The Investment U E-Letter: Issue # 184
Monday, October 28, 2002 Art as an Investment: The Class That Beat Stocks 256% To -27%! (And I Guarantee That You Never Considered It…)
By Dr. Steve Sjuggerud, Chairman, Investment U
The numbers in today's headline are true. Stocks fell 27% while this investment rose an extraordinary 256%.
No, I'm not talking about our current bear market. I'm talking about 1966-1975…the LAST major bear market, which also happened to include the Vietnam War. But this remarkable performance in relation to stocks was not an isolated case… During the Korean War period (1949-1954), this investment rose 108%, while stocks "only" rose 67%. And in World War II, this investment class beat stocks again. It has beaten stocks in times of war and in times of recession in the past. And it's doing so again. While stocks have lost a third of their values or more since mid-2000, this investment has only fallen by 8%. It's not in just bear markets where this works. It's ALL markets. Since 1960, both stocks AND this investment have grown at 10%+ a year. So what is it? Believe it or not, I'm talking about art as an investment. Why Fine Art as an Investment Holds Up Well In Bad Times Contrary to popular belief, art does not tank in value during times of stock market weakness or war. Fine art's 256% rise in the last great bear market (1966-1975), during the Vietnam War, is a testament to that. According to an exhaustive study by NYU professors Jianping Mei and Michael Moses - using figures from the 27 recessions dating all the way back to 1875 - fine art investments hold up very well in bad times. It is a good store of value. Mei and Moses created the Mei/Moses Fine Art Index (www.MeiMosesFineArtIndex.org) using data on repeat sales of fine art auctions from Sotheby's and Christie's. The index includes nearly 6,000 sales. While their index shows that art investing has nearly kept up with stocks, importantly, their index does not include transaction costs or storage costs (which can be quite high for art). But don't take Mei/Moses figures to mean that ALL fine art will hold up as an investment, or that art is immune from stock market bubbles. For example, in 1990, a Japanese businessman paid $82.5 million for Van Gogh's "Dr. Gachet." It has since sold for nearly 90% less than that. 1990 was the height of Tokyo's stock market boom, and the Japanese were buying "trophy" artworks, and paying exorbitant prices.On the flip side, Mei and Moses found that American paintings have been a good investment. American art showed high returns and was least affected by world markets. So what can you or I do with this information? The Secret To Successful Art Investing: Do Your Homework "What are you writing about?" my wife asked. "Art investing," I replied. "What do you know about art?" she said. The truth is… not much. I realized how hopeless I am while in San Francisco's MOMA (Museum of Modern Art) a few months ago. Among all the half-finished paintings, out-of-focus photographs, and sculptures apparently done by kindergarteners, I was way out of my element. To my rational and mathematical mind, it was hard to see how much of that stuff qualified as modern art. I don't invest in things I don't understand. I don't understand art. So, obviously, I haven't invested in art. And in talking to experts, I've found that exceptional pitfalls abound in the art world, including the fact that everyone needs a cut: galleries, dealers, brokers, publishers, etc. In addition, markups can be absurd. It's easy to understand the phrase "starving artist" - even for "successful" artists. And Yet…The Numbers Add Up But that doesn't mean I recommend that you ignore art as an investment. In fact, the numbers suggest that you should consider art investing in your portfolio. But what I'm saying is that in order to succeed (or just not get ripped off), you need to do as much homework as you can. And, when possible, consider turning to an experienced art buyer. Art buyers work on your behalf to cut out the gallery and middlemen in order to get you the lowest price. If you do not know an experienced art buyer, I would recommend Pillar One Partner Mike Kuschmann of Fine Arts Limited in Winter Park, Florida. If you find a piece of art you're interested in, definitely call Mike. On your behalf, he'll probably beat the price you saw - sometimes by as much as 50% or more (especially if you saw it on vacation or at a "tourist trap" gallery). You can reach Mike at 800.229.4322 (toll free) or at 407.702.6638 to talk about a piece you're looking at now, or just to ask for his free information pack. Whether you use Mike - or your own local buyer - it's important to be sure that you explore all avenues to make your art purchase at the lowest price possible. After all, in order to be sure your fine art investment - or any investment - is as successful as possible, you must remember to do your homework or work with someone who has! Good investing, Steve Today's Investment U Crib Sheet - Clearly, the performance of fine art investing - during both good times and bad - in relation to stocks, makes it worthy of your consideration. But the idea of doing your homework is especially important in the market for fine art. Just as with getting the best deal on a car, you've got to know all the tricks the salesman will pull. Make sure you do you homework, and/or use the services of an art buyer.
- Below is an excerpt from a free email service called "Early to Rise" that describes "a layman's guide to touring an art museum." I share this with you because the writer is both a successful investor and an art connoisseur. It helped an art idiot like me. I also recommend checking out where it came from: www.earlytorise.com
Excerpt From Early To Rise:
EARLY TO RISE: How To Tour An Art Museum (excerpts) "Nothing will enrich your life as much as the appreciation of art… "It doesn't matter how long you plan to be in town or how much extra time you have on your hands, marching for hours through an art museum is the least effective way to learn anything and/or have fun. My advice is to see only one exhibit, one section, or even one room. Spend no more than two hours in all. But do it right. "To do it right: "1. Understand, before you begin, what you are about to look at. You can do that by reading about the exhibit in a brochure, reading the copy on the wall at the entrance to the exhibit, and/or speaking to someone at the information desk. If you are seeing a show on Andy Warhol, for example, you need to know the basics. (That he is considered one of America's most important "pop" artists, that he promoted his own celebrity, and that some critics think he had little talent and was more a promoter than anything else.) "2. Study the paintings that you like. The easiest way to do this is to walk through the show and read the wall/catalog descriptions that apply. If you prefer to take the audio guides, make sure you know how to fast-forward, so you can listen to only what intrigues you. "3. After you've completed the "study" part of your tour, walk through the exhibit again, more quickly this time, looking again at the pieces you studied before. See if you can remember the artist, the title, and any interesting facts. Ask yourself if, on this second go-around, you like the painting as much as you did on your first pass. "This three-step process is fast, fun and effective in terms of learning. "If you have 90 minutes to spend at an exhibit, you could spend the first 15 minutes trying to understand the fundamental questions (What kind of art is this? Why is it supposed to be important? What is the educated word on it?), the next hour "studying" the artwork, and the final 15 minutes on the review. "When it comes to touring art museums, the best strategy is to look at fewer paintings but to look at each one seriously. Weeks, months, and even years after your walk-through, you'll still have strong visual memories and something intelligent that you can say about what you saw." Excerpts from Message # 301. Copyright www.earlytorise.com Related Articles: Investment U Archives
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