John Sartz is a Toronto investment manager with a taste for art. In the Financial Post he offers this sound and sensible unpacking of some of the jejune claims that art is an investment vehicle:
I recently read a dissertation on the subject of investments in art quoting an art dealer, a purveyor of art funds and an executive of an auction house. If the objective was to find an unbiased group of observers, the author of the article could perhaps have done better.
The auctioneer claims that the value of Canadian art increases by about 15% a year. As evidence he claims that had you bought an A. Y. Jackson 15 years ago for $5,000 it would be worth $35,000 today.
Now, I have not quit my day job to devote my time exclusively to Canadian art, and I bought my first A. Y. Jackson only 11 years ago. However, I am fairly certain it has not appreciated in value by 15% a year. (Incidentally, if one had purchased a painting 15 years ago for $5,000 and its value was now $35,000 the annual increase would be less than 14%, not 15%, but the auctioneer can be forgiven, his expertise is art, not arithmetic.) [ . . . ]
Hammer price $5,000, 20% buyer’s premium to the auction house, add GST and PST and you are out of pocket $6,780. Fast forward 15 years and sell for $35,000, less commission. When taking into consideration frictional costs, your annual return is 10.8% rather than the advertised 15%. If you sell after five years, the annual net return is a measly 4.9%. [ . . . ]
The next time you are offered an opportunity to purchase alternative investments promising high returns with low risk, make sure the historical performance can be verified, and remember that the risk is likely underestimated.
Art Dealers’ Rosy Picture of Returns (Financial Post)
