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Investing In Fine Art - Part I
Posted by Graphica on 9/19/2007 4:56:05 PM (ET)
Filed Under: General
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Ronald Lauder paid a whopping $135 million for a Gustav Klimt original painting entitled “Adele Bloch-Bauer I”, the highest amount ever paid for a painting. The portrait, of Adele Bloch-Bauer, the wife of a Jewish sugar industrialist and the hostess of a prominent Vienna salon, is considered one of the Klimt's masterpieces. For many years, it was the focus of a legal battle between the Austrian government and a niece of Mrs. Bloch-Bauer who argued that it was seized along with four other Klimt paintings by the Nazis during World War II. In January, 2006, all five paintings were awarded to the niece.

Fine Art Collectors like Ronald Lauder acquire paintings for prestige, status, and a passion for collecting original art. But at these prices, fine art certainly represents an enormous investment. So, the million-dollar question arises: Is fine art a good investment?

For several years, two professors at New York University's Stern School of Business, Michael Moses and Jiangping Mei, have been gathering data that allows them to track the long-term performance of fine art. The Mei Moses index focuses on renowned artists whose works command significant prices at art auctions.

As their most recent findings shows, over the last 50 years, stocks (as represented by the S&P 500) returned 10.9 percent annually, while the art index returned 10.5 percent per annum. And in the five years between 2001 and 2005, fine art crushed stocks in performance. Not all art performs equally and like stocks, art is susceptible to fits of irrational exuberance! In recent years, old masters haven't done so well, while American art before 1950 has been soaring—up 25.2 percent in the past year.

There are clear differences between Salvador Dali original paintings and AT&T shares. Fine Art is far less liquid than stocks. You can't simply push a button and sell an original Dali tomorrow. Moses found that fine art actually has a very low correlation with stocks and a negative correlation with bonds. In other words, it's a good portfolio diversifier.

One of the grand ironies of the art world is that artists rarely benefit as the value of their work appreciates over time!

Gustav Klimt's 1907
Portrait "Adele Bloch-Bauer I."
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