How to Invest in Art

Why It Matters

If the value of a piece of art ever goes up, it usually does so through a small number of traditional, surprisingly predictable channels: art dealers who persuade their wealthy clients to spend more; auction houses that entice wealthy collectors to bid higher; wealthy collectors themselves buying and selling art to each-other; and finally through an ecosystem of curators, scholars, critics and tastemakers who contribute, in whatever elliptical way, to perceptions of worth.

The rest of us are left to buy art that will almost certainly lose value — and never gain it back — the second we hang it on the wall.

In other words, don’t stress out about buying art as an investment, because it’s generally a bad one. That said, there are approaches you can take to art buying. You can consider the acquisition as you would a chair or lamp, something to be used and enjoyed but not resold. Or you can approach it as a financial decision, after first acknowledging that even the best-laid plans still don’t guarantee a return on investment.

Either way, you can use the following as a guide. And remember! If you don’t want to live with it, it’s not worth buying at any price.

1. There Are Hundreds of Art Markets

Just because one artwork costs less than another doesn’t mean it’s a good deal. It could be that one work is subject to very different market forces than the other. The demand for Ming vases, for instance, is not the same as the market for mid-century sculpture, and the ways in which value is created in the Old Masters market is worlds apart from that of French Impressionism. So before you look at an object and decide it’s a “deal,” make sure you’re basing that assumption on the sales of other, similar objects.

In general, new collectors tend to gravitate toward paintings, for the simple reason that they’re the most obvious, accessible choice. But you shouldn’t overlook excellent photographs, prints, watercolors and etchings, too. Similarly, galleries tend to focus on 20th and 21st century artworks. The reality is you can choose from a 7,000-year span of art history.

2. For Once, Put Faith in Middlemen

Art galleries take a cut of about 50% on each sale. It’s reasonable, then, to wonder whether you can save money by buying direct from the artist. But you have to remember that when a gallery adds an artist to its “stable,” it’s often committing to partner with that artist, fronting her money to make artworks, investing heavily to promote her shows, and even helping pay to get her work shown in museums. The artist, in turn, is often committed to that gallery for the same reasons. If she has a good relationship with her dealers, she probably won’t be open to the idea of selling behind her dealer’s back.

The good news is that if the dealer has an established reputation and a vested interest in the artist she’s selling — and better yet, has a proven record of buying and reselling work after she’s sold it the first time — there’s a much higher likelihood you’ll be able to eventually resell your own art, too. Small galleries like James Fuentes on New York’s Lower East Side, to mid-size galleries like Gallery Hyundai in Seoul, to mega international galleries like Hauser & Wirth are all, at least in theory, places where you can go to both buy and sell artworks. In sum, dealers are an artwork’s ambassador and advocate, and when it comes to sustaining (or increasing!) value, you’ll often need their clout to make it happen.

3. Think of the Cost of Labor

When you buy a freshly made artwork, chances are it was created by a person who’s doing their best to live off the proceeds of their art. As a result, the cost of that creator’s quality of life (not to mention cost of materials) is baked into the price, which is why even paintings on coffee shop walls can have thousand-dollar price tags.

The easy way around it? Buy a painting that has been bought and sold before, eliminating at least some of the markup. Look at smaller auction houses, which you can find through sites like Invaluable.com and LiveAuctioneers.com; you’ll still be paying a buyer’s premium, but the art itself will often be comparatively cheap.

4. Look for the Blind Spots

The art market has biases that have nothing to do with pure artistic merit. Paintings by Flemish Baroque artist Peter Paul Rubens can sell for tens of millions; his drawings often sell for a fraction of that. A bronze sculpture by 20th century Swiss artist Alberto Giacometti sold for more than $140 million, whereas his paintings sell for much less. Last year a portrait of his brother Diego, for contrast, sold for $1.6 million. Chump change!

What’s important to remember is that those biases are not set in stone and often change as quickly as fashion. So if an artist’s early work is currently selling at a premium, consider her later work instead; more broadly, if a certain artistic period is suddenly undesirable (I wrote that Victorian paintings were out of style three years ago, and that’s still the case), there’s a good chance they might come back in vogue in a few years.

Also, just because something is very old doesn’t mean it’s out of reach. A 2,600-year-old Etruscan figure of a lion sold for 10,000 British pounds ($12,700) at an auction at Sotheby’s last year. In the same sale, a 2,300-year-old gold torque (a stiff necklace) sold for 11,250 pounds, or about $1,000 less than a new 18 karat gold “Maker’s” chain necklace at Tiffany’s. A gold figurine that’s thousands of years old sometimes costs less than it would if it were melted down and sold as an ingot.

5. Art Never Comes With A Guarantee

Even art-world insiders strike out just as often as they strike gold. No artist, whatever their buzz, is a sure thing. Not if their work is in a prestigious collector’s living room, not if it’s in all the best museum collections, not if there’s a stack of glowing reviews.

Have you heard of Robert Yarber, whose work the late New York Times critic John Russell called “undeniably compelling,” and whose art is in the permanent collection of the Whitney Museum? Would you have been able to predict that Fernando Botero — the second most successful living artist at auction in 1993 — would soon be eclipsed by Jeff Koons? Or that Jeff Koons’s market would subsequently stall out too?

6. Then There’s Fractional Art Investing

Recently, a new way to buy art has emerged in the form of “fractional investing.” The basic premise is that very expensive artworks appreciate more (and faster) than cheap artworks, and when a lot of people pool their money, they can participate in these outsize returns. Aside from that highly dubious logic (see above) there are some unavoidable downsides to fractional art investing, the most important of which is that investors never take physical possession of the art. That alone obviates the primary draw of art collecting, namely looking at, and enjoying, the thing you own.