How Can I Tell if This Art is a Good Investment?

(It Isn't.)
December 16, 2015
Marcel Duchamp's famous 'Fountain' from 1917. It is a standard urinal that was signed and dated "R. Mutt 1917". While the original art piece has been lost, a replica was created in 1964.
Duchamp's Urinal

Every week, we'll be your guide as you navigate the world of buying art in our series, The Collector. 


If you're getting into the art collecting game with dollar signs in your eyes, you should probably take a seat and read this first.  We hate to break it to you, but art is a crummy investment.  Call us sentimental, but our number one rule when it comes to buying art is to buy what you love. Buy what speaks to your soul and what you can't imagine living without being lucky enough to look at it every day.  If you're lured in by news of those million dollar sales, it's very likely you'll be disappointed. For one, the vast majority of artwork never goes up in value. Most art declines in value by 50% the minute you walk out of the gallery.  It's also not liquid. Typically, a dealer who sold you a piece of art will not buy it back later. They have new work to sell by the artist that they can get on consignment, and so they don't want to deal with older works that they have to pay for.


Also, determining the value of art is one of the trickiest parts of the art world and market.  Just like any other market, the art market fluctuates over time, and predicting the rise and fall of any one piece's value is near impossible and, for the most part, essentially based on luck. Art is a subjective medium, and a lot of what goes into buying it is purely based on emotions. It's futile to attempt to quantify those transactions rooted in something so intangible.  How do you turn taste and public opinion into a formula?


Sometimes people will try to sum up a piece's value based on its importance, especially when they're trying to talk investment.  But just take a look at the fickle nature of an artist's fame and recognition over any given course of time to see how silly that can be.  An artist's trendiness can change from year to year and can be influenced by all sorts of things out of the market's control. There are arguments over whether or not an artist was valuable or important that have been raging for centuries, let alone whether or not they'll maintain their reputation in the near future.


To take one historical example, let's turn to Marcel Duchamp and Andy Warhol. Many art historians consider these two names to be the most important artists of the 20th century in terms of influence. But, they have radically different markets, and the way the market values these equally important figures points to its irrationality.  Duchamp made relatively few pieces, and most of them are in museums, so you would assume that a rare Duchamp would bring record-breaking prices based on the standard economic rule of supply and demand. Not so. While they're certainly expensive, they pale in comparison to many other less "important" pieces on the market. On the other hand, Warhol made literally thousands of pieces of art, but a good Warhol rakes in newsworthy sales when they're up for auction.  Put a dozen art lovers in a room and you'll have thirty different opinions as to why exactly that's the case.


If you really, really are insistent on purchasing art as an investment, the best rule of thumb is to follow in Warren Buffett's footsteps. The Buffet Effect on investing is that whenever Buffet purchases stock in something, its value goes up simply because he purchased it. So, take that principle and direct it to the art market. Track a couple of the biggest art collectors and see what they're buying.  Then, go ahead and quickly buy the same. The prices will automatically go up. Just keep in mind that, like investing in any other market, the likes of Buffett and the big art collectors tend to get much better deals than mere mortals do.


But, you won't have to worry about that because you're only buying art because you love it, right? Focus on finding the best value for yourself and what appeals to you. We'll go over how to navigate that seemingly impenetrable task of valuing art, along with some hard numbers on what art's worth, in next week's installment of The Collector.




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