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The art of investing: With stocks in crisis, art may add to portfolio

By   /   Wednesday, November 26th, 2008  /   Comments Off on The art of investing: With stocks in crisis, art may add to portfolio

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Stocks, real estate and oil prices have tumbled week by week, making any sort of investment look risky. But for those interested in putting their money into something that brings them daily happiness – regardless of how the financial market goes – art might be it.

Like many of its portfolio friends, the art market has seen a drop in demand, as people cling to whatever funds they have left. As a result, once-inflated art prices have started to settle back to their actual value, said Richard Carthew, managing partner at New Renaissance Art in Beverly Hills

Almost exactly a year ago, New Renaissance held a seminar at the Santa Barbara Museum of Art about investing in the art market. At that event, two different art experts shared their thoughts about diversifying one’s art portfolio and the advantages to investing in something more tangible than stocks or bonds.

But since that seminar – when the Dow hovered around 13,000 – the financial markets have been turned on their heads, leaving investors wondering if anything’s safe anymore. Carthew said since the first market jitters in July, he’s seen an upswing of interest in what his gallery has to offer.

“If you’re buying quality and you’re buying brand artists, blue chip artists, you’re in good shape,” Carthew said.

Like any market, prices depend on supply and demand. Several local galleries have said that business has started to taper off and prices for local and contemporary art may start to go down with it.

“You know, I think at this point in time if you’re looking at art sales, they’re down tremendously now,” said Muara Johnston, assistant director at the San Luis Obispo Art Center. “Are prices down? No … artists may be willing to drop their prices, but in general, galleries set those prices.”

The Art Center is primarily an exhibition and educational space for local artists. In October, it was a sponsor of the city’s Plein Air Painting Festival, which Johnston said saw “considerably less in art sales” than usual, though prices remained steady.

Johnston said one of the worries about lowering prices is “it’s very hard to bring them back up.” She recommended, however, that if an artist is not well-known, it would be smart to drop prices to generate sales in today’s economic climate.

Diane Waterhouse, co-owner of the Waterhouse Gallery in downtown Santa Barbara, said beyond its potential financial rewards, art is more fulfilling than other types of investment. And as demand drops off, people interested in buying art should see it as a window of opportunity to get what they love at a good price.

“I had a gentleman come in last week … and he wanted to buy a painting to cheer himself up – it’s something you see every day,” Waterhouse said. “A portfolio going up and down – it’s just a piece of paper.”

Waterhouse, a self-proclaimed “artoholic,” said sales are a little lower than they were last year but people are still buying art. “I love paintings. I wear a $20 ring from Macy’s because I can’t rationalize spending money on something I could lose,” she said. “But I could rationalize spending money on a painting because paintings make me so happy and they’re so wonderful. There are just so many great artists out there.”

Carthew said the best market right now is the one his business deals in: modern art. “We’re doing fine, mainly because when there’s trouble in other sectors of the financial marketplace, and as we are looking at a deep recession, people are pulling their money out of the stock market” and investing in art, he said. One of the examples he gave was a Juan Gris oil on canvas that sold for nearly $21 million at a Christie’s auction on Nov. 6 – the same day the Dow plunged about 500 points.

Carthew warned, however, that “you can’t just buy anything and expect it to go up.” He said that the fall auction season showed that contemporary art markets – ones where the artists are still living – have taken the biggest hit. “But they’ve showed some of the biggest gains over the last five years,” Carthew added.

Many of Sotheby’s and Christie’s biggest buyers, however, have taken a beating in the stock market and have pulled back from big art investments in recent months. On Nov. 14, Sotheby’s, a public company, reported it lost $28.2 million from guarantees at its contemporary art auctions that week, bringing its total losses to about $52 million this quarter, according to The New York Times.

Sotheby’s stock price has plunged from a 52-week high of $41.86 to just $8.46 Nov. 21 – a nearly 400 percent drop.

Carthew recommends keeping a diversified portfolio with about 5 percent in tangible assets, such as art, as was recommended at the seminar in Santa Barbara last year.

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