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Investments of Passion: Justifiable Investment or Passionate Collection?

Art has been privy to a byline in the investment world for years, with investors and advisors questioning if art is a good investment and if so, what art makes for the best investment. Opinions have and continue to be all over the board, and art hasn’t necessarily always come out on top when comparing it to other investments of passion. That said, there is no disputing the boom in the market over the past several years. According to the European Fine Art Foundation (TEFAF), 2014’s global art market saw a 7 percent increase offering up over £37bn in sales. Phenomenal.

The line between passion and investment may seem quite large. After all, the word ‘passion’ usually conjures up images of love, sex, and borderline sinful emotions. It doesn’t necessarily deliver thoughts of finance and investment. Well of course, unless investment is your passion. Yet investment nowadays is increasingly associated with passion, narrowing the gap between what we love and our financial future.

Passion is synonymous with luxury. When the words are uttered in an investment context, images of glimmering gems, fast cars, vintage wines, and art come to mind. For those who are looking for the next wave of passionate investment, where do you go? What do you choose? Many suggest looking to what you like, what inspires and enlightens you. This is where the passion comes in.

As for an overall answer to that burning question of whether or not art is a good investment, it really depends on your purpose.

Are you an investor or a collector?

This is where the tricky nature of passionate investment becomes evident. There is no quick turnaround, no exciting changes in the market. Investing in art is playing the long game. Hands down, the consensus is, if you are investing in art as a collector, buy what you like. Surround yourself with what you define as beautiful, fun,or creative… whatever aesthetically pleases you. However, if the purpose of your investment is to cash in at some point down the line, consider the art that will give you the best return. Remember though, it’s still a long game.

If you’re playing the long game, perhaps you should still invest in what you like. After all, you’re stuck with it for a while.

In contrast to passion, you also need to consider the essential component of the phrase ‘passionate investment’. The gist of it is, if you’re investing in something without concern of turning a profit, some would say that you’re not investing at all. You’re collecting. But that’s just semantics,and what it boils down to is a difference in intent: whether you areinvesting to appreciate or investing to earn. I think it is safe to say collectors are investors, and are often theones who actually turn a considerable profit.

Look at it this way, if you’re turning your home into a veritable art gallery, you’re still an investor. You’re the investor surrounded by your passions. In this scenario, you’re probably managing your own portfolio, which may possibly consist of a blend of property, eclectic art, and vintage jewellery. You might perhaps be simply dabbling in these markets as an enthusiastic investor.

For those of you investing in art for your home, for all intents and purposes, your investments are the truest form of passion. I picture you surrounded with fine art of considerable taste, or at least objectsthat reflect your personal style. Either way, your investment portfolio represents your personality, and you’re probably hoping that somewhere down the line you’ll be able to cash in on it.

And then there are the investors who put their resources into funds and markets for the sole purpose of capital gain.

While you’re surrounded by your own personal favourites, you may also be investing in a specific fund. If this is the case, you’re following the market very closely and probably making sound, albeit long-term, investment decisions. What is of value and what you like may not benecessarily synonymous. You may not even be very involved in the decisions. Your fund manager will be following the art market very closely and taking measures to protect your investments for you. And of course in this scenario, some would say your personality has been stripped away and the investment has become entirely void of any passion.

To Invest or Not to Invest: The Ultimate Question

There are risks to any investment, regardless of the market. However, the main point of consideration to ensure that any investment is shrewd, remains relevant when considering investing in art:

Consider the pros and cons before making a decision. Due diligence is essential. Research, seek expert opinion, or just sit on the idea for a while. Whatever you do, don’t be hasty.

Other things to seriously consider are more specific to the nuances associated with the art market:

Ask your financial advisor. Although financial advisors will probably be more likely to steer you away from any alternative investment, they’re probably more likely to do so with art. So make your case (use all of that research you conducted for step one) and be prepared to take a risk.

Is it relatively safe? Remember that art investments are unregulated (probably one of the reasons your financial advisor is steering you away from this market). If it all goes belly up, you’re not protected.

You need capital. The fact is, it’s not just the art that can cost a pretty penny, It’s alsoeverything that comes with it. Funds charge, advice costs, buyer’s premiums add up, and before you know it, you’re in for a lot more than you had expected. Art can be a very costly investment before you see any return.

Art investments are also particularly vulnerable to changes in the global economy. This can make the market volatile.

On the upside, 2014 was not an anomaly in regard to the upward movement of the art market. It’s actually representative of a trend that can be seen over the past several decades.

So the positive side of pursuing art investmentis that the art market is still moving in the right direction. Although the final tally for 2015 remains to be seen, it was on track to continue growing, making art a very attractive alternative investment, or at least a suitable part of an investment portfolio. Either way, the nature of art leads us to believe that regardless of your path, it’s a long time before any of it will give you a reasonable return.

It’s important to note that passion is not driven by reason. It’s driven by desire. The point being that art is meant to fill our aesthetic self. So maybe the answer is not to get so hung up on the end result. Perhaps it really is all about how you play the game. And if we play the game passionately, we can’t lose.

Gina Geremia
Quality Benchmark Information

Image:
Source: Andrew Burton/Getty Images North America 
Dan Colen’s artwork titled, “Holy Shit” is auctioned at Sotheby’s for $341,000 on November 13, 2013 in New York City. The big seller of the night was Andy Warhol’s artwork, “Silver Car Crash (Double Disaster)” which sold for $104,445,000, a record for the famed artist. Andy Warhol’s artwork titled “Liz #1 (Early Colored Liz)” is displayed on the right.