Why the art market shouldn't crumble, and why you'll keep hearing it will
The current art market boom has resulted in increased exposure and interest in art as an investment but having read almost every article written on the art market in recent times it has become obvious that the art market being presented in the media is both incomplete and false. Time after time I find myself reading about the imminent collapse of the art market which seems to be solely based on an analysis of works sold for seven figures or more. I suppose that if these journalists were to base their research purely on the sales reported on the internet (quite likely) then they would end up with results that consist only of news worthy sales, or in other words, big dollar sales. Contrary to the media's portrayal of the art market, you don't have to have a seven figure budget to invest in art so don't bother trying to find reports on the sale of $5000 artworks in the mass media because you will be wasting your time.
There is no doubt that an analysis of the high-end of the art market would produce far from positive results because the increase in the sale price of high-end works is being fueled by new, mega wealthy individuals from countries such as Russia and China who are spending as much money as it takes to purchase entry into the elite cultural circles of wealthy art collectors. It is this ferocious demand for expensive, iconic artworks that has resulted in a scenario where the market value of these works is rapidly increasing at a rate considerably faster than the rest of the art market. In order for balance to be restored one of two events would need to take place, the first option being the rest of the art market catching up to the higher-end which is extremely unlikely. The second, more likely option is a correction of the high-end prices bringing market growth in this sector into alignment with the rest of the art market. It is hard to say exactly when this correction will take place but at some point even the mega wealthy will have to consider cost versus value even if they are more interested in social and cultural status than financial return.
Many of you may be aware of the downturn of the art market in the early nineties which followed the art market boom of the late eighties, so what makes the current market so much less vulnerable?? Well, here's why:
Globalisation - The recent globalisation of the art market has meant that the art market is bigger than ever thus increasing its stability and long term viability.
Greater Transparency - The popularity and acceptance of art investment has meant that more and more data is available which gives people peace of mind, confidence and allows them to assess the art market based on hard evidence.
Contemporary Focus - The current art market is very much focused on contemporary art which means that there is a constant flow of new work to feed the market and fuel people's interest. In the past the art market has been more focused on works by old masters and other “historical” artists which has caused the market to rely on the re-circulation of a limited supply of works.
Although the art market is stronger than ever it is important not to become complacent and ignore the primary rules of art investment which are:
1. Art is a long term investment which means that you should be looking at holding your investment for a period of 7-10 years but you also should be prepared to sell at any time if the market presents a favourable opportunity.
2. Art is a good form of diversification and should form part of a balanced investment portfolio.
3. Diversification of your art portfolio is important to spread the risk
4. Research artist, artwork and dealer thoroughly and get several opinions
In conclusion, there is considerable evidence to suggest the art market will continue to increase in strength and popularity but as long as the media continues to present an analysis of the art market based on a narrow sector (high-end) of the market there will continue to be conflicting reports about the status and long term viability of art as an investment. I would therefore suggest that you approach art investment as you would any other investment by analyzing the suitability of art as part of your investment strategy and considering art as a form of diversification that can provide balance and stability to your portfolio with the added bonus of being a pleasure to own.
