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Art As An Investment

By David Bosworth, Trust Investment Officer

The art world has recently received attention from new buyers, including technology and global finance executives and hedge fund managers. Recently, we had the opportunity to speak with Duane Merrill, a Vermont expert in art and antiques.

Duane provided us with some sound advice for those of you who are considering “investing in art.” First, he believes that you must love the piece that you buy—make sure that you want to see it and experience your piece of art daily for the next five, ten fifteen or more years. As an investor in art you must first define yourself. Determine what you like and why you want to make the purchase. If you truly love the piece that you buy, expect to feel uncomfortable leaving your home.

“Being a successful art investor means that you must have a passion for the arts first and a passion for the piece that you are considering purchasing,” says Merrill. Second, always perform due diligence yourself or select an advisor that is accredited to help you make your purchase.

Your due diligence options include:

  • Learning the market yourself for the next five to ten years.
  • Hire a consultant that you trust to evaluate the piece and the broad market; the consultant should know the “broad” sectors of art that you are buying, and be able to identify work that may be a good investment.

Art, like other investment asset classes, runs in hot and cold cycles. Global investment firms are creating a new product where institutional investors may purchase shares in “artwork” through a hedge fund. These investment management firms are acknowledging that art is a “distinct asset class” and yet, these same firms are creating a new demand for styles and types of art that has never been seen before by traditional investors and dealers in the art world.

The life-cycle that an art investor experiences, is unique to each artist or style of art. One example of an investment cycle in art can be demonstrated by the impressionist era. The impressionist era style of art will go through popular and less collectable stages, as will artists within this era. No individual or institutional investor truly knows when the cycle will hit the peak or the bottom. As an example, if a major impressionist piece from a known artist is “discovered” through an estate sale, the art from that era, as well as the artist, may experience a dramatic increase in the value of their work. The prices for the art from the era and the specific artist, will inflate as dealers gather and publicity promotes the event; as the “buzz” of the most recent discovery and exhibit fades away, so may the prices of the art.

What will make this artist and era hot again? A major exhibition, a major discovery from an estate somewhere in Europe or America? No one really knows. An investor in art needs to be able to withstand a “down market” for their investment. If you purchased a piece for $25,000, in a “hot market” you need to be willing to withstand a “down market” that may last for five, ten or more years. The lack of liquidity in an artist or entire era of art will occur—simply be prepared to own your piece long-term and truly enjoy it within your home, as you walk past it everyday.

New investors in art can be identified by collectors, gallery owners and others familiar with the art world. The professionals in the art world know the value, and what to pay for a piece of art. If you choose to buy art as an investment, with Gallery purchases, make sure to get a “buy back guarantee” which essentially certifies the artwork’s authenticity and therefore, its potential value. As part of your due diligence, you may ask to have the piece “certified” at your own expense. In our conversation with Duane, it became very clear that you need to have a passion to buy a piece of art first, before you “invest.”

Duane Merrill is on the Vermont State Board of Auctioneers, and owns Merrill’s Auction Gallery in Williston, Vermont. Merrill’s Auction Gallery was established in 1981, with three generations selling antiques since 1938.

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