BOOKS: Art as an investment? Sure, if you’re name’s Mugrabi


ART AS AN INVESTMENT? A Survey of Comparative Assets by Melanie Gerlis Lund Humphries, 2014
A Survey of Comparative Assets
by Melanie Gerlis
Lund Humphries, 2014



“Prestige is the shadow of money and power.”

~C. Wright Mills

In her cheekily titled book, ART AS AN INVESTMENT? Melanie Gerlis (Art Market Editor of The Art Newspaper) concludes —many times over — that art is an asset, but not a good one relative to other investment options. What she does not conclude, but, rather, hints at, is that art is, actually, a brilliant asset for a tiny group of major power players, but a flat out gamble for the rest of us.

However, the conclusion, that art is not the best investment for your average Joe nor, even, for your average millionaire, is not at all surprising. Surely it did not need an entire book of dry prose to tell us that much.

Despite the hype, no one seriously thinks that the art market is ready for everyone with a nest egg to invest. But the key to why this is so does not rest on an analysis of art alongside of other assets, so much as it does in an investigation of why the art market continues to defy investment accessibility.

The interesting questions

Writes Gerlis,“Most analyses of the art market to date concentrate on the relative returns, almost regardless of risk.” Yet those who are in the know, know better than to take the auction house press releases too seriously, and know better also, than to read about rates of return without asking what the investors knew about their assets in the first place.

Citing a particularly good sale (Eric Clapton’s Gerhard Richter at Sotheby’s October 2012) Gerlis notes that it showed a 23% IRR concluding that: “in a good year, or for certain artists or works— art can produce a higher rate of return than, say, the US stock markets,” which show an average IRR of of around 10%. But, as Gerlis points out, these “stellar” rates of return do “not take into account the risk of the purchase in the first place.”

In other words, the rare and the unlikely look pretty good in isolation, just as a gambler’s big win might.

But say a gambler seemed to rake in big wins consistently? The casino, and the average looker-on, would surely ask what the gambler knew that was to her advantage

Gerlis, in her dry Art Newspaper voice, adds no such color to her stories and the book suffers for it. A bit of color could elucidate the more burning question we have about the art market. The gambler analogy, for instance, begs a few questions about privilege, insider information, and exclusivity.

Like this one: given that certain types of investors consistently show higher rates of return on art investments than others, shouldn’t one ask if the risks are equal to all investors? The obvious answer being that it isn’t, wouldn’t it be interesting to ask what advantages successful investors have?

Put simply, couldn’t it be that art is not an equal opportunity investment, but rather, a good investment for those in the know, and a gamble for all the others?

This would be a good question to pursue. And though it is implicit in Gerlis’ repeated asides about a power network of “high net worth individuals” (HNWIs) and a handful of “mediators” who have the rare means to even consider art as an investment, it remains a topic of great interest that she does not investigate.

Risk is relative

Gerlis is perhaps wise to skirt these issues, politically charged as they might be, but they whisper away between the lines. Risk is relative to connections, insider information, and power. What may be a good investment for the insider— the art consultant, gallerist, or ultra-rich collector —is a flat out gamble for most investors.

A quick trip through my reading notes tallies up the points that favor of a bifurcated art investment market; what makes art a bad investment relative to, public equity (for example) are as follows:

  • Lack of liquidity
  • Lack of regulation
  • Lack of transparency (lack of reliable records and information)
  • Lack of correlation to the behavior patterns of other markets
  • Inconsistent valuation

Says Gerlis:

“Nothing as yet can take into account factors such as the impact of the pre-sale estimate, a work’s relative order in an auction, the skill of an auctioneer or facts such as for how long a work has been on the market, which are often known only to a few experts.”

There it is, whispering between the lines again. To those few experts, art is, right now, while it is impenetrable to the riff-raff, a really good bet. Make it more transparent, regulate it, temper the volatility with records and consistent valuation, and what you have is a level playing field: and that’s just no fun at all.

Let us say you are Dakis Joannou, and you consider your collection, and/or each of your purchases, an investment. Think about the issues cited above:

  • Lack of liquidity is a problem if one cannot wait to sell. We, say the HNWI’s and the Larry Gagosian’s of the world, can wait as long as we need to.
  • Lack of regulation? Only those who need rules to play by care about that. Some make their own rules and some are close enough by the rule-makers to overhear the play.
  • Lack of transparency: a problem to those outside the walls. In here — with the fellow who’s telling the auction house how to estimate someone else’s Warhol— it’s well lit.
  • Lack of correlation to other asset markets: I’m pretty sure these people has their own own chart.
  • Inconsistent valuation? If you have to ask you can’t afford it anyway.

In Short

Gerlis does produce an interesting overall analysis of other assets as compared to art, going through them chapter by chapter: gold, wine, property, private equity, public equity, and luxury goods. She combs over the parallels, contrasts the differences, does a bit of the math. But it’s all to reach the final, weak conclusion that:

“Those looking at art purely as an investment might first consider looking elsewhere.”

For all the 158 pages she puts her reader through, Gerlis, an excellent short form reporter, could have demonstrated her point with a few good charts, some bulleted points and 500 words of dissertation.