The creative economy is vital to South Africa as it promotes economic vibrancy. The creation of art is an inspiration to what we as human beings are capable of and brings joy, colour and appreciation to our homes and lives. The South African economy has been severely impacted on the back of the Global pandemic, higher inflation as well as the Russia Ukraine war, with many large corporates seeing reductions in revenue as well as having to make cuts to their labour force. The creation of art is entrepreneurial, requires talent and execution but not fixed office space. The cultural and creative industries are increasingly recognised as drivers of economic growth and development with an observatory mapping study showing the creative industry employing just over 6% of the national workforce. There are two reasons for the acquisition of art:
Art as an alternative investment:
Art is considered one of the main alternative investment categories alongside property and classic cars. Alternative investments like art have increased in popularity due to the volatility the markets have experienced. The main reason being that alternative investments like art have low correlations to the equity market, meaning the asset class moves in different directions to the market assisting to diversify portfolio risk.
Like all investments however, due diligence and understanding is needed to select that piece of art that will increase in value over time. Deciding on which art piece to invest in will require a decent knowledge of the artwork and artist. The use of a professional opinion is used by many successful art investors and should always be considered.
Art as an investment class can be very lucrative as the prices are determined by what someone else is willing to pay. Acquiring a new artist's piece can be viewed like a company's Initial public offer (IPO). Investors do not know much about a company on IPO or what the market demand of that share will be, however, should there be a demand then so that share price will increase. The same can be said about new artists and their work. If you see value in the piece and most importantly will get enjoyment out of it, then you are investing with a vison that the art world will also grow to appreciate the work and demand will increase the price.
Typically speaking an investor looks for rarity in the alternative investment market. The rarer the asset the higher the demand, the higher the demand the higher the price. Deceased artists will always fetch the highest price, as the pieces in the collection are now limited. Investing in art requires time, patience, and a long-term vision. It is always suggested that an art investor not buy anything they are not prepared to hang on their own wall.
Who can invest in art?
There is a misconception that investing in art is for the super wealthy. This is like saying, is investing in the market only for the wealthy? Or is investing in property only for the wealthy. In the market you have exceptionally wealthy individuals investing billions of Rands and making large returns, but this does not mean the smaller investors cannot grow his or her funds as well. Like investing in the market, there will be art pieces that require millions of Rands to acquire, however their will also be pieces that are more affordable and offer investment upside as well as enjoyment.
Finding that piece of art will mean searching through antique stores and online art exhibits to find a piece that is being sold low now, that you believe will appreciate. Recently a painting of Christ by Leonardo da Vinci sold for $450 Million dollars. 60 years earlier that same painting was sold at auction for 45 pounds. Although an extreme example, pieces can be bought and held for decades, generating significant returns. Like quality investing on the stock market, long term art investments that show signs of talent, rarity and enjoyment should be acquired and held for the long term. Pieces held for more than 50 years will mean a possible deceased artist and an increase in value as a result of the limited edition.
The journey:
Building a long-term art investment portfolio, is like anything else in the investment world. It requires knowledge, time, and patience. The best advice for South Africans looking to invest in art is to educate themselves before investing. It is never wise to invest in any asset class without fully understanding that class first. New investors should spend time reading up on the art world, attending some online lessons and try and find a mentor in someone that has been investing in art for a while.
Investors need to look for quality and not quantity, finding that right piece could take years but produce significant investment returns. Cheap is not something to look for in the art world, cheap pieces generally do not increase in value. Like anything to buy quality you may have to increase your budget.
Never ignore the enjoyment factor. The beauty about investing in art is that you can enjoy the asset itself. Chances are if it brings you joy, the probability of return increases. Finding that piece you enjoy is the first step in finding success in the art world.
In closing:
Like any investment class, the art world is something you can always learn from and continually educating yourself will help you become a better and more successful investor. Attend gallery exhibitions and museum seminars and examine pieces of art that have appreciated in value over the years.
