Guide to Blue Chip Art Investments

Investing in blue chip art can be an enticing way to blend a passion for culture with potential financial gain. While iconic works from renowned artists often hold their value and can provide long-term returns, this market also comes with its challenges. High entry costs, limited liquidity, and market fluctuations can make art investments less straightforward than they seem. In this guide, we’ll explore both the advantages and the potential pitfalls of investing in blue chip art, helping you make informed decisions about whether this path is right for your financial goals.

In the stock market, blue-chip equities refer to high-quality publicly-traded companies, organizations with an established track record and a history of delivering reliable returns for shareholders, even during down periods. Notable examples include these top 10 blue-chip stocks.

Of course, blue chips contrast sharply with penny stocks, which are highly speculative “investment” vehicles — more like gambling — that can really go either way. The allure of penny stocks, though, is their ability to get rich quickly, sometimes overnight. On the other hand, the blue chip’s calling card is its consistency and leveraging the math of compounding interest to generate wealth over time.

It’s a similar philosophy with blue-chip art investments, which refer to highly revered creations that are often associated with household names. These fine art pieces command hefty price tags, typically in the 6-to-8-digit range due to their “investment grade” status.

True, you can walk into a metropolitan art gallery and fork over an amount less than 6 digits for artwork that an unknown artist created. However, the chances of you hitting it big is very slim — akin to gambling on penny stocks.

While you may not get supremely wealthy with blue-chip art investments, they are exactly that — investments, not pot shots in the dark. Remember, you might have found someone you like at an art fair like Basel, but the collector base is overwhelming. You can avoid high art prices and buy into an art piece you love from one of the brokers you see above.

Should You Consider Blue Chip Art Investments?

Before you set out on learning how to invest in artwork, you should first consider whether the concept itself is right for you. Some folks, after spending considerable sums of money, realize a bit too late that alternative investment vehicles do not fit their overall strategy.

And this segues into another point: As an alternative platform, blue-chip art investments incorporate some concepts that are similar with the equities market. However, if your investing experience is limited only to publicly traded stocks, you will need to spend time educating yourself on fine art basics before adding this investment asset.

Finally, art as an investment features distinct opportunities and risks. Obviously, art doesn’t pay dividends or generate revenue and earnings. Therefore, many creation-based investments have somewhat of an all-or-nothing value proposition. A work of art is often seen as something art investors fight over when, in fact, art marketplaces can help you buy in with less money and either share those investments or pool your funds.

Things to Consider with Blue Chip Art Investing

Here are a few key concepts to understand before venturing into blue chip art investments.

Patience Is Crucial

Before you venture out as a connoisseur in the fine arts, you must first understand that patience is crucial. Yes, in some cases, you can make a killing with blue-chip art investments. However, it may take years before you realize a profit.

Diversification Keeps You Running

Any good financial advisor will tell you that diversification of your portfolio is critical for long-term success. As you already know, nobody in this investing business has a crystal ball. Instead, the smart approach is to spread your bets across various names. This way, you can make steady profits while minimizing downside risks.

Naturally, this concept is all the more pertinent when dealing with blue-chip art investments. Like stocks, art is a numbers game. Some pieces will knock it out of the park while others may be range-bound for years. Diversification takes some of the edge off the fine art market’s volatility and ambiguity.

Consider Opportunity Costs

Investors must recognize the concept of opportunity costs and consider it before hitting the “buy” button on fine art. Mainly, if you hold up your money in this sector, you lose the opportunity to put that money to potentially better use elsewhere.

Because some works of art may require decades to realize a substantive profit, you must engage this sector with a clear and sober mind.

Bolster Core Investments First

On a related note, prospective art buyers should really consider bolstering their core investments to a satisfactory level before even thinking about blue-chip art investments. The reason? Fine art is an ancillary market.

While there’s nothing like art to give your portfolio color and culture, this is a luxury that you should indulge only when you have established your core holdings. In other words, don’t build your house from the ceiling down.

Intensive Research

Investment advisors always stress performing due diligence before buying a stock. The same applies to fine art investments but to a much higher scale.

With popular blue-chip stocks, everybody and their grandma has an opinion on the topic. Put another way, you’ll never be short of research material and analysis from multiple sources.

But fine art remains a high brow and exclusive market despite its burgeoning popularity. Therefore, you must be prepared to do intensive research before participating in this space.

A post from Stanford Graduate School of Business in 2013 made an excellent observation. Researchers state that “you should buy paintings if you like looking at them, but not to make money.”

That’s not to say that you can’t make money. You should know, however, that arguably most people who invest in fine art have a collector’s mindset. If the piece in question doesn’t perform that well, they don’t feel an overwhelming sense of loss.

Again, the point stands — make sure you’ve established your core holdings first before diving into fine art.

Prepare for the Headaches

If you decide to buy art directly, you’ve got to realize that ownership of quality pieces will require maintenance and management. This ranges from proper storage environment, security protocols and insurance to guard against unthinkable calamities.

Blue Chip Art vs. the Stock Market

Perhaps counterintuitively, blue-chip art investments tend to be more stable than benchmark equities indices like the S&P 500. For instance, between 2008 and 2009, the global art market value dropped over 36% whereas the S&P 500 shed only 22%. However, in 2010, global fine art had jumped 44% while the S&P gained only 19%.

In the end, the S&P’s dramatic rise has provided the superior return profile. Nevertheless, the volatility of stocks could mean that future corrections may take a while to recover from. In contrast, fine art valuations stay relatively stable once it has found its price threshold.

Does a Financial Crisis Affect Art Investments?

Like any investment sector, a financial crisis is the last thing anybody wants. As demonstrated above, the global art market value slipped double digits during the onset of the Great Recession.

On the flipside, however, the premium end of the blue-chip art market may be at least partially insulated from economic downturns. When you’re at this level to fork over millions of dollars for fine art, a recession may not necessarily dampen sentiment.

Therefore, select works from blue-chip art offer a resilience that you can’t find, even among benchmark equities indices such as the Dow Jones or the S&P 500. When you’re playing with this market, you’re rolling with the biggest powerbrokers in the business — and they essentially operate in a different paradigm compared to the average Joe.

Benefits of an Art Portfolio

While building an art portfolio has many nuances and risks that you don’t find in other investment classes, this segment provides benefits that are unique.

• Individuality: It’s boring to trade with everyone else. By investing in art, you go against the grain and are able to express individuality that you wouldn’t be able to with regular stocks and bonds.
• Stability: While forecasting an individual artwork’s performance is a hit-or-miss affair, the blue-chip art market as a whole is relatively stable. As an exclusive arena, you may experience insulation from economic downturns.
• Potentiality: Though you shouldn’t engage the blue-chip art market as a get-rich-quick scheme, a possibility exists of outsized returns. That’s because of simple supply and demand: You only have so much of revered quality artwork available.
• Status: While you shouldn’t invest in a status symbol, it’s nice to have gorgeous art in your home or office that can start a conversation, beautify your world and subtly indicate your level of success.

A Viable Alternative for the Discerning Investor

When it comes to investing, fine art is the final frontier because of its cultured and exclusive status. Further, demand for quality pieces that resonate with prospective buyers can fetch a serious premium. However, do your homework. Art can provide alternative diversification for your portfolio but you should not enter this market lightly.

Frequently Asked Questions