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| Advisor's Forum |
Passion or Portfolio?
08/01/2005
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My wife is increasingly interested in art and has identified three paintings,
selling for a combined $1.3 million, that she would like to purchase. Her
argument to me is that art is a legitimate alternative asset class and that I
should see these works as part of our investment portfolio. My impression is
that art is too emotional a purchase to be considered in this way. How seriously
should I take her argument?
Any artist, art dealer or collector will tell you that art is a legitimate
alternative asset class. Why wouldn’t they? Most professional investment
managers, however, have not adopted art (or other collectibles) as an asset
class for the fundamental reason that there is an utter dearth of information on
historic and current sale prices.
Without reams of reliable sales data, it is
virtually impossible to look at historic price trends and correlations to other
asset classes. Therefore, it is difficult to perform any type of analysis that
might suggest which period, style or artist is a reasonable investment. Unlike
traditional asset classes, like stocks or real estate, there is no reliable
information on past sales, especially those that occur in foreign countries. To
exacerbate matters, nearly one-half of all sales occur privately with no means
or obligation to publicly report the sale.
Art should be your passion. You
should think twice about adopting it as part of your investment
portfolio.
Michael L. Duffy, Mellon Private Wealth Management Group,
Atlanta.
It is true that a significant portion of art-market activity is the result of
emotional and circumstantial decision making on the part of art buyers and
sellers. We believe, however, that this frequent emotional response provides an
opportunity for an investor who is able to make informed, well-timed and
rational purchases and sales.
Just as you would approach investing in any
other asset class, buying art with knowledge, rather than merely on impulse or
hearsay, is the only sound way to approach the asset for investment purposes. To
treat art as an investment, an art buyer needs to avail himself or herself of
objective, professional and experienced advice. One cannot make the assumption
that because the art market is booming, all art purchases will bring positive
returns, just because you like it.
That said, if you are planning to live
with the art in your home, you have to like it, regardless of its prospective
investment value.
Michael J. Plummer, Fernwood Art Investments, New
York.
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