Artist : Jai
Art as an investment avenue has been considered an interesting andprofitable alternative, but it is also extremely risky.
With uncertain stock market returns and interest rates at their lowestin decades, nervous investors are now considering alternativeinvestment avenues.
Some of them are hoping to find solace inalternative investments such as fine art, wine and even stamps.
These alternative investments' performance is alluring. Indicestracking the performance of high-class art have held up well in therecent economic slowdown, while art-auction houses report recordprices.
Art as an object of investment has been debated for long. However, inthe age of 20% returns on stock markets and a long bull market, theconcept of art as an investment option was passed over.
But the corporate scandals, stock market losses and low interest rateshave helped it to re-emerge.
In one of the niost prominent examples ofart investing, British Rail pension fund invested 2.9% of itsportfolio in the 1970s earning a return of 40o pa. above inflationtill 1999.
Virginia Wilson, an art consultant from Australia, says, "Art has beenan attractive investment for centuries and is becoming increasinglyrecognized as it has outperformed more conservative investments overthe last few decades.
It is an alternative investment earning capitalgains rather than a dividend."Art can never be considered as financial asset.
Critics contend thatinvesting in art disregards the traditional yardsticks of financialanalysis, since they do not generate income streams that can bediscounted. It is a bet on the price appreciation of something whosevalue defies financial logic.
Bill Muysken, Global Head of Research, Mercer Investment Consulting,feels, "Artworks do not generate any income, except to the extent thatincome can be obtained from lending them to galleries, and they incurnegative income in the form of storage and associated costs.
Whilst some artworks have appreciated enormously in value over time,it is difficult to make a case for artworks overall earning a positivenet rate of return in real terms over the long run."
But advocates of art investing argue with growing volume of supportinganalysis. Prominent among them are from professors Jianping Mei andMichael Moses, at New York University's Stern School of Business, whofound that art has outperformed S&P 500 (excluding transaction costs,since they are not included in stock market indices such as the S&P500 eitber) in the past 50 years.
From 1875 to 2000 art has outperformed fixed income, butunderperformed equities. And in the past two and half years of stockmarket losses, art has outperformed equities.
For frightened investors this may sound soothing. But art is high-riskinvestment, riskier than stocks.
Prices of art fluctuate more widelythan stocks.Art market is illiquid, opaque and unregulated. Transaction costs aretoo high, sometimes up to 25% and may in fact wipe out the profits.Further, the money invested in art is at the mercy of erratic publictaste and short-lived trends.Above all, art's unpredictable value makes it as easy to lose as toprofit.
However, Wolfgang Wilke, Vice-President, Dresdner Bank'sEconomics Department, who has been researching on this topic for thelast 20 years, feels, art investment is high risk only if the selectedinvestment period is too short.
In the short-term, market volatility is relatively high compared withother asset classes.But over the long-term -- experience suggests 10 years and more --investment in art provides annual average returns, which topall-coniers. The prerequisite is investment in top-quality art.
WL Fine Arts Sdn Bhd
No 3,5,9 &11,Jln Chantek 5/13,
46000 Petaling Jaya.
Tel : 03-7958 1848
Fax : 03-7958 8848
Email : wlfinearts@gmail.com
With uncertain stock market returns and interest rates at their lowestin decades, nervous investors are now considering alternativeinvestment avenues.
Some of them are hoping to find solace inalternative investments such as fine art, wine and even stamps.
These alternative investments' performance is alluring. Indicestracking the performance of high-class art have held up well in therecent economic slowdown, while art-auction houses report recordprices.
Art as an object of investment has been debated for long. However, inthe age of 20% returns on stock markets and a long bull market, theconcept of art as an investment option was passed over.
But the corporate scandals, stock market losses and low interest rateshave helped it to re-emerge.
In one of the niost prominent examples ofart investing, British Rail pension fund invested 2.9% of itsportfolio in the 1970s earning a return of 40o pa. above inflationtill 1999.
Virginia Wilson, an art consultant from Australia, says, "Art has beenan attractive investment for centuries and is becoming increasinglyrecognized as it has outperformed more conservative investments overthe last few decades.
It is an alternative investment earning capitalgains rather than a dividend."Art can never be considered as financial asset.
Critics contend thatinvesting in art disregards the traditional yardsticks of financialanalysis, since they do not generate income streams that can bediscounted. It is a bet on the price appreciation of something whosevalue defies financial logic.
Bill Muysken, Global Head of Research, Mercer Investment Consulting,feels, "Artworks do not generate any income, except to the extent thatincome can be obtained from lending them to galleries, and they incurnegative income in the form of storage and associated costs.
Whilst some artworks have appreciated enormously in value over time,it is difficult to make a case for artworks overall earning a positivenet rate of return in real terms over the long run."
But advocates of art investing argue with growing volume of supportinganalysis. Prominent among them are from professors Jianping Mei andMichael Moses, at New York University's Stern School of Business, whofound that art has outperformed S&P 500 (excluding transaction costs,since they are not included in stock market indices such as the S&P500 eitber) in the past 50 years.
From 1875 to 2000 art has outperformed fixed income, butunderperformed equities. And in the past two and half years of stockmarket losses, art has outperformed equities.
For frightened investors this may sound soothing. But art is high-riskinvestment, riskier than stocks.
Prices of art fluctuate more widelythan stocks.Art market is illiquid, opaque and unregulated. Transaction costs aretoo high, sometimes up to 25% and may in fact wipe out the profits.Further, the money invested in art is at the mercy of erratic publictaste and short-lived trends.Above all, art's unpredictable value makes it as easy to lose as toprofit.
However, Wolfgang Wilke, Vice-President, Dresdner Bank'sEconomics Department, who has been researching on this topic for thelast 20 years, feels, art investment is high risk only if the selectedinvestment period is too short.
In the short-term, market volatility is relatively high compared withother asset classes.But over the long-term -- experience suggests 10 years and more --investment in art provides annual average returns, which topall-coniers. The prerequisite is investment in top-quality art.
WL Fine Arts Sdn Bhd
No 3,5,9 &11,Jln Chantek 5/13,
46000 Petaling Jaya.
Tel : 03-7958 1848
Fax : 03-7958 8848
Email : wlfinearts@gmail.com
