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Wednesday, May 22, 2013

Investing in art in 2013

It is more difficult to sell expensive art than public company stock
Well selected artwork has the potential to yield huge ROI
By Keith Barrett

With the global economy demonstrating a great deal of uncertainty, it should come as no surprise to learn that plenty of people have been looking at alternative investment options. Given fears about the future direction of stock markets and the relative security of some bonds, are there better returns to find elsewhere?

In some senses, it can be said that the concentration on alternative investments is nothing new. Many professional investors have always advocated using such forms of investment, in order to help with building a fully balanced portfolio.

But some smaller investors have been slower to pick up on this approach. Why should this be the case? In part, it can be explained by the fact that there may be a lack of knowledge. This tends to make us feel, in such circumstances, that there’s a significant danger of being exposed to increased levels of risk.

The theory behind investing in wine, works of art or classic cars may be sound, but is it really possible to deal with that lack of knowledge? How can we overcome the difficulties that we face?

Doing your research

It makes sense to ensure that you understand the subject, before taking the plunge. With many alternative investments, the good news is that the learning process can be a lot of fun. Understanding why certain wines taste good and increase in value over time, for example, can hardly be seen as a chore.

If you’re thinking about investing in art, then it’s clear that you shouldn’t limit yourself to studying textbooks on art history. Although such resources will provide a useful starting point, I would strongly suggest that you should also take the time to visit art galleries.

You can learn a lot from a book, but you’ll discover that the learning process is rather dull. An art gallery, on the other hand, brings things to life. Bear in mind too that, unless you are in a very fortunate position, you probably won’t be investing in historic works that were produced by great artists of the past.

Niche areas

It’s much more likely that you’ll need to think about up and coming talents, or focusing on a niche area. Many investors like to concentrate on local artists, feeling that this allows them to gain specialist knowledge.

It can certainly be a significant advantage to be seen as a leading authority within a specific niche. You may even place yourself in a position where others start to approach you, in order to buy and sell specific works of art.

This is a real difference, when compared to investing in stocks and shares. By investing in artworks, you have the opportunity to really be creative and to take a new approach. Your chances of forging a similar position via more traditional investments will obviously be lower.

Increasing returns

When you start out, it’s likely that you’ll make a few mistakes. This is only natural and it’s sensible to use a little caution, at least while you are learning the ropes. As you gain confidence and understand the market, you should be able to derive the required returns.

Investing in art is all about learning, having fun and then reaping the rewards.

About the author: Keith Barrett likes to play around with works of art. He believes that portraits from photos and other concepts offer a novel way of commissioning artworks in a cost-effective manner.

* Image license: US-PD