With another year of record-breaking auction results behind us, and in anticipation of further frantic activity at the early 2013 auctions in London, it would seem prudent to reflect upon the increasing acceptance of art as what finance and investment folk like to refer to as an “alternative asset.” For many of these people art, in short, equals money.
Permit me to begin with some unwanted and perhaps unwelcome truths about the relationship between art and money that I have learned over years of watching art market movements, truths that seem to have been ignored in recent discussions on the topic. The first is that artworks are illiquid assets with high transaction costs. Simply put, while buying art is easy it is not always so straightforward to dispose of the same works when you would like and at a price you can accept. To find the right buyer at the right price, you need the right agent — be it a dealer or an auction house — and the better they are, the bigger cut it will take.
Financial models about the art market seldom address these basic facts. Firms like Goldman Sachs and Morgan Stanley have been working hard to assemble alternative asset indices for years. These talented people, who really know what they are doing, look at previous data and extrapolate general trends. But that is not the same as predicting outcomes. Don’t be fooled into thinking that it is. Nobody can predict price movements.
One problem is that there is simply too little data to work from. The secondary auction market is an important but extremely limited component of the overall art world. In contemporary art sales, the biggest growth area, less than 50 artists make up the bulk of the business that gets written about. While their artworks circulate for greater and greater prices, most artists — even those able to build a comfortable career, some of whom are nonetheless solid investments — don’t benefit from this kind of ferocious demand and therefore the same kind of price escalation. Price growth tends to be a slow burn.
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