Take An Informed Medium- To Long-Term View Of Art Investment, Be Picky, And Do Your Research#
The Chinese arts portal Artron (雅昌) has posted an interesting article (Chinese) that discusses the idea of art investment in China, and includes a list of "three key concepts" to keep in mind when thinking of buying art to increase the probability of good return-on-investment.
The full article (translation by Jing Daily team):
"Investing in art is like saving for the future" -- this was the main theme of the Shanghai Art Fair. Presumably, the reason they'd give the fair such a theme is to attract more people's attention to art and the idea of investing in it. Actually, most people who collect art nowadays do it mostly for investment reasons -- the ones who do it out of a deep love for art are pretty rare.
One thing we should point out is that between Summer 2005 and 2007, Chinese calligraphy and paintings experienced an unprecedented decline in prices, and the high prices that many expected to see coming about simply vanished, as did a lot of short-term speculators who suffered losses. However, the drop in prices that happened at that time had a silver lining: it educated a large number of investors.
If we take a step back and analyze the reasons for this, it's not hard to see that there is no shortage of speculators in the art market today, but there is a shortage of art-loving investors. Speculators don't appreciate the art they collect. They're just in it for the money -- turning a profit is their singular desire. Lots of those people who were "fishing for profits" in the art world originally came from real estate or stock market backgrounds, and didn't really understand art, thinking they could dip right in and mix and mingle among art and culture lovers.
Along with the steady stream of funds into the art market came a rise in the price of works, which led a number of speculators to sell off, which led to the quick drop in prices. Because of what happened, art collectors might ask themselves if it's even possible for art to bring a return on investment:"Is buying art actually the same as saving for the future?" they may ask. Well, the answer should be, "Yes."
In [this] author's view, in order to invest well in art, investors need to keep in mind three concepts:
First, a long term investment principle. In the international stock market there are three things everyone should keep in mind, "long-term is gold, medium-term is silver, short-term is copper." This phrase is also relevant to the art market. In ancient China there was a similar thought about investing in art: "The price of land will double in five years, but antiques will sextuple in ten years." This illustrates how there will be a return on investment for works of art, but it's not an issue of "getting rich quick." It takes time, and it takes patience through a number of cycles.
Like with [Chinese artist] Xie Zhiliu's "Summit View of Golden Emei." In 1992 at a Sotheby's auction, a foreign buyer bought it for HK$340,000. At that time, this was the highest ever paid for a Xie Zhiliu work, but 8 years later, that painting was sold again at Sotheby's, and this time it was drooled over by bidders, one of whom bought it for HK$1.04 million -- another new high for Xie Zhiliu. The price of this piece had more than doubled in only eight years. From this we can see that as long as your medium- to long-term vision is good, your return on investment can be even better.
Second, you should be able to conceptualize investment in masterpieces. The art market has always had a saying: "As long as something's good, don't be afraid it won't sell high; as long as something's good, don't be afraid it won't sell low." This tells us that as long as we're investing in high-quality works, we'll always be able to sell it for a good price. From the art auction market we can see that the prices of masterpieces and average works of art are worlds apart. Just look at works by Zhang Daqian or Qi Baishi, they're worth millions of yuan, sure, but they're also worth millions of dollars. Therefore, for collectors, having the ability to select masterpieces is essential.
Third is the concept of bargain hunting. In the art market you have to "compare prices" but you also have to "hunt for gold." And although there are lots of opportunities for bargains in the marketplace and at auction, you'll miss things if your vision isn't good. If your vision is good, however, and you're intimately familiar with market prices, you might get a good deal on good works. In 1997 at auction in Shanghai, Huang Huanwu's "Lijiang River Landscape Scroll," was sold for only 200,000 yuan. Just four years later, that same work sold again in Shanghai for more than 900,000 yuan. In four short years, the price had more than tripled.
To wrap up, if you can establish a proper investment philosophy, you can reduce your investment risk while increasing the probability of profits. If you're able to do this, the idea of "art investment being equal to saving for the future" is something you can count on.