OPINION: PAI puts its ‘stamp’ on art investment

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Lost in Thought: Sotheby’s sale estimate is set at $45,965 to $59,098.

We at Private Art Investor are not here to dictate or even influence your tastes in art. We are neither culture vultures nor promoters of this, that or the other sale of art works. Our aim is to offer insight into the finances of the art world and to feature the views of key opinion-formers with news and views that can inform your investment decisions. We focus on the costs of acquiring, owning and eventually selling a work of art or a collectable. Do the returns on art investments match up to those of others?

Please bear with me if I divert for a while from the purity of art to the world of collectibles – philately. Let’s just step back to the recent history of a small scrap of faded paper – perhaps the most-costly piece per square inch of paper anywhere in the world – the 1 cent, black on magenta 1856 British Guiana postage stamp which is noted, but not priced in Stanley Gibbons’s catalogues. That’s hardly surprising – there’s only one copy known to exist and it rarely changes hands, having lain in an air-conditioned, black vault during the decades between its last and last-but-one sale.

What of return on investment?

But what of the return on investment? In 1980 chemicals heir John du Pont bought the stamp for $935,000 pus a 20% buyer’s premium – so $1.12m in total. Soon. Du Pont was in gaol for life on a murder rap. He died in prison. In June 2014 the stamp emerged to be sold for a hammer price of $9.5m or $8.3m for the seller after commission. It didn’t reach the expected $10m. Take a look at the report by AP and the later ones by Linn’s Stamp News and CBS and calculate that’s a rise of 640% over 24 years for the Du Pont estate. Sounds good doesn’t it? But return to earth and it represents a compound growth rate of about 13%, and that’s before knocking off the cost of insurance, storage and the income and so on. By then, the annual compound rate of return is probably at best 6% or 7%. And remember, we are talking about the rise in price of a unique and irreplaceable object that probably only strikes a chord with postage aficionados.

Unique and irreplaceable

With real art it could be a different story, particularly when works are held in private collections for years with purchase prices “lost in the mists of antiquity”.  Less lost is the price of a painting Lost in Thought by the Danish artist Carl Holsøe coming up for auction at Sotheby’s next week Wednesday (December 11). Take a look at the Sotheby’s website where the sale estimate is set at $45,965 to $59,098 (£35,000 to £45,000). So, assuming the hammer falls at the mid-point, the seller will collect about $44,650 (£34,000) after commission.

The owner bought the picture in 2012 for $17,817 (DKr 120,000) plus 20% buyer’s premium, so, $21,380.51 (DKr144,000) or, give or take a few quid, $21,668 (£16,500). If the seller now collects $44,650 (£34,000) the compound annual price gain would be about 10%. The owner would have had the pleasure of looking at the painting all those years but, in the meantime, would have been paying 5%-odd for insurance and other costs each year.

All of which might make me appear to be the cynic of whom, Oscar Wilde wrote: “… knows the price of everything and the value of nothing.” Well, throughout this article I’ve tried to focus on investment in art – financial investment, not emotional or aesthetic. Perhaps my excuse is that I’m not swayed by the headlines and news reports that tell of record auction prices but that ignore the pieces of art that don’t sell.