Art represents different things to different people. To some, it is “an adventure of the mind.”1 To others, it’s “a signature of civilization”2 or “a lie that makes us realize the truth.”3 And still to others it is “an instrument of moral propaganda.”4 Art may be any of these, but when you consider it a bit more pragmatically, it is also a potentially profitable investment opportunity.

In fact, research shows that long-term investments in fine art — as represented in this report by the paintings sold by the top auction houses in New York and London — produced returns that are, on average, roughly comparable to investments in broad portfolios of U.S. equities. What’s more, price appreciation for fine art has tended to have a different rhythm than price appreciation for stocks, so values for each asset class have tended to appreciate most strongly at different times. That suggests portfolios that combine average-performing stocks with average-performing fine art could be less volatile than portfolios of either asset alone.

Another aspect of the financial performance of fine art is that values tend to hold up well during periods of economic difficulty. For example, consider the price performance of fine art during the 27 recessions recorded between 1875 and 2000. During those downturns, the average fine art price decline observed at auction was just 0.7%, according to Jianping Mei and Michael Moses of New York University’s Stern School of Business. Their index is constructed from auction house records and takes account of all auction sales of paintings that have come to market more than once at major auction houses between 1875 and the present.

During periods of world turmoil and recovery, fine art prices tend to be relatively durable. For example, World War I depressed stock prices in New York and London. By 1920, stock prices in both cities recovered to 94% of their prewar levels. In contrast, fine art in 1920 was selling on average for 125% of its prewar value, according to the Mei/Moses index. There were similar patterns during World War II and its aftermath and the Korean War and its aftermath. During the Vietnam War (1966 to 1975), the S&P 500 declined 27%. The categories of art that were indexed by Mei and Moses, however, climbed 256%. 

Posted: 11|24|07 at 11:20 am. Filed under: Fine Art.