Investing in art is a long held tradition that can be equally risky and pleasurable at the same time.Â First, collectibles have no fundamental value nor do they generate revenue. They also do notÂ have an established an authoritative market price, since the only way to find out a work of art’s market value is to sell it.Â Secondly, art is highly illiquid and subject to high transaction and maintenance costs. And, thirdly, they are more exposed to changing tastes and market trends.
Collectibles are a long-term investment made first to gain pleasure and only secondly to make a financial gain.
One of the difficulties managers face is asset valuation. No two artists are alike and no two works by the same artist are exactly alike. Compared to equity, classic cars or watches, art is still difficult to value, because every work of art is completely unique. Therefore, appraisal is subjective and factors such as the history of owners, exposure and publication, sales history, rarity, quality, importance and beauty, the latter being the most emotional elements all influence the prices.
However, in the long run, the profitability of art may in some cases be higher than that of fixed income.Â Art, therefore, can be included in a portfolio as a more long-term asset. Art also has some value as a risk diversifier. Other variables to consider is the subcategory in which the work is categorized. Latin vs British for example, or contemporary vs classic.
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