A Personal Analysis About the Valuation of Art: Part 3
“I don’t know much about art, but I know what I like.” That old chestnut says it all. What “I like” is a highly individual sensation based on personal taste, experience, memory and emotional make up. “Value” has nothing to do with “like.” If the art passes the “like” test, the value is established by exchanging treasure with the owner or creator of the art. Some of the things we like the best – an incredible view just before sunset, a full moon over Santorini, are priceless and free (sort of) at the same time. Only art made by humans is traded for money.
We are drawn to art that sells for huge sums because we are conditioned to believe that the most expensive is the best. Da Vinci’s “Salvatore Mundi” is rare but it is only the egos of the Crown Prince of Saudi Arabia and the last defeated bidder, and the value of vast oil reserves says it is worth over $450 million. The “quality” of an art piece is set by the opinion of active collectors and their advisors but the value is set by the aggregated amount of discretionary cash available at the moment of sale. Small wonder that the best art collections were built during and after the “Gilded Age,” when wealth was abnormally concentrated. It should not be a surprise that contemporary art prices have been increasingly stratospheric as economic prosperity has grown and considerable personal fortunes accumulate in the first world economies.
I also believe that speculation drives art markets. Collectors and dealers clearly acquire art not only because they “like” it, but with the expectation of appreciation in value. Beside the issues of Supply discussed in Part 2, there are various aspects that should be considered when making a significant art purchase. These include verifying the provenance for any piece that relies heavily on the reputation of the artist for its value. The “60 Minutes” interview with convicted art forger Wolfgang Beltracchi is a classic. After serving his sentence, Beltracchi was asked earnestly by the interviewer if he thought he had done anything wrong. “Yes”, he replied without irony, “I used the wrong Titanium White.”
It is important also to consider the context upon which the demand for a work is based. Artists can use their work to make statements about political and social issues, which are widely appealing to buyers at the time. However, if these issues lose relevance, interest in the work declines, along with its value.
Buyers should also be aware of the promotion efforts of artists and dealers. Many successful artists are great promotors and experts at building a personal brand. As a collector, getting to know living artists personally is an important part of assessing their potential and the long term recognition of their work. In the world of art distribution, the endorsement of well-known galleries and dealers can vault artists into the limelight. These endorsements may not be lasting or made in good faith.
In conclusion, astute and well connected buyers and sellers find that art can generate financial returns. However, the less adept find it can have very large transaction costs and little liquidity. View it like a more enjoyable form of Venture Capital.