Seeking Alpha, an investor advice site, just ran an article on the pros and cons of investing in art. The most important part of the article is the chart below outlining the way art is not correlated to other assets. The article goes on to offer some caveats to the investor that suggest those seeking return in art may be have to shed a little naivete:
It’s axiomatic among commodities investors that diversification – particularly uncorrelated diversification – is a good thing. Art is remarkably uncorrelated with traditional assets, and is negatively correlated with bonds and U.S. equities over the last 25-30 years. This alone makes it worthy of consideration for investment:
Correlation 1980-2006 (General Art Basket)
MSCI World 4.7% MSCI US -3.2% GSCI 9.1% 10-yr Treasury -3.0%
[ . . . ] The rare asset and art markets look deceptively simple. In reality, these markets are exceedingly complex. Imagine the pink sheets, the OTC market and the Nasdaq rolled up in one. Now imagine them without transparency. These markets are private and dominated by “moms and pops” with the exception of the major auction houses.
And bear in mind that creating a collection is an organic process. It takes time to identify the work and it is usually acquired on a piece-by-piece basis. [ . . . ] But recognize that this is a market dominated by full-time insiders, and even with the assistance of an art adviser, conflicts of interest are common. Inter-dealing is prevalent, so some art advisers may be steered to certain galleries where they get a “kickback.” On top of that, they may charge you a retainer and a percent of the sale. [ . . . ]
The art market is not for the casual investor – it requires diligence, focus and a willingness to step outside the confines of regulated exchanges. But for that very reason, it represents an uncommon opportunity.
Appreciating Art as an Asset (Seeking Alpha)