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Is art a good investment?
...the data shows that art performs well as an asset over time.
He offers plenty of evidence but I am skeptical. Studies of auction prices are usually biased toward the winners; the losers never go on the block again or are sold quietly at a loss through dealers. Many pieces turn out to be fakes. The placement costs in the dealer market can be higher than those at Sotheby's. Storage and insurance costs for masterpieces are considerable. Art is so much fun it can't earn the same rate of return as equity, otherwise no one would buy stocks.
Posted by Tyler Cowen on June 22, 2006 at 06:46 AM in The Arts | Permalink
Comments
Interesting, but it seems likely this analysis suffers from survivorship bias.
By focusing only on those paintings that continually are re-sold, it neglects the likely large negative returns of all other pieces. If the returns to these pieces weren't negatiev they would likely have re-sold.
Posted by: lannychiu at Jun 22, 2006 9:09:14 AM
Here's a very different take on the market, that reflects the skepticism in Lanny's comment and Professor Cowen's post: http://www.newyorker.com/talk/content/articles/051017ta_talk_surowiecki
Posted by: Kevin Southern at Jun 22, 2006 9:20:03 AM
I agree with Tyler that the investment merits of art can't match stocks or no one would buy stocks. It's still possible that art could have the same average return as stocks but more systematic risk. I could see all of the big returns in art coming in the late stages of booms. While returns on the the Moses-Mei index don't seem to be highly correlated with stock returns, at least one previous paper did find a high correlation:
Accounting for Taste: Art and the Financial Markets Over Three Centuries William N. Goetzmann American Economic Review, Vol. 83, No. 5 (Dec., 1993), pp. 1370-1376.
Posted by: Pat L at Jun 22, 2006 9:24:34 AM
They also don't mention the amount of liquidity in the market. Even if returns aren't good, I doubt you would be able to deploy much capital. And I am also curious as to the size of the transaction costs, and how much they would reduce the total return index plotted.
Posted by: lannychiu at Jun 22, 2006 9:34:10 AM
err...that is "Even if returns are good..."
Posted by: lannychiu at Jun 22, 2006 9:37:49 AM
I don't disagree with the points raised above, but let's not overlook the "art is fun" issue lightly.
What that means is that art ownership provides a consumption good - the various pleasures of ownership - that should be included in an analysis of its value as an investment.
Posted by: Bernard Yomtov at Jun 22, 2006 11:16:28 AM
Art is usually easy to sell at a reported price very different from the actual price, and thus is a good way to reduce taxes, legal damages, bankruptcy costs, and so on.
Posted by: anonymous at Jun 22, 2006 10:18:53 PM
If you asked "are baseball cards a good investment" in 1991, the answer would have been yes. Same for coins in 1976. That art has been a good investment is mostly just luck. And I do like art. But anyone who seriously invests in something that has no intrinsic value, unless they are a powerful tastemaker, is crazy to me.
Posted by: Paul N at Jun 22, 2006 11:27:52 PM
Wholesale vs. retail as my old stamp dealer used to say. Stamps were described in
money as a great investment. Unlike stocks the difference in stamps is immense
and often consumes any gains. He used to chortle at amateurs who thought of it
as investment. There are relatively few stock issues hence less broker margin. For stamps and other collectibles the variation is in the millions and hence the challenge of finding
just the right buyer for a particular piece. Notice that that at the high or
"investment" end there
are fewer issues and also correspondingly punishing prices. Only collect
expensive and at the low market timing if you want to play this game. The latter
is a good question indeed..
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Posted by: levan at Sep 8, 2006 6:18:30 AM
I found amazing artist from Poland, her name is Katarzyna Szeszycka and her PR Manager Michał Borowik. http://picasaweb.google.com/szeszycka/KatarzynaSzeszycka
Posted by: tyler at Apr 15, 2008 9:12:51 AM
