With interest on savings being historically low at the moment and the prices for shares being sky high, investors are looking at other types of investments in order to achieve a return on investment (also known as making money). And of course there is always risk involved and usually the riskier the investment, the people wanting your hard earned cash will promise you a high return on this risky investment for greed to overcome risk aversion.
As with everything, the price of a product will depend on the supply and demand. The lower the supply of a product and the higher the demand for it, the higher will be the resulting price. Leonardo da Vinci’s Salvator Mundi, which sold for $450.3 million on November 15, 2017 at Christie’s is still the most expensive painting ever sold.
The sale shattered previous auction records and exceeded auction expectations. The sale underscored market demand for Da Vinci’s rare auction appearances (low supply), and the competition among collectors to own a work of such caliber and distinction (high demand).
The painting had already attracted a myriad of owners and price tags over the years: from selling for £45 at Sotheby’s in 1958 to a $127.5 million purchase price for Russian billionaire Dmitry E. Rybolovlev in 2005, whose trust sold it at the 2017 auction. Due to being out of the public eye since 1958, it was a salvage project—with an unknown history and hidden by numerous overpaints, it was long mistaken for a copy.After its 2005 sale, years of work and research ensued to uncover its true identity.
Years of research pieced together its story, finally enabling its attribution to Leonardo da Vinci. As a result, the painting’s value shot up in value, despite the raised issues regarding to what extent the painting is still original after several cleanings and restorations. Despite its historical significance, this record-breaking sale brought forth conflicting opinions. Many thought of the sale as one of notoriety and brand recognition, rather than of appreciation and respect of the painting’s gravitas. After the sale the painting disappeared again from public view, which led to more speculation in the art world.
Not all buyers have such deep pockets as the buyer of the Salvator Mundi. Sometimes, art investors will club together to buy an expensive painting, store it in an art vault for a number of years and then release it back in the market after an agreed period or an opportune time when a certain estimated value has been reached. Of course, the market for a particular style or painter could have changed with prices going down resulting in an ultimate loss for an investor after storage, insurance and conservation costs, auction costs and of course the management fee for the investment management company. Often these investment funds have investment horizons of 10 years or more.
2020 was a very good year for the art world, but this only pertained to the high end of the industry where works of art were sold for top dollar this year. The Blackhats were regularly hanging out at less prestigious auctions this year and also saw questionable works of art sold at high prices. After we visited the Museum of Counterfeit Art (Art forgeries (museums-vledder.nl)) in the Netherlands and read their book, we try to be cautious to a fault.
Another issue we would like to address is when you need to raise cash quickly you will not receive top dollar should you want to sell your treasure in a hurry. Art is not a liquid asset like the money in your bank savings account.
Is art a good investment for an art lover? Our thoughts are that it might be a good investment in the long run, but only:
1. When you spend money which you can afford to miss, the investment horizon is long and a return on investment is not guaranteed.
2. Buy what you absolutely love! When a painting or other work of art is affordable, ‘speaks’ to you, and sparks joy (thank you, Marie Kondo), only then it is considered worth buying. At the Black Hat Gallery we always ask ourselves before purchasing an item:
– Do we love the subject of the work? The Blackhat Gallery does not buy or sell paintings of dead, hurt, suffering or sad animals and/or people. We don’t like dead or wilting flowers. We are also not inspired by portraits of grumpy or stern people, so those will not featured in our gallery.
(Sophia Alekseyevna, a painting by Ilya Repin. She is very grumpy as there is a dead body hanging outside her window.)
The Black Hat Gallery does not knowingly buy or sell items made of animal parts. Although we see many beautiful items made of such materials, they do not lift our spirit. The most beautiful animal is a happy living animal.
– Do we appreciate the technical skills of the artist? It does happen that we love the subject of an art work, but it falls short in the technical execution in our view. We see the most amazing works of little known artists and amateurs and we will happily champion their artwork. On the other hand, we sometimes see works of well known artists, who happened to have an off day and we will pass on it.
– Does it meet our standards regarding the technical condition?
Although we are happy to reframe and remount pictures and do a lot of careful cleaning and polishing, we will not buy items which will need a lot of restoration. This in order to keep our prices affordable.
Only when we say a unanimous ‘yes’ to the above, a work will be acquired for the gallery. We can afford to wait for the right buyer too. We will advise a potential buyer not to buy a work of art if they are not sure.
3. Buy the best quality you can afford.
One-of-a-kind works of art come with the highest price but have the greatest potential return on long term investment. Etchings and other prints are more affordable but less likely to turn a profit. The best quality print is known as a giclée (zhee-klay). It’s similar to the original work than other prints, but also more expensive. As a rule, rarer prints are more valuable.
Reproductions are the most affordable to acquire, but will not generate a profit when resold due to the unlimited numbers reproduced.
In our view, art should be enjoyed regardless of its inherent value. A lovely well framed print of the Fighting Temeraire might give you a lot more pleasure than having the real thing hanging on the wall. Just think of all the responsibility coming through the door with the painting, it would kill the spark of joy.
Buy what you absolutely love and only buy what you can afford; it is easier to upgrade than to disinvest in the long run. A monetary return on investment in art is not a given as art is prone to fashion trends and what is in fashion today, will only return back in fashion over 30 years or so.
As such we think enjoying your artworks on a daily basis is the best return of investment when it comes to investing in art. Enjoying the here and now is worth more than an uncertain monetary win in the long run.