Caution for Art Investors

The Wall Street Journal ran a good article noting the increasing popularity of investing in fine art.  As we know, there has been a lot of press on the topic over the past several months to a year as the top end of the market has seen some astonishing sales as well as totals from the auction houses.

The WSJ article looks at investing in art with a more cautionary approach, and list three mistakes art investors can make, 1. buying whats in vogue, 2. going for a quick profit, and 3. not going it alone.

For item #3 the article points out using advisers for research, provenance, and appraisals for proper valuation. We are seeing more and more articles on investing in are, and many are now including the need for a proper valuation by an appraiser.  The three main personal property organizations, ISA, AAA and ASA should take note and continue to promote qualified appraisers and appraisals.

The WSJ reports

With regular investments looking uncertain these days, individuals and financial pros are snapping up artwork to diversify their holdings—and, with any luck, realize big returns.

But with more competition for desired pieces, prices are soaring ever higher and the chances of making a costly mistake are rising too. Here's a look at some of the pitfalls of art investors face and how to avoid them.

Buying What's in Vogue

Contemporary art can be alluring for investors. There's an active global market for these pieces that makes them easy to buy and sell, and prices can rise in a hurry.

But they can fall just as fast. The market relies on hype to build up certain artists, and that doesn't last. So, experts advise buyers to move very cautiously when it comes to the current big names.

"Don't buy what everyone else is buying," advises Philip Hoffman, director of London's private-equity Fine Art Fund. "You may be too late. You may be coming into the market just as the savvy investors are bailing out."

For one recent example, look at Damien Hirst, says Jeff Rabin, principal and co-founder of Artvest Partners, an independent art-advisory firm in New York. In September 2008, Sotheby's held a much-ballyhooed sale of the artist's work, with prices ranging as high as $18.6 million.

But the market for Mr. Hirst's work has cooled, and those who bought at the sale "would have, on average, paid significantly more than those works are currently commanding."

Mr. Rabin recommends that collectors "love what they're buying," because there's no guarantee of a secondary market, and they may be stuck with it.

Source: The Wall Street Journal