Art Is Not An Investment

Annie Deakin is acting editor of the website mydeco. The header of the homepage says this:

Home furniture and interior design: beds, sofas, curtains, paint, wallpaper, tables and chairs

Not on the list? Art. You can get that at mydeco too: an "art photography print" of cars is yours for just £20.

Image available in many sizes and options! Choose canvas, acrylic, or huge variety of framing options. Wallpaper and window roller blinds also available.

All well and good, if you're into such things. But then mydeco crosses the line, with a big link to a video explaining "Why you should invest in art NOW" -- a theme Deakin picks up in a column for the Independent:

The art market seems the only safe bet for investors right now...
Word in exhibition halls is that "art is the new gold". My father, a goldsmith for over forty years, says, "Gold has more than doubled in value in four years. People bury it in the garden and it won't corrode. They can touch it." In a world where financial markets are alarmingly 'virtual', a painting, like gold bullion, is reassuringly tangible...
For infinity and beyond, art will be worth something - which is more than can be said about a Lehman share.

Paddy from Artfagcity asks whether I could respond.

First, at the risk of stating blindingly obvious, Deakin is talking her book. She works at a website devoted to selling art; of course she's going to paint it as a good investment. But here's something maybe a little less obvious: there's no such thing as impartial expert advice on the subject of art as an investment. If you're an expert, that means you're in the art world. And if you're in the art world, that means, to use the financial jargon, that you're long art. You own it, or you're trying to sell it, or you're trying to make money from people who own it or sell it. And therefore, you're not impartial.

Second, there are lots of things which are "reassuringly tangible". Gold might be one of them -- although at $788 per ounce today, it's no longer twice the price it was four years ago, and it's fallen by more than 20% from its highs. Other reassuringly tangible things might include stuffed animals, hardback books, and chopped wood. Being reassuringly tangible doesn't make anything a store of value: it just makes it stuff. And, just like other stuff, 99% of art will never again be worth the money that was paid for it.

In the case of the art on sale at mydeco, you can reasonably make that 100%. You might absolutely love your window roller blind with a picture of cars on it, but it doesn't have any resale value. If you want decorative art with which to brighten your home, the internet's a great place to look. But please, whatever you do, don't kid yourself that you're making any kind of "investment": the only return you'll ever get on your money will be aesthetic, not financial.

At the very top of the art market, when you start talking about the sort of artists who sell at auction for millions of dollars, then you can start resting assured that what you're buying will be worth more than zero if you try to sell it. But will it be worth more than you paid for it? If you're buying now, that's very unlikely. Art is the last bubble to burst, this time round -- it often lags the stock market by as much as a year. But the big drivers of art-market gains in recent years have been Russians and hedge-fund managers. The former are hurting badly: the Russian stock market is down more than 70%. And hedge-fund managers are precisely the sort of people who think they must be very astute when the value of a painting they buy turns goes up dramatically. Once they think they're very astute, they buy more and more -- causing the bubble. Which is now about to burst.

But Deakin isn't talking about the very top of the market. She's talking about art in general, and the kind of decorative art you buy because you like it in particular. So to get an idea of what happens to the value of that kind of art, don't look to the auction houses. Instead, go visit your friends and neighbors -- not the serious art collectors, just the regular folk. Go look at the art on their walls. Almost all of it was bought, at some point, for cash. I'd be surprised if any of it is was worth more today than was initially spent on it. Most of it is, literally, worthless, at least financially.

The word "investment" is massively overused these days; I've objected in the past to its being applied even to real estate. But at least when people say that house prices have gone up, that applies to house prices in aggregate: your house, my house, all houses. If you owned a house in America over the past ten years, you almost certainly -- unless you were unlucky enough to live somewhere like New Orleans or Detroit -- saw it rise in value.

But when people talk about art rising in value, they're talking about a minuscule portion of the huge amount of stuff which could reasonably be considered art. If you have some art on your walls, and art has gone up in value, does that mean that the art on your walls has gone up in value? Emphatically not. Chances are that its financial value, too all intents and purposes, is zero.

I admire and encourage anybody who wants to buy or collect art. But whenever you do so, it's worth asking yourself one question first: would I be happy spending this much money if I knew that the resale value of the work was zero? So long as the answer is yes, go ahead and buy. But if the answer is no, then there's a good chance you're deluding yourself about the financial value of what you're buying.