450 million US dollars - that's how much the most expensive painting in the world is worth. "Salvator Mundi", a presumed da Vinci, was auctioned in 2017 at Christie's Auction House in New York by an unknown bidder for this proud price. There are many ways to invest money, one of them is art - an asset class with a unique character. In contrast to the financial market, the art market is not regulated and therefore brings its own opportunities and risks. In the following article we will explain the advantages and disadvantages of an art investment and what you need to consider when making such an investment.
Why should I invest in art?
For various reasons, investing in art can be a particularly exciting alternative to investing in shares or ETFs. Because while an investment in the capital market only allows you to view your assets in our app, for example, and otherwise you don't have much of it at the moment - at least not physically - art offers its owner added value at all times. With the possession comes high prestige, in the end art is above all a consumer good which can give its owners great pleasure due to its aesthetic attributes. Not least the emotional return plays an important role for many collectors.
Moreover, some works of art as a financial investment promise an increased security in direct comparison to shares. Why is this so? While the value of a share ultimately depends on the company and can collapse sharply in the worst case, works of art have a low risk of value fluctuation. It is almost impossible for a purchased exhibit to lose its value completely and for you to lose your entire investment. This is of course different when comparing art investments with widely spread ETFs, these have little potential for loss in the long run.
What are the potential difficulties?
Especially as a newcomer to the scene it can be difficult to grasp the market. Acquiring the basic knowledge is therefore essential, but it is not that easy. The art market is a different world, which can be difficult for outsiders to grasp. Here, one of the main hurdles becomes clear, which you don't find on the financial market in this way: The low transparency of the market. Anyone who wants to invest seriously and successfully in art should therefore first seek advice from a connoisseur. Above all, this saves time, since research can be very extensive as a newcomer.
But not only the purchase brings its hurdles. While it is important to remain invested in the long term when investing in shares or ETFs, there is no getting around long term investments when investing in works of art. As an investor you should be aware that you cannot get your invested money back so easily. Although it is smart to invest in shares for the long term, there is always the option to sell them again. In case of an art investment, however, the selling process can take a long time - it can even take several months or years. Spontaneous sales of the object are thus hardly possible. In addition, the classic way of selling through auction houses is characterized by both time and high monetary expenditure. The art market only has a low liquidity, only a comparatively small number of buyers and sellers is active on this market. This implies that transactions cannot be carried out smoothly, which can lead to long sales processes. One should therefore always bear in mind that investments in the art market are associated with the risk of not finding a buyer for the object in the worst case.
A further point is the topic of value enhancement. Similar to an investment in a company, there is no guarantee of value enhancement in relation to works of art. However, there are several factors to consider when looking for a suitable work of art. Characteristics of good art are authenticity, originality and craftsmanship. For example, a work of art should not appear too impersonal or overly ambitious. Authenticity and originality are relatively subjective criteria - what convinces one person through authenticity can be too much for another. When it comes to the craftsmanship of the artist, it is less subjective, but still a balancing act between unimaginative perfectionism and a successful work.
As a layman, it can be difficult at first to classify the quality of an exhibit, especially if it is a fairly young artist that one does not yet know how to rank. One could compare this to an investment in a start-up. Although it is possible to make an initial assessment of the company's potential based on individual key points, there is no guarantee of success.
When it comes to young artists, the exhibition "Stranger than fiction" by Berlin artists Johanna Silbermann, Regina Nieke, Keren Shalev, Florian Schulz, Walter Yu, Benjamin Burkard, Willem Julius Müller and Daniel Schwarz is one of our personal favourites.
Besides the young up-and-coming artists, there are of course also famous artists such as Picasso, Monet or Rembrandt, who have made a name for themselves worldwide. The value of their paintings is correspondingly high. One of the most successful living artists is the German Gerhard Richter, his work "Untitled" was sold at an auction at Sotheby's for an incredible 46 million dollars. Works by such artists offer themselves as a means of securing money, as it can be assumed that the piece will be worth at least the purchase price including inflation adjustment in the future.
Where is the best place to start?
If you want to invest in art, there are essentially three possibilities: First, there is the classic way to visit a gallery and get advice. If you want to build up a diverse portfolio, you can go to an auction house or participate in an online auction, since works by different artists can be acquired there. Finally, there is also the option to purchase works directly from the artist, where there is often the possibility to buy online.
But the overriding motto is: get information, get information, get information. Especially if it is a targeted investment and not a mere purchase, which can also be made for non-financial reasons.