-->nvesting in art: are the most expensive works the most profitable? [Aug 04]
On a 10-year average basis, the Artprice Paintings Index, calculated using the econometric method of repeated sales, has risen 46%, implying an average annual return of 3.9%.
However, there are significant performance differentials between the various price ranges within the index. In effect, between July 1994 and July 2004, the average annual yield on paintings initially costing more than USD 10,000 was 6.3%; this figure reduced to 2% in the USD 1,000 to USD 10,000 bracket, and to 0.7% in the less than USD 1,000 range. Thus, as a general rule in the painting segment, the more expensive the work, the greater the chance of making a profit upon resale.

Of course, in the under USD 1,000 range, there are few paintings by old masters or famous artists. In this range, the cost of a work is more likely to be related to its production cost than to the artist’s signature. The essential leverage factor in the price of an art work is, therefore, the fame of the artist who signed it. The profitability of a purchase in this field depends entirely on the renown of the artist, since the artist’s price index is the first to be affected by market trends. In this context, art collectors whose average budget per art work exceeds EUR 10,000 stand to benefit the most from rising values of paintings. Nevertheless, the records show that their position in the market does not guarantee them protection from losses. In fact, quite the reverse.

Paintings valued at over USD 10,000 are more exposed to the speculative factor and to market whims. Prices in this segment are more volatile. Although the growth in values in this segment was clearly much faster in the run up to 1991, there was far more damage in this price segment when the speculative bubble subsequently burst. Thus, between July 1990 and July 1993, paintings acquired for over USD 10,000 lost on average a weighty 57.4% of their value, compared to only -39.2% and -23.8% for the segments under USD 10,000 and USD 1,000 respectively. Conversely - after a period of stability across all segments - the subsequent recovery has been faster in the over USD 10,000 segment, with values in the latter bracket increasing 51.7% over the last six years, compared to +34.2% for the USD 1,000 to USD 10,000 segment and only +10.3% for paintings under USD 1,000.