BT MAGAZINE 2024 VF no marks 8 oct - Flipbook - Page 23
ISSUE 17
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Private Sales
Private sales are another significant aspect of the
art market, often preferred by collectors seeking
confidentiality. These transactions are typically brokered
by art dealers or galleries and involve negotiations
directly between buyers and sellers. Private sales can
offer more flexibility in pricing and payment terms and
often involve less public scrutiny than auctions. Just be
aware, private sales can often lack full transparency,
making it harder to determine the fair market value of
a piece.
Online Platforms
The rise of online platforms has democratised art
investment, making it accessible to a broader audience.
Websites and apps like Masterworks and Public allow
investors to purchase shares in high-value artworks,
providing exposure to the art market without substantial
capital outlay. These platforms offer liquidity through
secondary markets where shares can be traded,
albeit with varying degrees of ease. Online platforms’
convenience and lower entry barriers are attracting a
new generation of art investors.
Liquidity and Investment Horizon
One of the primary challenges of art investment is
liquidity. Unlike stocks and bonds, which can be quickly
bought and sold on financial markets, artworks can take
considerable time to sell, mainly if one aims to achieve
the best possible price. This illiquidity means that art is
typically considered a long-term investment. Investors
need to be prepared for holding periods that can span
several years, during which the value of the artwork
can appreciate significantly but may also be subject to
market fluctuations and changes in demand.
RISKS AND REWARDS OF ART INVESTMENT
Investing in art presents a unique blend of opportunities
and challenges. On one hand, art can serve as a powerful
diversification tool, offering potential high returns and
aesthetic pleasure. On the other hand, the art market is
fraught with complexities that can pose significant risks
to investors. Understanding these risks and rewards
is crucial for anyone considering art as part of their
investment portfolio.
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Risks
Market Volatility: The art market can be highly volatile,
influenced by trends, economic conditions, and changes
in consumer tastes. During economic downturns, the
demand for luxury items like art can decrease, leading
to lower prices and reduced liquidity.
Valuation Subjectivity: Unlike financial assets with
clear metrics, art valuation is highly subjective. Factors
such as the artist’s reputation, historical significance,
condition, and provenance all play a role, making it
challenging to determine a piece’s actual market value.
High Entry Costs: Acquiring significant art pieces often
requires substantial financial investment. Additionally,
insurance, storage, and maintenance costs can add to
the overall expenses, posing a high entry barrier for
many potential investors.
Rewards
Aesthetic Enjoyment: Beyond financial returns, art
provides intrinsic value through aesthetic enjoyment
and cultural enrichment. Owning a piece of art can be
a deeply personal and gratifying experience, offering a
sense of connection to the creative process and cultural
history.
Cultural Status: Owning high-value art can confer a
certain level of prestige and social status. Collectors
often join exclusive circles and networks, enhancing
their personal and professional relationships.
Diversification Benefits: Art investments offer
significant diversification benefits. Since the art
market often operates independently of stock and bond
markets, including art in an investment portfolio can
reduce overall risk and volatility. Art can act as a hedge
against inflation and provide stability during market
downturns.
While art investment carries unique risks, the potential
rewards—both financial and non-financial—make it an
appealing option for those looking to diversify their
portfolios and enjoy the cultural and aesthetic benefits
of art ownership.
