The Key Factors

Fine art value, while ultimately still based on supply and demand, is influenced by several key factors investors need to fully understand.

Authenticity and Provenance

Authentication and "provenance" are absolutely the most critical issues when evaluating a given piece of art. This means that the work was executed at the time and by the artist as stated, that the materials are correct and that there is legal documentation of which collections owned the work (these can be individual or institutional). This tells us the work's history.

Condition

Work that is in exceptional condition is worth a premium. Look for work that has not been restored. If a dealer tells you that "all you have to do is fix a tear, or have someone paint in or fill a gap on the canvas," be suspicious. As Warren Buffett states, you can "wait for the perfect pitch." Buying a few important pieces a year is more important than assembling a hastily assembled collection.

Rarity

The less available an artist, a style or a type of piece, the more likely it will appreciate in value. Works that exists in limited numbers by important artists are the best to focus on. Be wary of copies, unlimited editions, works that are not signed.

How To Begin?

Like any other asset class, first decide what your budget will be and what level of involvement you desire. Even if you decide to utilize a professional, it's good to educate yourself about the markets, your taste and what your goals are. If you have a small amount to invest and you are doing this on your own, we recommend buying one important piece each year - the best quality by the best artists.

The rare asset and art markets look deceptively simple. In reality, these markets are exceedingly complex. Imagine the pink sheets, the OTC market and the Nasdaq rolled up in one. Now imagine them without transparency. These markets are private and dominated by "moms and pops" with the exception of the major auction houses.

And bear in mind that creating a collection is an organic process. It takes time to identify the work and it is usually acquired on a piece-by-piece basis.

Visit museums, galleries and art fairs to cultivate your taste or develop an "eye." Take art history courses. And last, consider seeking the assistance of a professional to navigate the ins and outs of the markets. But recognize that this is a market dominated by full-time insiders, and even with the assistance of an art adviser, conflicts of interest are common. Inter-dealing is prevalent, so some art advisers may be steered to certain galleries where they get a "kickback." On top of that, they may charge you a retainer and a percent of the sale.

Why Now?

Due to upheaval in the financial markets and economies, fortunes have been lost. Hedge funds have closed, leaders of industry and high-profile investors have lost millions if not billions of dollars. The fallout in the art market has been distress sales and consolidation among dealers and galleries. Many not-for-profits, such as museums, are in trouble, and are searching for ways to monetize their assets so they can pay their bills to keep the doors open. This makes it more of a buyers' market than it's been in decades.

As an example: The Brandeis Rose Art Museum has announced it will close its doors and sell its 6,000-work collection, including many masterworks. The Los Angeles Museum has auctioned off several of its prize works to raise cash and shore up its finances. The same is true at the National Academy Museum.

The art market is not for the casual investor - it requires diligence, focus and a willingness to step outside the confines of regulated exchanges. But for that very reason, it represents an uncommon opportunity.

Other Resources

www.artbusiness.com

Art Investing Dos and Dont's

The author is editor of The Hard Asset Journal, which provides private advisory services on hard asset recommendations, including art.

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