The interplay of art’s domain and money’s is very complex. The relationship
of money to any individual work of art, however, is very simple. There is
none. In practice, the culture usually sets a minimum value on works of art,
which is really just an ante. When I was an art dealer, any biggish work of
art was worth five hundred dollars. Any littlish work of art was worth two
hundred. Today, a biggish work is worth a thousand dollars and a littlish
work is worth three hundred. Everything you pay over that is the consequence
of previous external investments taken at risk.
So you pay a grand for a painting from an unknown artist’s studio. If you
wait until that artist has a dealer, you are going to pay more. If you wait
until she has good reviews, you are going to pay more still. It you wait until
Paul Schimmel down at MOCA notices her work, you are going to pay even more
than that, and if you wait until everybody wants one, of course,
you are going to pay a whole hell of a lot more, since as demand approaches
"one" and supply approaches "zero," price approaches infinity.
But you are not paying for art. You are paying for assurance, for
social confirmation of your investment, and the consequent mitigation of risk.
You are paying to be sure, and assurance (or insurance, if you will)
is very expensive, because risk is everything, for everybody, in the domain
–Dave Hickey, Dealing, 1997
OK, so now I’ve buggered myself royally. You can’t start a blog entry with
a long quote from Dave Hickey and then expect to write anything which doesn’t
shrivel up in comparison. But I felt impelled to get something really good down
here on the subject of art and money, in response to Todd Gibson’s latest
on the subject.
Gibson starts by setting up a classic straw man, in the form of an inchoate
"many managing art investments today". These "many," it
would seem, claim that art "is an alternate investment class that keeps
pace with or outperforms the market."
First off, there aren’t many people managing art investments today: certainly
not in the portfolio-manager type way that Gibson would have you believe they
are. Every so often some bright spark tries to set up an art investment fund,
and nine times out of ten it fizzles out before it is even officially launched.
So far, no one has set up a fund which has really caught the imagination of
investors and stayed around for long enough to demonstrate clear returns on
As a result, the handful of people who are trying to set up a business by managing
art investments certainly do not make the kind of claims that Gibson
says they make. Yes, it’s an alternate investment class. But no, they’re not
selling its outperformance compared to "the market", whatever that
might be. (The US stock market, I presume, although I’m not sure.)
Rather, there’s a very good reason that people are interested in alternative
investments, and it has nothing to do with outperformance: it’s called diversification.
If you had your money in a portfolio of high-flying stocks in 2000, you would
have seen your net worth plunge over the next couple of years. If you’d diversified
into high-flying contemporary artists as well, then the ability of your art
to hold its value in the face of plunging equity valuations would have saved
you some of that pain. Contrariwise, technology stocks proved a very good investment
during the art-market slump of the late 1980s. The fact that the two asset classes
are barely correlated is enormously valuable to certain investors, and essentially
helps explain the whole attraction of "alternative investments".
And yet, as I say, art funds have essentially gotten nowhere over the past
few years, even as the art market has gone through one of the biggest booms
in its history. Why is that? Obviously, because no one sees the point in investing
in art which they can’t personally enjoy. There’s a lot of talk in art-investment
circles about art’s "negative carry": the fact that far from paying
interest or dividends, art actually costs money to own – mainly
the costs of storage and insurance. The best-case scenario, if you buy something
really good, is that you can put the artwork on long-term loan to a museum which
will shoulder those costs for you. Art will never give you the kind of returns
you can get from reinvesting dividends – returns which are crucial
to the evaluation of any stock-market investment. Instead, art’s dividends (as
opposed to its capital gains) are entirely non-financial. You buy a work of
art because you love it, and because of the personal value that you derive from
owning it and seeing it on a daily basis. Buying a share in an art fund is like
buying a value stock without a dividend.
