23 May 2013

Investments in art and culture

Carla Passino wrote in Country Life (13th March 2013) about the Knight Frank’s Luxury Investment Index. Her conclusion is that passion-driven investments have significantly out-performed more traditional assets such as the FTSE 100 or the property market. 

With the exception of furniture, all enthusiasm-led purchases have done well, presumably because there has never been so much interest in art and culture. Stamps have more than trebled in value. Rare coins have risen significantly. The ultimate in collecting indul­gence, classic cars, has had a turbo-charged performance. The only asset to have performed better than Classic cars is gold.

How assets appreciated in the decade to September 2012:
Gold                                            434%
Classic cars                                 395%
Coins                                           249%
Stamps                                        217%
Fine art                                       199%
Jewellery                                    140%
Prime central London property      104%
Chinese ceramics                           85%
Watches                                         76%
Prime New York property              73%
FTSE 100                                       54%
Furniture                                      -18%

Nothing tells the story of appreciating collectibles more than a pastel version of The Scream 1895 by Edvard Munch. It fetched $120 million at Sotheby's in New York last year, setting a new world record for a work of art sold at auction. Experts had expected the masterpiece to break new ground since its presale estimate of $80 million was the highest ever listed at Sotheby's.

Edvard Munch
The Scream, 1895
79 x 59 cm 
Sold at Sotheby’s New York in May 2012

I am assuming for the purpose of this post that Knight-Frank's asset-appreciation figures are accurate and universal. And very useful to know! But there is something uneasy about believing that “if you follow your heart, the money will come”.

A passion-driven investment seems like a contradiction in terms. I am saying it because passion has to do with the love of collecting, usually based on aesthetic pleasure or historical importance. One sentence will make that clear. “Stamps are quietly building a following among wealthy investors, many of whom are not actually collectors”. If those wealthy investors are buying stamps because of the stamps’ rate of appreciation, and not because they love collecting stamps, where does the passion come in? I may as well buy pork bellies, as long as pork bellies are appreciating rapidly.

My collecting passion is for 18th and 19th century French, German, Austrian, British and Czech porcelain. But if these art objects are not appreciating very well, I should probably lose my passion for old porcelain and simply invest in another area of collecting. Or I should separate passion from investment and clearly differentiate between the two. In the latter case, “following one’s heart and the money will come” is not meaningful.

9 comments:

Parnassus said...

The problem with these indices is that the included objects don't match anyone's real collection. I.e., a $200 object does not appreciate in the same way as a $200,000 one, or perhaps lately Titians are not performing as well as Rembrandts.

Also there are issues of liquidity and incidental expenses--shipping, double-ended dealer/auction fees, etc. What this means is that an object often must at least double in value even to get the original investment back.

At least these days we don't have to factor in the lost interest compared to just leaving the money in the bank.
--Road to Parnassus

Andrew said...

The investors are depriving those who who collect for love and pleasure the opportunity to acquire. Money again, the root of all evil.

Hels said...

Parnassus

Agreed. Not only do the categories of objects not necessarily match peoples' actual collections, the scale of collections in average homes is tiny. A person with a hundred 17th century silver objects from Huguenot silversmiths would have something he/she treasures. But 100 pieces would hardly affect the world market.

Hels said...

Andrew

This is the part that alarms me most, yes.

Collecting treasures for your passion is very different from collecting for investment purposes. I don't think we should even use the word "collecting" for investments, since collecting implies looking, admiring, keeping, displaying and sharing the object with other passionate people.

columnist said...

Interesting topic, and Parnassus makes a good point about the costs of buying, which are quite steep.

I buy pictures that I like. If they appreciate in value, then I am likely to be happier. I'm not sure how you would categorise me - investor or collector, but I hope I'm a bit of both. Over time all assets should appreciate in value, given inflation and given the massive QE fuelling that.

Hels said...

Columnist

Nod.. Even if people see themselves as collectors only, they still would prefer it if their beloved objects increased in value and prestige over the years, rather than becoming interesting historically but otherwise of less worth.

I suppose the best place to see the devaluation of brown furniture is in the big antique auction houses. Items that 50 years ago would have fetched heaps of money, now struggle to reach increasingly modest reserves. So should you buy up well crafted brown furniture from Georgian, Victorian and Edwardian makers? Yes if you adore it; no if you want to cash it in one day for a decent profit.

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Hels said...

Artmarket

I have assumed that art investment decisions are country-specific and art genre-specific. Or should we assume that the art market is worldwide and largely integrated?

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