The MyArtBroker Art Investment Guide

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Rebecca Marsham

Rebecca Marsham, Sales Director[email protected]

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Market Reports

With the art market experiencing steady growth in recent years and artworks commanding record-breaking prices at auctions, it's no surprise that more and more people are considering art as a viable investment option. However, investing in art can be complex, and it's important to have a solid understanding of the market, the artists, and the strategies that can lead to successful investments. In this guide, we'll provide you with the knowledge and tools you need to make informed decisions and build a lucrative art portfolio.

Understanding the Art Market

What's the difference between the primary art market and the secondary art market?

The primary art market refers to the sale of artworks directly from the artist or their representing gallery to the first buyer, while the secondary art market refers to the sale of previously owned artworks. Galleries primarily function through the primary market, auction houses primarily operate from the secondary market and art dealers and art fairs can operate in both, depending on the circumstances.

Find out more about the Art Market in our Concise History.

Who are the Key Players in the Art Market?

Art Fairs

Initially, art fairs were utilised by art dealers as a means of competing with auction houses. However, over time, they have evolved from a specialised and exclusive practice to an event that is accessible to anyone. In commercial contexts, art fairs are accompanied by significant expenses, such as insurance, logistics management, and travel and accommodation costs. Although dealers invest a substantial amount of money in fairs, they are typically able to recoup some of these expenses through sales. With the appropriate connections, galleries can achieve greater visibility and improved prospects, thereby enhancing their position in the market.

Find out more about Art Fairs in our History of Art Basel.

Auction Houses

The value of art in the market is often indicated by publicly shared numbers. Although there is a significant global demand for Western art, some individuals involved in the market seek art as an alternative asset class to invest in - rather than having a passionate interest in the art itself. Traditionally, auctions were utilised by art dealers to acquire art at a favourable price for resale to customers at a markup. High auction prices typically serve as an indicator of current trends in the market. Auction houses may offer a guarantee to sellers, regardless of whether the piece ultimately sells or not, for a predetermined amount. They may then sell this guarantee to a third-party company, which assumes the risk of providing the guarantee to the auction house. If the artwork sells above the estimated value, the auction house receives a kickback to cover the cost of the guarantee. The most prominent auction houses - Sotheby's, Christie's, Bonhams and Phillips among their ranks - in the industry are characterised by a dynamic in which both the buyer and the seller can benefit, but once an artist's work is released, they are no longer able to profit directly from its sale.

One of the greatest risks associated with auction house sales - in the case of an un-guaranteed sale - is the failure to sell. Many auction houses will typically incur an unsold fee if the work doesn't sell on the night, meaning that sellers enter the sale with a lot less certainty. Failure to sell an artwork can also damage the reputation of an artwork significantly, typically referred to as being ‘burned’. These ‘burned’ artworks then become much more difficult to sell again, and might result in the work being taken off the market completely.

Galleries

You can purchase art either directly from an artist's studio or their representative gallery (the primary market) or through resales in the secondary market. This approach can help artists weather shifting trends by ensuring that their work is not only sold at a fair price, but also that the collector values it enough to keep it. When galleries lose control over the market, prices may plummet and the value of the artwork may suffer. This issue is less of a concern for online platforms, which do not have the same overhead costs as galleries. More galleries are participating in art sales and observing collectors buying artwork for large sums of money. However, this approach may not be viable for galleries that are unable to maintain a strong online presence.

“There are so many parallels in our market. When it comes to prints & multiples, most people work off of public auction figures because it's all in the public space. However the reality - particularly since Covid - is that most of these have been traded on the private market.”
Charlotte Stewart, Managing Director at MyArtBroker

What's Actually Driving the Art Market?

The art market operates on several factors such as investment potential, provenance, and portfolio diversification. However, at the core of it all, the determining factor is supply and demand.

Supply and Demand

The demand for art is typically influenced by its rarity, uniqueness, or limited amount. The artist’s reputation, cultural significance of the art, or market trends dictate a lot of acquisition choices. When an artist is in high demand, the prices will rise as collectors continue to buy; once the wave of excitement has quieted down, you can expect the price of the artist’s work to fall or correct, which makes for continuous market fluctuations. While demand is influenced by a number of outside factors like personal taste, economic stability, and advances in technology, it’s scarcity and desire that continue to drive the pricing dynamics in the art market.

While the art market is undeniably opaque, online platforms like MyArtBroker are working towards a more accessible and transparent future. Our Trading Floor posts live supply and demand indication across a plethora of blue chip artist markets - in real-time. You can filter by artist and artwork title, and see where opportunity lies in the market at any given time. It has never been easier to view supply and demand in the art market, which should assist collectors and investors when making decisions about their art collection.