But this is not to say that it makes no sense to invest in art. Certainly,
I’d never recommed doing so: quite
the opposite. But for someone with enough investments, or a high enough
income, that day-to-day expenses are no longer much of an issue, there is wonderful
value to be gotten from art which one loves. And if a wealthy investor spends
a lot of money buying or "collecting" art, then his financial advisor
would be remiss not to take that art into account when setting out his investment
strategy. After all, the collector now has a large natural diversification out
of traditional investments, so it might well make sense not to put more money
into other high-risk, high-diversification strategies.
And Todd Gibson’s complaints ring rather hollow. He chastises the Mei-Moses
art index, for instance, on the grounds that "it only looks at the winners,"
conveniently ignoring the fact that the same thing is true of pretty much any
equity index you care to mention, and certainly of the DJIA and the S&P
500 indices that he mentions in his previous
And he also has a most peculiar riff on the perceived success of Dorothy Miller
qua art investor, despite conceding early on that "she wasn’t,
I’m sure, collecting as an investment." Miller bought widely and
bought well, and scored enough home runs (Gibson cites Johns, Kline, Calder)
that I’m sure she made a handsome (if posthumous) financial return on her investment
– a return which, since she didn’t sell this art in her lifetime, she
obviously had little interest in. Gibson zeroes in, however, on one of her less
successful investments, a painting which sold at Christie’s in 1993 for just
over $1,000. What does he conclude from this?
Assuming that Miller bought the piece in the mid-1950s for around $125, the
painting as an investment barely kept pace with inflation and under-performed
the stock market. Even MoMA curator Dorothy Miller, with her great eye and
access to work by artists whose reputation she had a hand in making, was not
able to consistently pick investment quality art for her personal collection.
As Tyler Green might say,
Firstly, Miller wasn’t trying to "pick investment quality art". Secondly,
notwithstanding that fact, Miller undoubtedly put together an investment quality
portfolio. And most importantly, the fact that Miller bought some art which
didn’t skyrocket in value is a necessary consequence of the fact that
she bought a lot of art which did: see that Hickey quote, above. Even Gibson
says that a lucky collector with a great eye will see big returns "one
or two times out of ten". This painting at Christie’s is a counterexample
of what, exactly? It’s like saying that Warren Buffett can’t be a great
investor because some of his investment picks went down.
And the really crazy thing is that Gibson concedes that Miller’s "bad"
pick actually increased in value in real terms. Think of all the times
you buy a thing you love – something you get value just out of owning.
It might be a book, or a car, or a kitchen appliance,or a diamond ring, or a
watch, or a computer, or a handbag, or a pair of shoes, or a cellphone, or anything,
really. The only thing these things have in common is that none of them
increase in value. Even in nominal terms, let alone real terms. And yet
when Dorothy Miller bought something she loved and it appreciated eightfold
in value, Gibson dismisses the purchase as under-performing the stock market.
The stock market! As though Miller might have been better advised to
hang brokerage statements on her wall instead of art!
Todd Gibson has now written two posts on "why art isn’t a great long term
investment". They concluded like this:
Well managed hedge funds will return 15-20% CAGR over a lengthy period. While
the return on this little Joan Mitchell painting has been about as good (on
a pure percentage basis) as could possibly be, when time is taken into consideration
by looking at CAGR the return isn’t amazing. It did beat the market
by a wide margin, but a smart asset manager can do significantly better.
About the best you can do is claim that art is a venture capital-type investment.
A few pieces, if you know how to pick them, may provide outsized returns.
Many more may mirror the market. The majority, though, will barely keep pace
with inflation—if even that.
The first post seems to say that even if your art manages to beat "the
market" by a wide margin, it still isn’t a great long term investment,
since there are hedge funds out there which have done even better than that.
The second seems to say that if the majority of your pieces keep pace with inflation,
a bunch of them mirror "the market", and a few provide outsized returns,
then that’s a suboptimal outcome.
Most people would be overjoyed to "beat the market" or to have made
investments which "provide outsized returns" – not Gibson. He
is only happy, it would seem, if all of his investments beat the market,
and if he can meet or beat the returns of the world’s best hedge fund managers
– just by investing in art.
All I can say is I’m very glad that I’m not Todd Gibson’s asset manager.