Investing in Art and Antiques

USA recently took a look at investing in art and antiques.  What they report is pretty well known to the appraisal community and for those who have been following the AW Blog. Investing in art and antiques is liquid, risking, returns not correlated to the stock market, along with holding costs such as insurance, authentication and appraisals, but typically enjoyable process which may  be a percentage of illiquid assets in a investment portfolio.

USA Today reports

But what about true investing, as opposed to happenstance? Could you go about buying art or antiques the way you would invest in an exchange-traded fund or real-estate investment trust? Is there significant money to be made?

"Both art and antiques are great investments for people who have money they want to put aside long term," said Kevin Yardumian, a collector of 19th century art and partner with accounting and business advisory firm Gumbiner Savett.

These investments are, however, very illiquid, he cautioned. "You are not going to buy, and then sell, next week."

Despite the long holding periods, art investing is not exclusively for the rich, said Michael Moses, a retired New York University business professor and founder of Beautiful Asset Advisors.

"Our research has shown over the years that art is this wonderful asset class, in the sense that there's a painting for every purse," he said.

Moses added that "low-priced art tends to outperform high-priced art."

A person with a $500,000 investment portfolio might consider putting 10% to 20% into illiquid assets, according to Moses. But art and antiques should be only part of that 20%, he noted.

If an investor is going to spend more on the painting hanging over their couch than they did on the couch itself, "then they should do a little research," Moses said.

Moses is co-creator of the Mei Moses family of fine art indexes of art values, which are modeled after the well-known Standard & Poor's/Case-Shiller home price indices of home values.

The art indexes track the prices of individual works sold at auction more than once, for a true "apples to apples" comparison over time. The indexes show that art values rise at about the same rate as stocks.

"The returns of our World All Art Index the past 60 years are slightly below the returns of the S&P 500," Moses said.

So, why invest in art or antiques when putting money into an S&P 500 fund is so easy? There are several reasons, according to Moses and Yardumian.

As with stocks, an individual antique or work of art could perform far better than average. And the Mei Moses indexes show that art prices are, to use investing lingo, highly "non-correlated" to stock prices. So, when your stocks are down, your art might be up, helping to reduce volatility in your overall investment portfolio.

Finally, and most importantly, art and antiques investing can be an awful lot of fun. You might not get much day-to-day enjoyment out of your Dow ETF, but a painting on the wall can please every time you look at it. In addition, the hunt for promising works to invest in can be very exciting.

Much of this is true of antiques, as well, but there is no similar index of their values, according to Moses. Because most antiques sales are conducted through private dealers, he explained, it's too hard to find public sources of concentrated data for meaningful price comparisons over time.

As any viewer of TV's "Antiques Roadshow" knows, the value of antiques can rise over time, as specific craftsmen, styles or periods become popular.

But while an antique individual dresser or chest might soar in value, a virtually identical one might not, because someone refinished it or changed the hardware. Because each antique or work of art is unique, prices fluctuate wildly. This creates both opportunities and hazards for investors.

"Art, like real estate, is a heterogeneous good," Moses said. "Every object is different."

Yardumian concurred.

"You can get two people who really want something and they will pay an astronomical price," he said. "And then you get someone who really needs to unload something and there's only one buyer."

Both experts agreed that investors in antiques or art need to start with an appreciation of the objects, not a desperate need to make money.

People who become investors—actively seeking works for their potential returns—almost always start out as collectors simply buying works they admire.

Source: USA Today