What Does a Successful Market Performance Look Like?

There are several ways to evaluate what successful market performance looks like. Though nuanced and multifaceted, there are some ways to help measure it:

Trading Volume

Trading volume refers to the number of transactions that take place in a given time period. High trading volume usually points to a healthy market when there is active and significant demand with buyers and sellers being able to make transactions more easily. A less active market that’s more challenging for buyers and sellers results in a low trading volume.

Positive Reception

Works considered to be in high regard can boost demand from collectors. The opinions of art world insiders, critics, scholars, and curators can help play a role in influencing the purchasing behaviour of collectors. Not only does it offer an indicator to collectors what art may be worth investing in, but the recognition can go a long way in increasing the notoriety and market value of an artist.

Auction Results

High price, high demand. Low price, low demand. Auction results are very telling when it comes to an artist’s strength and value in the market. However, they don’t reflect the entirety of the art market. Private sales aren’t taken into account when it comes to pricing, which is largely based on the auction house’s reputation, the quality of the art work, and its competitors. It’s important to combine auction results with outside elements like positive reception and gallery representation for a more holistic perspective on market performance.

Market Value

If an artist's works consistently increase in value over time, it suggests that there is a high demand for their art, with more buyers willing to pay more for it.

You can find out more in our Guide to Fair Market Value.

Investing in Fine Art: The Timeless Allure and ROI

In recent years, there has been a notable emphasis on investing in blue chip artists, whose artworks are the most expensive and popular among collectors. This particular segment of the art market has experienced substantial value appreciation since 2000, surpassing the S&P 500 by more than 250%, proving it to be a profitable investment choice with its high ROI (Return on Investment).

What Makes Art Valuable?

Tangibility

Art presents itself as a tangible asset, which can be procured and traded, hence serving as a valuable inclusion in investment portfolios. In contrast to other investments that are intangible or may be impacted by market fluctuations, artworks can be physically possessed and relished, and their value tends to appreciate with time. Art is also a ‘passion asset’ - thanks to its tangibility, collectors may build a portfolio because of both investment potential and an emotional attachment to the artists and artworks in their collection.

Diversification

Art is considered a means of diversifying an investment portfolio, which can serve as a safeguard against market instability and economic ambiguity. Since the value of art is not directly correlated with conventional financial markets, it may be less vulnerable to fluctuations in the stock market or other investment sectors.

Scarcity

Many artworks are unique or one-of-a-kind, making them rare and valuable. This scarcity can create a high demand for certain works, which can drive up prices over time. When it comes to prints & editions in particular, a lower edition number makes each print in the series more scarce - potentially driving value growth.

Historical Significance

Artworks that hold historical significance, such as those produced by renowned artists or associated with significant cultural movements, possess inherent value beyond their visual appeal. These artworks are regarded as significant cultural artefacts that offer a glimpse into a particular era or cultural phenomenon, which is why collectors actively seek them out.

Investment Potential

Art can be viewed as a lucrative investment opportunity with the potential for substantial appreciation over time. Works by established artists, in particular, may increase in value as their demand and reputation increase, making them a potentially profitable investment for collectors.

What Art Investors Should Know

Art investment comes with inherent risks and challenges that potential investors must be aware of. One such risk is market volatility, which can lead to significant fluctuations in the value of artworks over time. Another significant challenge is the issue of authenticity, as counterfeit pieces are prevalent in the art world and can be difficult to detect.

To help mitigate these risks and challenges, it's crucial for potential art investors to conduct comprehensive research before making any purchases. They should familiarise themselves with market trends, fluctuations, and the history and provenance of the artworks that interest them. Working with reputable dealers or advisors who possess expertise in the art market can also provide valuable guidance on investment decisions.

In addition, investors should consider purchasing art that has proper documentation and authentication, such as certificates of authenticity, provenance records, and condition reports. Such documents can help verify the legitimacy of the artwork and provide valuable information to potential buyers if the artwork is ever resold.

Graphic of a desktop computer with three screens showing MyArtBroker's Trading Floor.Trading Floor © MyArtBroker 2023

How to Build an Art Portfolio

Building a diversified art portfolio can be a challenging task, but using online resources like MyPortfolio can be a great way to get started. Here are some tips to help you build a diversified art portfolio using this platform:

Set Investment Goals

Before investing in any artwork, determine your investment goals, such as your desired return on investment, the level of risk you're willing to take, and the time horizon for your investments. This will help you select artworks that align with your investment objectives.

