Four Powerful Investment Lessons from the Art World
On 15 November 2017, a new record was set in the world of art. Leonardo da Vinci’s “Salvator Mundi” sold for USD$450.3mn with fees, becoming the most expensive work of art sold at auction. It far surpassed Picasso’s “Women of Algiers,” which fetched USD$179.4mn in May 2015.
For context, USD$450.3mn when converted is about N174.72bn.
The art market is an ever-expanding industry and has become one of the hottest new investment crazes in recent years. Painting and sculpture collectors often buy pieces as an alternative asset which offers diversification. In 2018 alone, the global art market was valued at USD$67.38bn, posting a minor dip in the following year with USD$64.12bn.
But that is not the main point of this article.
Just like any other investment, there really is an art to buying and selling works of art. To be a good art collector, it is important to understand some basic principles. Interestingly, these same principles are valid for all other kinds of investments you can think of, whether it is stocks, FGN savings bond, mutual funds, treasury bills or equity funds.
Good investing requires discretion, vast knowledge, and attention to details. With these simple principles from the art world, even a beginner can make smart investment moves.
- Do your own research
Investing in art may be a great idea but it can be risky, so you need to do your research. Before buying art, one of the first things to do is to get empowered with enough information by reading up on art, checking local art galleries, and rubbing minds with people who are actively involved in the field. Similarly, making worthwhile investment decisions outside the art world also involves conducting thorough research into your preferred asset, understanding the benefits and risks of making such an investment. Talk to people that have in-depth knowledge and look for correct information about the market. For instance, you can get summary of the latest economic and market happenings as well as stock recommendation on a weekly basis on platforms like Afrinvest. Knowledge is power, so seek it before investing.
2. Avoid getting caught up in the hype
Despite the recent art appreciation which has triggered great excitement, the reality is that only a handful of artists and artistic periods will generate those big returns. Investors need to be wary of falling for media hype and sensationalized market forecasts with the hope of riding on the wave for big returns. There are so many investment options that do not get enough hype but are very safe and high yielding. A good example is the Nigeria International Debt Fund which invests in default-free assets that guarantee investment principal. Investing is an emotional game, and it can lead us to make some terrible financial decisions when we let our emotions get involved. Take decisions based on facts and calculated risks, not hype.
3. Pick quality over quantity
Not all pieces done by a renowned artist are masterpieces. That is why you need to seek help from experts to recognize a masterpiece that will appreciate over time. For instance, oil on canvas and acrylic on canvas are considered some of the most highly priced forms of painting. Focusing on quality investments is an important part of long-term financial planning. Does it have staying power? Is it strong enough to withstand the vagaries of the market and come out ahead? These are some of the pertinent questions and fundamentals you need to consider before committing funds for investing.
4. Invest in assets you like and understand
Art is a long-term investment. Sometimes, you may have to keep it for a long time and even choose not to sell it at all. So, it is important you like the artwork you buy and understand your reason for buying it. This priceless piece of advice also works for other forms of investment. For example, Warren Buffett chose to invest in Coca-Cola because drinking Coke made him happy, among other reasons. When you understand the investment you are getting into, it becomes easier to make decisions and stand by them even when the tide of the market is not blowing in your favour.
Whether it is traditional investments or alternative options like the art market, every investor must be in it for the long haul. The same “Salvator Mundi” which sold for $450.3 million was at one time valued at just £30 after the death of Charles I. Profits will not happen overnight, so think long term.
“Being good in business is the most fascinating kind of art. Making money is art and working is art and good business is the best art.” — Andy Warhol