Beauty is in the eye of the beholder. The old adage often applies to one’s taste in art. When it comes to investing in art, it can feel overwhelming to identify where society’s broader taste in value and beauty will go.
What’s the difference between a work of art that sells for $5M and another that sells for $90M, especially when it’s by the same artist? This topic came up on a recent episode of The Yield, and the answer can help explain the risks, as well as the potential, that exists when investing in art, and can help investors develop a framework for evaluating the value of an art finance portfolio.
Art Finance’s Broader Narratives
As with many alternative asset classes, the art market rides on trends or narratives. That can be at an artist level – e.g. Jean-Michel Basquiat’s works have “continued to skyrocket” in value, as Cynthia Sachs of Athena Finance notes. The market can also follow wider trends – a lot of money and interest is going into works by women and people of color more broadly. Understanding these art market narratives can help investors zero in on which segments are gaining in value faster than others, make the most sense to consider as investments, or may help appreciation in the value of a broader art finance portfolio.
Idiosyncratic Risk and Scarcity
Context within those trends also matter. As Noah Kupferman, Yieldstreet Director of Business Development put it, one Basquiat won’t necessarily act like another Basquiat, which is part of what makes art different from classic financial products or investments.
Understanding that context can help investors take advantage. Basquiat’s 1981-1983 paintings are “considered top, top blue-chip, what you absolutely want to have,” according to Leslie Prouty of Sotheby’s. The vast majority of his highest priced works are from that time, and a specific subset – paintings of a single head – are the top 3-4 priced Basquiat paintings, in the range of north of $65M.
Another recent example is the sale of Robert Colescott’s masterpiece, ‘George Washington Carver Crossing The Delaware’. Sotheby’s guaranteed a price range of $9-12M in their estimate, and the piece sold for $15.3M. The previous record for a Colescott piece was $912,000, so this sale represented a 16x increase. This piece, seen below, is both Colescott’s masterpiece and comments on art history, race, and American society, which elevates its importance, especially with the uptick of related conversations occurring in the last year. As Prouty said, “does that mean the next Robert Colescott will be estimated at that level? No.” There may be only one Colescott painting that can say so much.
In these cases, the rarity of a given type of work can elevate it above the broader trend favoring the artist.
Patience, Persistence
The story, the context, and the scarcity of a given piece all matter, but so does that eternal friend to the investor: time. Sachs pointed out that a decade ago, Basquiat pieces were selling for $5-10M, whereas now some are going for ten times that. So once identifying the right story, context, and getting a sufficiently exclusive or rare piece, you may need to practice a bit of patience and wait for that value to be realized in the market.
Mind The Trends
In the famous investing book, You Can Be A Stock Market Genius, Joel Greenblatt talks about his in-laws buying art at yard sales. They ask one question to determine value: “Are there comparable pieces…that have recently sold at auction (or to dealers) at prices far above the potential purchase price?”
Watching the market for relative valuations can clue investors into opportunities and disparities, as long as they get the context and the broader story. As Prouty put it, “One price might be an anomaly, two prices might indicate a trend: 3, 4, 5 prices at this level, you have a market.”
Beauty may be in the eye of the beholder, but market levels, valuations, and narratives are available for any art investor to watch, figure out, and to capitalize on. For more conversations about art finance, alternative asset classes, and generating passive income, be sure to listen and subscribe to The Yield.
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