Buttonwood writes in The Economist about new innovations in art investing. It seems that art indices have exhibited returns roughly equivalent to that of the S&P 500 over the past 50 years and hugely outperformed the S%P 500 over the past 5 years. But the main attraction of art is that it is completely uncorrelated with stock prices. Makes for good diversification.
Another point to note is that the market for art is inefficient. So the potential exists for big profits (and big losses).
As I was reading the article, one downside popped into my head. Buttonwood says it better than I could:
Buttonwood is all for diversifying portfolios, and thinks art is at least as jolly as pork bellies. But there are a few worries. One is that no matter how sophisticated the portfolio analysis used, it is simply not possible to discount mathematically the chances that Damien Hirst’s polka dots are going to appeal more in 20 years than Jeff Koons’s dinner plates. And this market, with more than $1 trillion in assets, is virtually unhedgeable.
So perhaps the moral of the story is that one should invest in art for pleasure first and profit a distant second. I don't think this is going to dissuade too many people though. Buttonwood refers to the popping up of funds that securitise art investments to make it accessible to the ordinary investor. The entry fee might be as low as $50,000. That sounds pretty scary.
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