial propositions have contributed greatly to the rise of this market. Here, my personal choices include artists like Wayne Barker, Conrad Botes, Marco Cianfanelli, Karl Gietl, Samson Mnisi, Peter Schütz, Simon Stone and Sandile Zulu, to mention a few.
These dedicated individuals exploit their talent to the fullest to create good art.
It is a fact that very large numbers of good artwork, created by talented artists worldwide will never have any real value in the market place. It is estimated that only 0.5 % of artworks sold today will have any meaningful worth after 30 years. While artificial prices can sustain a great artist as well as a poor painter, the latter's work will inevitably fall out of fashion, in effect defaulting on any supposed investment potential.
Without attempting to define what constitutes 'good art', suffice to say that if an artwork stirs you emotionally, go ahead and acquire it, but be aware that in 20 years time it may have no monetary worth. This raises a key insight: for any collector of substance, the real value of art lies in the pleasure of identifying a major work which explores the unknown and enriches the soul. Its appreciation in value over time is simply an added bonus.
Fred Scott is a private art collector and occasional art consultant based in Johannesburg
ORIGINALLY PUBLISHED BY ART SOUTH AFRICA 2009 IN ART SOUTH AFRICA V6.3