Do Your Homework

By using MyPortfolio, you can add artworks you own or are simply interested in to your personal dashboard. If you own the artwork, you can input the date and price of original purchase, and our algorithm will calculate the average annual growth rate of your work over a five year period. This free online tool provides you with insights into the value growth of your artworks - powered by our unique print market index which blends both public and private sales data. With MyPortfolio, you can see where potential lies in your portfolio at any given time and make informed decisions backed by data.

Select Your Style

To build a well-rounded portfolio, consider investing in different mediums, such as paintings, sculptures, and prints, as well as different styles, such as contemporary, abstract, and figurative art. With prints & editions, it is possible to collect across a wider breadth of artist markets and genres, and increase your potential for greater return.

Use Your Funds Wisely

When investing in multiple artworks, it's important to allocate your funds wisely to achieve a balanced portfolio. Consider your budget, the potential return on investment, and the risk of each investment before deciding how much to invest in each artwork.

Monitor Performance

Regularly monitor the performance of your art investments and adjust your portfolio as needed to ensure that it remains diversified and aligned with your investment goals. With MyPortfolio, you can watch the value growth of your entire collection in one place - free of charge. Using Repeat Sales Regression Technology, your dashboard is updated in real-time as changes occur to the value of your collection when new sales occur.

Find out how to use MyPortfolio to buy, sell, and track performance in our comprehensive guide.

Selling Art: Best Practices and Glossary of Terms

For individuals new to the art market, selling art can be a challenging task. Whether you are an artist, collector, or dealer, there are specific industry-related terms and best practices you should know to ensure a successful sale:

  1. Provenance: The history of ownership and custody of an artwork, including its past owners and exhibitions. Provenance can be used to establish authenticity and value.
  2. Certificate of Authenticity: A document issued by an artist, gallery, or other expert that attests to the authenticity of an artwork. A certificate of authenticity can help establish the value and legitimacy of an artwork. Artworks with well-documented histories of ownership and verification by experts are typically deemed more valuable compared to those with doubtful or unclear origins. The value and historical/cultural relevance of an artwork can be influenced by its authenticity.
  3. Edition/Edition Number: In the prints & editions market, edition pertains to the quantity of identical prints or multiples created from a single image or design. These prints are either signed and numbered by the artist, or unsigned and numbered, with the number of prints in an edition being typically limited. The value of each print usually increases as the number of prints in an edition decreases. For instance, a print from an edition of 100 usually has a higher value than a print from an edition of 500.
  4. Condition: The physical condition of an artwork, including any damages, wear and tear, or restoration. An artwork's value is significantly influenced by its condition, with those in excellent condition usually having higher value compared to those in poor condition.
  5. Consignment: The process of entrusting an artwork to a dealer or auction house for sale on behalf of the owner. The owner retains ownership of the artwork until it is sold.
  6. Reserve Price: The minimum price at which an artwork will be sold at auction. The reserve price is typically set by the seller and kept confidential.
  7. Appraisal: An evaluation of the value of an artwork by an expert. Appraisals can be used for insurance, estate planning, or tax purposes. At MyArtBroker, we offer free valuations with zero-obligation to sell.

Investing in Upcoming Artists vs Established Blue Chip Artists

Investing in emerging artists and niche markets can be a savvy move for art investors seeking higher returns on investment. While established artists offer a level of prestige and security, emerging artists can also provide long-term rewards if you invest wisely. Emerging artists are those who show significant promise but have yet to establish a solid reputation in the art market.

Of course, all blue chip artists were once emerging artists. Those who invested in the likes of Andy Warhol, Jean-Michel Basquiat, and Keith Haring at the beginning of their respective careers would have witnessed colossal value growth since purhcase.

However, investing in emerging artists comes with its own set of challenges and risks. It can be difficult to assess an artist's potential for success without significant market data or information on their past sales and reputation. Moreover, emerging artists may not have established a collector base, which can affect the demand for their works.

When it comes to established artist market, investors can expect a steadier rate of return. However, this can sometimes come at a high price. As artist markets mature, their works become more valuable and inevitably climb in price. Therefore, it can be difficult to start collecting in an established artist market without sufficient funds. Nevertheless, collectors who conduct thorough research and find a niche in a blue chip artist market can start collecting at a lower price point and work towards acquiring more high-value artworks over time.

How to Start Investing with MyPortfolio

MyArtBroker leverages two key assets to deliver an exceptional experience: cutting-edge technology that's driven by data, and a team of industry experts. Our skilled professionals work closely with you, and with the aid of a MyPortfolio dashboard, to provide personalised guidance that helps you create a profitable art collection. By combining our technology and resources, we're committed to delivering an unparalleled level of curation and customer service. MyPortfolio empowers collectors to create and manage their complete collection of prints and editions, enabling them to monitor the appreciation of individual pieces and the overall value of their collection.

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