Investment or Impulse: Art and Antiques don’t act like Blue Chip Stocks
Andy Warhol’s “Dollar Sign” (1982) may be the best visualization of the art as investment argument.
Arguments rage as to whether art and antiques are good investments.
There was a time when we were encouraged to invest in art and antiques. “Buy low, and you’ll sell high,” we were told, as if collectibles had no place to go but up and all would appreciate at the same rate of return. In the late 20th century, art investment funds were starting to capitalize on this new trend. These funds were touted as out-performing some Wall Street indexes, and advisors began to press the idea that at least five percent of an investor’s portfolio should be comprised of art.
For serious investors¬¬—meaning those whose portfolios had room for alternative investments—specialty advisors such as Beautiful Asset Advisors, Artvest and others were established and maintain a steadfast presence today.
As the 21st century approached, the “art and antiques” bubble burst. Although some collectibles sold for outrageous prices, most brought modest returns, if any. There was a flurry of back-pedaling among commentators as the “investment” pendulum swung the other way. Art and antiques, it seemed, were not the investment that they had been made out to be. In 2014, art appraiser and luminary Bernard Ewell asserted in his book “Artful Dodgers: Fraud & Foolishness in the Art Market” that art is not an investment at all because it doesn’t meet the U.S. Securities & Exchange (SEC) definition of “investment.”
Although I agree with most of what Mr. Ewell says in his book, I disagree with his statement that art isn’t an investment because it doesn’t meet the Securities and Exchange Commission’s definition. The SEC has nothing to do with the art and antiques market. Collectibles aren’t securities; neither are they commodities, which are what the SEC definition pertains to. But the SEC definition isn’t entirely worthless. Some parts of it may give collectors a perspective that they can use to separate investments from impulse purchases.
Let’s examine the points of the SEC definition to see what light it can shed on investing in antiques and art. Here’s the gist of the SEC definition. Investments must:
• Be traded in a regulated market;
• Be traded in a market where all sales are publically reported;
• Must trade in a market with quick and assured liquidity.
Most of you probably gagged at the “regulated market” portion of the definition. The antiques, art and collectibles businesses are not regulated in the least. In fact, they are the Wild, Wild West. No oversight exists; neither is there any accountability unless someone commits fraud and gets caught. Most fraudulent transactions aren’t caught soon enough to prosecute anyone. Clearly, a “regulated market” doesn’t exist.
Chinese artist Chen Wenling’s art piece depicts a global economic meltdown with a bull smashing Bernie Madoff to the wall. It could also be a metaphor about how riding a bull market by investing in art could be dangerous.
Are “all sales” publicly reported? Of course not. It’s not as if you can pick up a daily newspaper and read the consolidated collectibles auction results. But, enough results are reported in other publications to enable collector-investors to make a judgement call about a selling price and price trends for thousands of items. Artnet.com has more than 10 million art auction results going back to 1985. WorhPoint has an impressive database for art, antiques, and collectibles price results from dozens of online and offline sellers, plus a catalog of maker’s marks, points of connoisseurship, and reference library.
Private stores and galleries don’t report to either Artnet or WorthPoint. But, investing focuses on acquisition price and sales trends and the above two sources alone can provide investors with enough information to make informed decisions. A word of warning, though: there are other, smaller databases available on the Internet. Tracking and predicting trends requires access to a lot of data. More data results in better predictions. Stay away from smaller databases; they may lead you to erroneous conclusions.
Lastly, the SEC insists that a good investment must trade in a market with quick and assured liquidity. If you hold stocks and bonds, you can place a sell order with your broker and have a check by the end of the week. Can you do that with art and antiques?
In a round-about way, yes. Although you can’t call your broker, you can quickly auction anything on eBay and take the highest bid. This is essentially what happens when you tell your stockbroker to sell a stock. It’s worth what it’s worth, and you can take the high bid or hold onto an item (if there is a reserve). Another option is to consign items to an auction house, but that takes longer. Sometimes, a lot longer.
The “sell it or hold it” scenario is another circumstance where a good database proves invaluable. A reliable database can tell you when there are too many of an item on the market, and how long it generally takes for an item to sell. Items that are in good supply and items for which there is little demand aren’t very good investments.
What’s the bottom line on buying art and antiques as investments? My opinion is that an item’s investment value shouldn’t be your first consideration. Instead, buy something because it’s beautiful, functional or has a story to tell. Buy an item for its intrinsic value. But, if your desire is to build an investment “portfolio” of collectibles, use a reliable database to assist with your decision.
Wayne Jordan is a Virginia-licensed auctioneer, Certified Personal Property Appraiser and Accredited Business Broker. He has held the professional designations of Certified Estate Specialist; Accredited Auctioneer of Real Estate; Certified Auction Specialist, Residential Real Estate and Accredited Business Broker. He also has held state licenses in Real Estate and Insurance. Wayne is a regular columnist for Antique Trader Magazine, a WorthPoint Worthologist (appraiser) and the author of two books. For more info, visit Wayne Jordan Auctions or Resale Retailing with Wayne Jordan.
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