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Devangshu Datta: Why you must invest in art

Great art comfortably outruns inflation and conventional financial assets in terms of compound annual growth rate

Devangshu Datta  |  New Delhi 

The deaths of well-known artists trigger long-term bull markets by shutting down supply. The value of the artist’s oeuvre often multiplies within days of the obituaries. If the artist was prolific and/or casual about provenance, death can spark a grey market in “undiscovered” works, which could be fakes or stolen. The value of associated collectibles – sketches, letters, paint brushes, easels and so on– also climbs astronomically.

Since Picasso died in 1973, valuation of his work has risen by around 40 times. In 2010, an anonymous buyer, rumoured to be Russian oligarch Roman Abramovich of Chelsea fame, paid $106.5 million for a single canvas. Picasso produced well over a thousand canvases, as well as sculptures, and other bits and bobs. Extrapolation suggests his oeuvre exceeds global GDP in value!

Capital appreciation over centuries for the Impressionists, the great Dutch masters and the Renaissance geniuses has been just as impressive. In 1994, Bill Gates paid $30.8 million for Leonardo’s notebooks — the Leicester Codex contains unfinished sketches and diagrams.

Only very rich patrons, or trusts endowed by them, or museums backed by taxpayer money, can play that game. Mr Gates and Mr Abramovich are torch bearers of a tradition that includes royalty, nobility, dictators, drug barons, and legitimate billionaires such as J Paul Getty, Japanese tycoons and so on.

That demographic consists of notoriously hard-headed and tight-fisted folk, which makes one wonder why they spend such sums on canvas and paint. Apart from subjective aesthetics, they do this because they have always done this and thus established a positive feedback loop over millennia. The rich buy art either to show that they have arrived, or as a shrewd investment.

Great art comfortably outruns inflation and conventional financial assets in terms of compound annual growth rate. It is reasonably fungible and often easy to simply roll up and carry across borders, if required. It is also a lumpy market where supply is subject to the whims and fancies of owners, and the productivity of a notoriously Bohemian set of people.

There are several apparent strategies for smart investors looking for alpha in the art and collectibles market. These can be listed in ascending order of reward- risk ratios and in descending order of capital required. The safest method is to seek works by recently-dead great artists — Lucian Freud and Husain are obvious examples. This requires lots of cash and also due diligence.

A second possibility is to buy works by established, elderly artists. This is not inexpensive but there are fewer provenance issues. A third method is to trawl for young, promising artists. This costs the least and it has the largest potential upside. But it is scatter-gun because there’s no telling which picks will become multi-baggers.

The ancillary market in collectibles and memorabilia only exists for the truly famous. It can include bizarre items like Gandhiji’s glasses or Netaji’s riding boots. Manuscripts by famous writers, or scores by famous composers, are literally priceless. A symphony scored by Mozart, or a play in Shakespeare’s handwriting, rivals anything daubed by Van Gogh or Picasso.

One of the least-remarked-upon effects of digitisation is the drying up of future supplies in such markets. Manuscript submissions and musical scores are digital nowadays and increasingly, so is delivery.

A well-preserved first edition of an 1890s Conan Doyle thriller (which cost the equivalent of $.05) attracts bids of over $800 nowadays; the original vinyl recording of a 1940s Ella performance also goes for hundreds of multiples of sticker price.

The 21st-century equivalents would be Kindle downloads of Stieg Larsson and iTunes downloads of Amy Winehouse. It’s difficult to see how those could conceivably become more valuable with the efflux of time. I wonder what effect this will have eventually on collectibles markets for the modern greats. What would you bid for Winehouse’s hairbrush or Larsson’s MacBook?

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First Published: Sat, July 30 2011. 00:17 IST