Jacqueline Towers-Perkins, Specialist, Post-War & Contemporary Art at Bonhams and course instructor for Art Wealth Management explains the idiosyncrasies of this fragmented market, how to go about collecting art and her excitement for contemporary works.
Tell us how you came to be an art expert and why you love the contemporary art market.
I have always been drawn to Contemporary Art because it is so dynamic and progressive, which keeps both my job and the field I work in hugely interesting. Not only are the artists and works they create exciting, investigative and challenging, but the market itself – the key players, prices achieved, the fast pace and constant change of patterns and trends – remains fascinating.
If a collector wanted to invest in contemporary art, how would you recommend to get started?
Firstly, I would advise someone to discover what it is that they like, what they are interested in and what they have a drive for collecting or investing in. A passion for an area of the market will endure any transitory trends or patterns. Once they have identified an area, I would recommend that they educate themselves. Visit auctions, art fairs and galleries to see and understand how the market works and what themes are changing and emerging each season. Lastly, create and build relationships with industry professionals in order to learn from them.
What would you consider the main benefit of investing in art? And the biggest disadvantage?
The main benefit is the pleasure and privilege of being able to enjoy a work of art while it appreciates. It is wonderful to have the opportunity to look at, enjoy, live with and learn from an individual work or a larger collection over time. If you have acquired a work of art because you love it, then it is a huge bonus if it appreciates in value during that period. No other investment provides such rich intellectual or physiological dividends. Arguably however, this lack of monetary dividends and illiquidity traditionally requires art investment to be seen as a long term, which can be a challenge and a disadvantage to those seeking short-term results.
What is the main difference between the art market and the financial markets?
The greatest different I have found between the markets is the highly specialized expertise and knowledge required to invest in art and navigate the art industry. Unlike the financial markets, which are open to all and are required to be transparent, the art market, and particularly private sales from galleries, can be notoriously opaque. Because of this, a strong knowledge and experience of how the market works is essential.
Learn more about how the art market differs from the financial markets. View the teaser from Jacqueline's Module below!
Read the transcript
Art is of interest to many investors, but the art market differs significantly from the financial markets. I first want to begin by looking at how different the two markets are. Firstly, art is entirely different to traditional assets like equities or bonds. It requires highly specialized expertise. Individuals really need to educate themselves thoroughly or risk making poor investments or acquisition choices.
This is why the art market can regularly feel like an elite market. Quite often, it's only those who've had access to arts from a young age or the opportunity to learn about it who are able to participate. Traditionally, items are sold by specialist retailers with very specific knowledge to a wealthy and connected consumer base. It's in this way that the market is able to maintain high values and encourage you to view art as the ultimate luxury consumer good.
Art also differs from financial investments because it does not offer any monetary dividends. There are only the significant, psychological and cultural dividends of enjoying and owning a work of art. Similarly, art does not have any long-term equilibrium price. The fundamental value of a financial asset is known, it's the present value of the expected flow of income. Art meanwhile has no long-term equilibrium price, which can cause volatility in the market.
Next, while stock and bond prices constantly adjust to reflect new information in the financial markets, this is not the case in the art market. While individuals can see new and relevant auction prizes each season, the individual is required to do their own homework and seek out their own information as research. Insider information actually allows individuals to profit which is quite the opposite from the financial markets.
Those without this privileged access are at a significant disadvantage. There isn't a level playing field necessarily in the art market. Liquidity is also a major concern. The art market is extremely illiquid, safe for the top tier artists that regularly appear at auction that have a consistently strong demand. This accounts for a fraction of the goods in the market of most items, there is a limited pool of potential buyers.
By contrast, stock investors can quickly and efficiently sell company shares with relative ease. Now, the difference between the art market and financial markets is that prices within the art market can react significantly to somewhat arbitrary changes and taste. This can cause volatility, unexpected patterns, and sudden trends that are very difficult to predict. Another thing that the financial markets do not have to factor in, is the holding and transaction costs for art such as storage, insurance, shipping, and transportation.
These are often not built into the final price and can be very high. They might not also be factored into a long-term consideration when purchasing or requiring works of art or building a collection. Finally, unlike stocks or bonds, each work of art is unique. This makes it particularly hard to predict the trends and patterns and very difficult to look ahead when investing in art.