Art is a terrible investment. Most art declines in value faster than a car, which loses a huge portion of its value the second you drive it off a lot. But given that bluechip art sometimes sells for many millions of dollars, someone made money off it. The world of investing likes to find ways to invest in assets that previously were not available to people to invest in. They figured out clever ways to turn your mortgage into bonds, and crashed the economy in 2008.
That seems to be sort of what masterwork.io does. I mention them because they have been flooding podcasts I listen to with ads. It irritates me to hear Molly Jong-Fast or Mike Pesca reciting the masterworks pitch. Masterworks buys artworks, securitizes them, holds them for a few years and sells them later. Their pitch can be summed up by this graph.
I could show you graphs that show how bad an investment in art is. I could also point out that when you invest with masterworks, you don’t actually get any art to look at. I could also make a moral argument—enjoying art means seeing it, not owning a fractional share of a masterpiece stored in a freeport. I could point out the huge level of risk involved in any art investment.
Art may be a “good investment” if you somehow pick the right artworks to invest in. But why? Why have blue chip art prices climbed so much? I think for the answer that you have to look beyond art. You have to look at the market for art, especially blue chip art. Who buys this stuff? Rich people.
This graph from the World Economic Forum shows why there is an increasing market for art. Art is a luxury good—a classic Veblen good. So if you want to invest in blue chip art, you have to ask yourself three questions:
1. Do you believe that wealth inequality will remain high in the future? (If yes, art might be a good investment.)
2. Do you believe that art will continue to be a reputation enhancer for the ultrarich? (This is the fashion question, but I feel pretty confident that it will continue to be a status symbol because it has been for the entire history of capitalism. However, as you surely know if you invest, “Past success does not guarantee future performance.”)
3. Do you believe masterworks.io is good at picking winners?
Short of a communist revolution, an environmental disaster, or a global war, I think the answer to question 1 is “yes”. Question 2 is a little more iffy, and question three is a total crapshoot.
To me, that is an unacceptable level of risk. But capital is always looking for a new place to put its money, so I suspect that this type of investment will continue. After all, millions of people are investing in imaginary money (i.e., crypto). The giant pool of money that is capital will always slither into some new fad, however irrational.
It’s simplistic to say it, but I think the contemporary art market reflects the economy in general. A handful of artists sell work at huge prices, and the others scramble for crumbs. Wealth flows upward. One percent runs it all.