May I suggest Art?

Damien Hirst - Daily Mail

You've got a little money that you've managed to save from the gnashing jaws of the market. You would rather that your investments gave you visceral pleasure instead of being an anonymous cipher in some money manager's ledger book. Sir or Madam, may I recommend art? It doesn't need to be fed and is content with an occasional dusting. You can either show off your incredibly edgy eye in front of your friends or privately pile canvasses up like ingots for the inevitable future cash out. A tangible asset in a world of illusory paper.

Seriously now, I would like to alert you to the Mei Moses Fine Art Index. Started by two New York University professors, Jianping Mei and Michael Moses, this index has charted art investments and their relation to the stock market for the art market with graphs going back to 1875. They use a repeat sale methodology as well as auction prices to chart the market.

The reality is that art has significantly outperformed bonds over the last 130 years and generally kept pace with stocks. Art has outperformed stocks for the last 25 years and drastically better the last 10. Art tends to better in times of armed conflict and recession. I gleaned the following quotes from Forbes:

• In World War I British and U.S. stock market averages fell by 25% and 26%, respectively, from 1913 to 1918. By 1920 both markets had recovered to 94% of their 1913 values. Art, as measured by Mei/Moses, outstripped the S&P for most years of the war and, by 1920, had reached 125% of its 1913 value.

• During World War II stock markets in London and New York plunged, then recovered by 1946 to 107% and 100%, respectively, of their 1937 levels. (By then art had risen to 130% of its 1937 value.)

• The S&P 500 increased 67% during the Korean War, 1949 to 1954; the Mei/Moses Art Index was up 108%.

• The S&P 500 decreased 27% from 1966 to 1975, during the Vietnam war; art, meanwhile, climbed 256%.

The following interview is from Artnet Germany:

Artnet Magazine: The finance world has not experienced such turbulence for decades. Will there be repercussions for the art market?

Michael Moses: Historically speaking, the art market has tended to lag downturns in the financial market by 6-18 months. But the art market is also dependent upon worldwide wealth creation. So a downturn in a single market may not affect the art market, but a downturn in world markets will most likely affect the art market. But it’s driven more by global accumulated wealth than by short incremental changes.

AM: Could art become a substitute investment? In times like these, do investors move their funds not only to gold, but if necessary also to artworks?

MM: When individuals sell equities, they need to put the proceeds somewhere, whether it’s gold, cash or art. Historically, art has been basically an asset class, and money flows to it during good times and bad times. The question is how much is flowing. And when people are disposing of other assets, there may be an opportunity for some of those assets to flow into the art market.

AM: Can the loss of capital on the financial markets lead to “emergency selling” in private art collections?

MM: Yes. We’ve seen it before when the dotcom bubble burst. There were executives who had to sell works that they had just recently bought during the glory days, and that’s true with any asset. [Editor's note: It has just been reported that Richard Fuld, chairman of the now-bankrupt Lehman Brothers banking firm, has consigned $20 million in art to Christie's auction house.]

AM: Is the gallery market invisibly linked to the finance market? Will New York lose influence as a marketplace?

MM: Again, this is a question of ups and downs. It would stand to reason that, due to changes in Wall Street and changes in some American companies, the people who were long in all of these markets will stand to lose money. The people who were short in all of these markets will tend to make money. On balance, most likely in the short run, there probably will be more losers than winners. But in the long run, there’s nothing that I see that shows that things won’t rebound over time — they always have in the past. But I don’t have a crystal ball.

AM: The market has many different sectors, like contemporary art, or classic modernism, or 20th-century design. Will this financial crisis effect sub-sectors of the art market differently?

MM: Currently I think that we’re finding that new money seems to go after new art, and this tendency might be one of the reasons that post-war art has done so well over the last five years, so potentially, this category might be more susceptible to downturns in new wealth creation. But we have to remember that wealth creation is a worldwide phenomenon now more than it has been in the past, so it may be that the world market picks up now where the American or European markets may slow down.

I would not suggest that the prudent should move their whole portfolio into art. I can tell you that in the fifteen years that I have been active in the business, I have seen meteoric rises in the realized prices of American Art, especially, Early California and Pennsylvania as well as Southwest and Pre 1950 modernism and regionalism. Bay Area Figurative is now on the heavy upswing. I tend to stick with deceased artists. If you know what you are doing or consult with someone with expertise, I think that art will outperform other investment opportunities.

Recently, the British shock artist Damien Hirst realized over 220 million dollars at a single artist auction in England. I personally find his work repugnant, another in a long list of swindlers that goes back through and past Scharf, Koons and Warhol. Unfortunately the stuff sells so who am I to say? Who cares what, if anything, the emperor is wearing?

I think that you buy art that you personally love, put it on the wall and forget about it, just enjoy it. You might be surprised what that your investment is worth someday.