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Investing in art takes taste and business savvy

In the colorful world of art, the business of investing is black and white. You buy a piece of artwork, and hope the artist's work goes up in value. Experts say you might not need to wait long. It can happen within hours of your purchase.

Marion Kahan, of New York City-based Kahan Art Management and exhibition manager for the Guggenheim Museum, bought a limited-edition photograph by Michael Kenna at a show in 1993 for $500. By the end of the next day, when the entire edition was sold, it had become hot and scarce -- so the laws of supply and demand sent its worth to $750.

To invest wisely in art, Kahan says, you must have both good taste and business sense.

"Investing in art is investing in your own aesthetic," she says, "you have to want to live with the artwork, but you also have to educate yourself on the business end. Also, be careful, because tax laws are constructed in a way where if you buy art as an investment, you cannot 'derive pleasure' from it. In other words, it can't hang in your home. Just lock it in a vault."

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But for the everyday art enthusiast who buys a piece of art to display in the home or office, the work can still grow in value.

Collecting art, Kahan says, can be one of the most enjoyable ways to spend your money. An engaging work can provide its owner with a lifetime of visual pleasure -- and then fetch cash. As with any other field, you must do your homework before investing. Art's unpredictable value makes it as easy to lose as to profit.

Art as a commodity
Trading in art is similar in some ways to dealing in other commodities -- it is subject to the market pressures of supply and demand. But art prices vary with other, sometimes arbitrary, factors -- including aesthetics, authenticity, condition, rarity and provenance (the lineage of ownership).

According to Peter Miller of the Japan-based Kamakura Print Collection, speculation in the art market has ruined more investors than it has enriched.

"During the asset inflation of the 1980s, numerous tycoons with more cash than knowledge happily parted with huge sums in exchange for brand-name icons of Western art," he says. "From 1987 through 1991, Japanese buyers spent more than $8.7 billion on art, and those are only the official trade figures."

One Japanese executive spent $161 million on a Van Gogh and a Renoir. His creditors later quietly disposed of his spree at a steep loss.

"The best advice I can give the first-time investor in art is to think of it like buying a home," says Miller. "You have to live with it. If you enjoy living with it, then the inevitable swings of the market won't affect your enjoyment. If the only reason you bought it is to sell it to someone else at a higher price, you're likely to be disappointed on both counts. So look closely, sort out what you really like from what the broker or dealer says you have to like, and choose accordingly."

Beware of these scams
Miller warns of the following:

  • Insiders running up the auction record to inflate prices;
  • Antiquities dealers who don't have clear title to what they're selling;
  • Posters sold as original prints;
  • Prices temporarily inflated by the hype du jour;
  • Conventional frauds such as forgeries and faked signatures.

"The art world is far less regulated than are investment in securities and real estate," he says, "so there is often no resource in the event of misrepresentation. The investor is very much on his own to perform appropriate 'due diligence.'

"To minimize downside risk, don't overpay at the outset, and cultivate your own leads among the artists themselves, at the same time as learning what you can from galleries and dealers. Find out what the artists think they're up to, whose work they admire. The artists themselves are usually on to something before the critics and curators and academics pick it up."

When people think about buying art, they might be initially turned off because they think it is such a pricey investment. This is true at the high end: How many of us can buy a Manet for $30 million?

The key to art-investing success, experts say, is to find a lesser-known artist and invest early. Economical investors might want to concentrate on photographs, antiques, prints and lithographs. Works in these fields tend to cost less than paintings or sculptures.

Determining an artist's worth
Kahan says potential investors can improve their odds with a few simple questions:

  • Is the artist represented by an agent? That artist's work will most likely get more exposure and higher-level sales.
  • Where has the artist's works appeared? Look for an increase in prestige over time.
  • How has the artist fared in reviews?
  • What's the track record in sales?

"If an artist is out and about and covered in newspapers, and is in retrospectives before they're 35, then their work has a good shot at rising in value," says Kahan. It also helps if a gallery represents an artist.

Scarcity increases value, so a limited series will go up in price when the final piece is sold, and obviously, once an artist dies. Likewise, as in Kahan's case, if the piece is part of a limited series, the value rises when the final piece is sold.

Finding an artist
The process of selecting an artist begins simply, the experts say: "Go to galleries," suggests Kahan. "See shows.

"Take an interest in what strikes your fancy. There are many painters, sculptors, photographers and others working in all sorts of mediums."

Private curators are abundant and love to show art to potential investors, she says.

First-time investors should start reading art magazines and newspaper art sections and go to the exhibits they list. Gallery exhibits tend to change monthly; museum shows are usually up for two or three months.

Once you find a gallery you like and start going to the shows, you should make yourself known to the owner or managers and let them know what you are interested in. If you find a particular artist or artists who you like, research by getting their biography; find out what shows they have been in, where they went to school, and if there have been any reviews of their work.

If you see an artist's work in a magazine and it intrigues you, find out where the artist shows. By law, galleries are supposed to have a price list available of the works in the show -- look at it to gauge your price range. You should determine your price range by going to galleries and checking the prices.

If you are starting small and wish to invest in a young artist, find out where the emerging artists are showing, Kahan suggests. Brooklyn's Williamsburg community, Jersey City, N.J., and San Francisco all are brimming with young artists and new galleries. Seek out your own off-the-beaten-path artist communities.

"If you see an artist whose work you like in a movie, in magazines like 'People' or on television like 'Entertainment Tonight,' and your budget is small, it's too late," warns Kahan. "Move on to someone else."

Like any investment, art is a gamble, Kahan warns, so do your research. "Buy what you love," she suggests, "because even though it might go through a transitory devaluation, the intrinsic value of the work is still there."

Robbie Woliver is a freelance writer based in New York.

-- Posted: Sept. 12, 2001

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