Hey everyone šš¼
To kick off the Alternative Assets Guides series, Iām going to start with art š©āšØ as our first alternative asset class.
As I plunge into writing this, images of the art pieces I possess already flood my thoughts. Even calling them āart piecesā feels a bit too grand of a statement and somewhat alien to a person (me) who doesnāt at all consider themselves an āart enthusiastā.
To-date, Iāve bought every single piece of artwork in my home because I like them. I never once framed them in the context of an investment opportunity. Did I miss a beat?
Letās dive in to understand the merits of investing in art.
p.s. I talk about why I am starting these guides and my slight obsession with this space in this weekās newsletter.
Topics covered:
TL;DR š
Art investing terminology you need to know
The numbers - market size and returns analysis
šØRisks in investing in art šØ
How (fine) art is valued
š©āš» As a new investor, how do you get started?
ResourcesĀ and tools
TL;DR
OK, so first off, art is an enormous asset class, valued at over $1.5 trillion (for reference, thatās about half of Appleās market cap).
And unsurprisingly, art can, for some, be a lucrative venture. Artprice estimates global market returns at 9% and Masterworks recorded an annual return of 14% vs S&Ps 9.5%
However, the estimates account for only a small proportion of the art market and have major caveats. Tracking the performance of the market can be challenging and in turn lead to significant risk, especially for newbies to the art market.
Itās easy to get caught up in the headline returns analysis, but the very quick tip is, donāt do that. Iāll explain more below.
Art also remains opaque and dominated by individual and often super wealthy investors. The market is shaped by small groups of connected insiders who act as gatekeepers.
Itās largely controlled by galleries and dealers who commit with astonishing discipline to keeping artwork prices predictable and pegged to signals of quality like the prestigiousness of the gallery selling the artistās work.
And that explains why I never see a price tag at a fancy gallery š«
If youāre thinking of investing, you should expect to invest time and effort to establish a baseline from which to make judgements. This might be more challenging in art than other asset classes because its value is intangible - I mean whoād think a banana taped to a wall, as per above, would fetch $120k?! But, it did.
On a serious note though, investing in art could work very well if youāre a genuine art connoisseur and want to combine your hobby with investing.
But opportunities certainly exist for newcomers to the art scene, too - there are more and more accessible entry points to get to grips with the market through art funds and fractional share ownership. More on that later.