Forbes and Mei Moses Look at the Returns

While the dollar amounts achieved at last weeks auctions in NYC were amazing and record setting, according to the Mei Moses database the financial returns for the 132 primarily lots in the evening sales as measured by the average annual compound return were only 8.3% which is below the 10% return for all post war contemporary sales.

Mike Moses stated the the future investment returns are typically lower when a collector pays way over the estimate of a painting.  Really not that unusual if you track prices and sales as many appraisers do.  If you over pay, many times your gains are reduced when it is reintroduced to the marketplace.

Forbes reports

This data covers the 299 lots that sold during day or evening sales at Christie’s and Sotheby’s during this period that had appeared at auction before.

The average annual compound return for sellers of the 132 of these lots that appeared during the post-war and contemporary sales was 8.3%. That’s less than the average return of 10% for all post-war and contemporary works in the Mei Moses database. The average return for the sellers of the 167 works that had previously appeared at auction during the Impressionist and modern sales was 4.9%, considerably below the average return for all Impressionist and modern works in the Mei Moses database of 8%.

The 8.3% average return for the contemporary sales is certainly still impressive, but hardly evidence that the market is on fire, particularly when these returns don’t take into account hefty transaction fees, capital gains tax on sales, storage, maintenance, insurance or any of the other costs of owning contemporary art.

Within these results, there was a wide disparity in performance, for example, the Christopher Wool painting One Year No Halloween made an amazing 51% annual compound return for its seller, who bought it at Phillips in 2010 for $602,500. It sold at Sotheby’s last week for $2.1 million. On the other hand, Maurizio Cattelan’s Frank and Jamie sculpture lost 12.6% per year since its owner purchased the work for $1.5 million in 2010, twice the low estimate at the time. It sold at Christie’s last week for $965,000.

Moses says that where buyers pay way over the estimate for work at auction, the returns tend to suffer when they come to sell it. There’s also much more risk involved for those who buy art to flip it again quickly. “It’s difficult, particularly when you factor in transaction costs, to make money on a work that you’ve bought recently. It’s possible, but it’s hard,” he says. “Our results show that if you sell after a short holding period, you can make a big gain or a big loss. Over a longer period, the volatility drops dramatically and you get to defray the transaction and other holding costs.”

The gods were obviously smiling on several consignors who sold work last week, including the owners of Francis Bacon’s triptych, now the most expensive art work ever sold at auction. Anecdotal evidence suggests that the consortium that sold that work purchased it just eight months ago. According to economist Don Thompson, a source in this Bloomberg Businessweek article, it was “the most profitable flip of all time. It’s the only painting ever purchased for more than $40 million dollars that’s been sold at a profit.”

In fact, according to Moses, you’re likely to make a better return on an art work that cost you under $100,000 than one that set you back millions of dollars. For the November Impressionist and modern sales, where sellers had originally bought their art for less than $100,000, the return was 6%. For purchase prices between $100,000 and $1 million, the return was 4%. For art purchased for over $1 million, the return was 2.5%.

At last week’s post-war and contemporary art sales, those sellers that had originally bought their art for less than $100,000 got an average return of 9.3%. For purchase prices between $100,000 and $1 million, the return was 7.8%, while for art works purchased for more than $1 million, the return was 8.5%. “Post-war and contemporary is different to any of our other databases because expensive works do better than the mid-price works,” says Moses. He believes this is because of money chasing a small class of high-profile artists in this category, like Christopher Wool, that are appreciating fast. “However, the expensive works still under perform the low price works.”

Source: Forbes