Whether you love or hate any sort of art, just know that it has become an increasingly attractive and democratized investment opportunity. Collectible as an asset class should be on your radar, at least.
The value of art, a connection to the past
The rightmost column shows you an asset class called ‘’collectibles’’. Those types of assets usually have tremendous value because first they are rare, and second, they link us to the past. A sword used on the Waterloo battlefield by Napoleon himself, contains a cultural heritage that tickles the interest of the highest bidders around the world because the past is somewhat mystical, somewhat vibrant, and entirely part of the present.
Fine Art is one such example, a collectible that binds us to a meaning of the past, to a figure not so far removed—after all if you have a Picasso in your possession, is he not part of your life? Does his stroke not weave threads into your reality? On a side note, we have become increasingly interested in art lately as a finance world because of NFTs, tokenized digital assets which contain value, which express a time stamp of the past.
A greater societal debate currently crawls in the very chasm between rich and poor, old, and new, tangible and intangible. As though each former terms were synonymous, the very lens by which we understand these differences to be true are become increasingly more blurred by technology. At the end of the day, aren’t both the right side and left side digital now?
Companies that leverage technology to sell art
However today, the mystic of Art is not only shared amongst the most elite of us, but enjoyed by a growing class of buyers. Different platforms now enable buyers of most ranks to gain exposure to some of the world’s most prized possessions. The company ‘’Artsy’’ enables buyers to acquire art directly through their online marketplace—a sort of eBay of contemporary masters. You now have easy access to Basquiat, a Haitian American graffiti artist for $40,000.
Artnet.com is a similar competitor, granting you the ability to buy and sell art. They additionally offer visitors market research tools enabling them to become increasingly aware of the market’ knocks and crannies. The era of data is becoming increasingly more useful for every market participant.
And lately, one stand out company has come out on top of all others to create the closest thing to a blue-chip artwork stock market, Masterworks.io. The image below shows you what their US based secondary market looks like. They appear to offer retail investors shares of famous artwork at a fraction of the work’s price. Yes, you can now trade art like you do shares of Tesla.
It is a funny exercise to think of art as an investment because Art does not really have cashflows to discount and run models off of. However, one could see Art as bond, with a lump sum balloon payment in the form of a large sale in an undetermined future time frame. When the Art is sold from one owner to the next, a new price is set, in which the value is either sold at a premium or at a discount to the previous market rate.
Art and investment returns
Why are we even talking about this? Because there are some juicy returns tied up to Art, seen in the following display that we extracted from Deloitte’s latest report on Art Investing. The annualized standard deviation you see on the right column is equivalent to risk, or the rate of change in the asset going up or down. Volatility is also a good signal for trading, with the volume follows that is. In other words, you would prefer a liquid market to trade in because then you have more liberty around the timing of your exits.
You know the past returns, now what do we know about the current trends for further research? Two trends have been made more apparent in 2020. Women artists and artists of color remain highly sought after, with a corresponding increase in prices. In the Art world, the present is female, as opposed to the future. Furthermore, the greatest portion of the demand seems to be coming from the East. Asian buyers and noticeably younger ones are entering the contemporary art sector with a rising figure of online art sold. The digital marketplaces we explored above, could prop up the art scene as we migrate out of the pandemic and increase the number of channels, and buyers.