Let's Talk Art: Ref 2 Investing in Art, Me? 10 May 2020

Date: 1o May 2020  Administrator: Steph Krynauw Ref: 2

"Investing in art, me?" 

The Challenge

I have recently asked a friend of mine to tell whether he reckons that art is a good investment in the current economic climate. I specifically selected him for the following reasons:

• He is a senior citizen who retired from a job in the public services sector a few years ago
• He is conservative and plans money and investments carefully
• He receives a monthly income from his pension investment
• During his career he managed to save and buy a second property to provide extra income
• He is honest, serious and straightforward

This was his response:

You are asking me whether the acquisition of art in this economic time is a good investment or not? Then please note that my response is from the point of view of a layman, I am not an art expert nor a financial consultant.

I will base my reply on a painting I bought for R7000 from Chris Tugwell at his small gallery in Brooklyn Shopping Centre in the year 2000. The size of the painting without the frame is 90 x 60cm.

                           

The ponderings

To compare and discuss the potential investment value of my transaction, I am going to use the USD dollar value as well as the interest rate linked to a normal savings account. However, before I proceed, there are a few points I need to share about my decision to buy the painting:

• I read that art industry experts suggest that people with no specialized knowledge should buy a piece of art because they like it, not because they want to get rich. If the piece of art goes up in value, that should be just an added bonus. It was also mentioned that it does not provide, like other investments, a monthly income (ya well?).

• I was told that art is not easy to re-sell and based on this, as well as the above points, I founded my purchase decision firstly on my requirement to own something nice and secondly on a plan to sell the artwork after my retirement to fund a holiday in America. I am an ardent Western reader and it has always been a dream to travel and to get first-hand experience of the dirt roads, the outback little towns and bullet-ridden bars of the Southwest.

• I therefore decided to carefully select an artist that could deliver something for the eye as well as a good measure of promise on something for the pocket in future.

• Paintings as artform was an attractive investment option because it was something physical and I would be able see what I was buying opposed to shares or other outlays where I would only receive a piece of paper and hoped it would still be there or would be delivering sufficient revenue when I needed it.

• I observe the hazards of the financial markets on a daily basis and, seeing that art has no correlation to the stock market, to me it meant that the value of the painting could increase even if the stock market crashes.

• However, I am a very conservative investor and realised that I also had to invest a good amount of time on research like reading about artists, visiting art galleries and even talking to knowledgeable people. At the end…well about that I will tell you later.

• I then read about painting themes and learned that the following was most popular.

• Traditional landscapes (I was glad this one is first, it’s my personal favourite).

• Modern or semi-abstract landscapes

• Impressionistic landscapes

• Local scenes

• Abstracts

• Figure studies (excluding nudes)

• Seascapes, harbours, and beach scenes

• Wildlife

• I also learned that if one has an investment objective, one should seek out renowned artists and avoid buying small and subtle paintings – this was not good news for my budget….

But let us get down to business

At the time of my transaction in 2000, the US dollar (USD) against the Rand was R 6.72.

This means that:

• Should I have paid in dollar, it would amount to USD 1041.66 at that stage.

• If I bought USD1041 in 2000 and kept it to this day and now, I would, at the current rate of R18.50, have received (if I traded the Dollars back to Rand), an amount of R19 258

• If I had put the money into a savings account and gained an average interest rate of 7% and re-invest the monthly interest into the account, I would have had R28 271

• I have not requested a formal valuation, but if I compare my Chris Tugwell painting with some of his current paintings at the gallery in Brooklyn Shopping Centre, the painting can easily be sold for between R40 000 and R50 000, well - minus the commission….

From the above it is clear that the investment in the painting totally outstripped the other options.
Please note that I haven't added to the painting's ownership costs any other investment cost such as insurance (I did not specify and insure it separately) and storage costs (I kept it on my living room wall for free!).

On the other hand, I also did not take into account the current low buying power of the Rand and that the prices in the gallery was still based on a stronger Rand. Production costs for artists will definitely increase in the near future and selling prices of artwork will also have to be revised accordingly.

The verdict:

The day I saw the painting in the gallery, it caught my attention and "talked" to me. The traditional highveld scene with cattle in the foreground stirred something in me that totally wiped out any common sense. I just about ran out of the gallery to get rid of the feeling and went for a coffee but the image of the painting didn't want to leave me. Within a few minutes I was back at gallery and did not take long in paying for it.

To this day the painting gives me enjoyment that I cannot express in monetary terms.
As a careful investor and a layman in investments and art, I have always been someone who does not take chances, but I can now say that buying a painting by a good artist is an excellent long-term investment – well for me, maybe forever? 

Regards

Freddie.

My own remarks:

• “There are no rules about investment. Sharks can be good. Artist’s dung can be good. Oil canvas can be good.” (Charles Saatchi)

• “Investors have very short memories” (Roman Abramovich)

• “I'd like to live as a poor man with lots of money (Pablo Picasso)

                                    

Regards
Steph