Why Old Masters Might Not be a Good Investment

The price of Old Masters has been lagging that of contemporary art, despite the fact that the supply of Old Masters is shrinking, while the supply of contemporary art is increasing. Jeff Segal of Breaking Views concludes that "the Old Masters may become the next new thing," if the contemporary art market softens.

I say that the supply of Old Masters is shrinking not because they get destroyed but because they get donated to museums, which in turn takes them out of private hands: in any given year the number of donations will always be larger than the number of deaccessions. Meanwhile, the production of auction-worthy contemporary art has never been higher.

So why is it that contemporary art has outperformed Old Masters of late? Part of it is that the newfound glamor of the contemporary art world has sent demand there skyrocketing. But another part of it, which I think the likes of Segal ignore at their peril, is that the demand for Old Masters is falling off. A whole generation of art collectors has now grown up without the kind of classical art-historical education that many Old Master dealers used to be able to take for granted.

And a substantial part of the price appreciation that has been seen in the Old Master market can be put down to simple arbitrage. A prime example was revealed by Calvin Tomkins in the New Yorker in November, when he told the story of how Jeff Koons, flush with cash from selling his recent paintings and sculptures, bought a relatively cheap Gustave Courbet for $3 million. (Emphasis on the "relatively".)

What's more, substantially all of the best Old Master paintings are already either in museums or likely to be donated to museums by their present owners: it's simply not possible to build a first-rate collection of Old Masters these days. And the potential for massive price appreciation, which always exists in contemporary art, would seem not to exist with Old Masters: the days have gone when some 18th Century master might be "rediscovered" to new and general public acclaim.

So my feeling is that demand for Old Masters (or "old brown paintings," as they're derisively known) has entered a long-term secular decline, which is masked by the fact that prices have been rising. You'd probably be better off with violins.