Report Says Investments in Arts, Collectibles Becoming More Mainstream

Article by Karen Mracek
The Arizona Daily Star, Tucson Knight Ridder/Tribune Business News; 5/2/2004

Putting your money where your heart is can produce favorable returns -- even if you don't have a lot to invest.
Alternative investments such as art, wine and antiques are becoming more mainstream, according to a report by Cap Gemini Ernest and Young.
And with good reason -- art has outperformed the S&P 500 Index with annual returns of 12.6 percent over the past 50 years compared with 11.7 percent for the S&P, according to the Mei/Moses All Art Index.
You don't have to invest millions to see a return. More than half the U.S. art sold from January to October 2003 went for less than $1,000, according to Christie's International auction house.
But if you can't afford Monet or Picasso, the risks are higher because the value of lesser-known works is so subjective.
" The standard mantra has always been 'never buy art as an investment,' " said Nicholas Lowry, president of Swann Auction Gallery in New York. "But investment, by definition, is about taking a risk."
That's where the passion comes in. For many passion investors, a big payoff isn't a top concern.
" It's about investing in something you are going to enjoy and live with," said Gina Teresi, manager for personal insurance for high-net-worth customers at Chubb Group of Insurance Companies in New York.
The Internet has made it much easier to buy collectibles, from fine wine and antiques to comic books and toys from fast-food kids' meals. Sites such as eBay and Yahoo help collectors and dealers find each other.
Tucson comic book collector Adrian Randall, 39, recently used the Internet to sell an Amazing Spider-Man book for about $300 -- a 40 percent profit over what he paid.
" I go to a lot less trade shows now," said Randall, a software engineer. "I have been able to find books I have been looking for for years."
Affordable art fairs -- which typically feature artwork for less than $5,000 -- are also popping up around the country.
The key to success in passion investing is the same as they key to success in investing in stocks and bonds. "You know the saying: Invest in what you know," Lowry said.
With the right combination of know-how and luck, passion investing can pay off.
A 1906 Nympheas oil painting by Claude Monet was purchased in 1960 for $50,000. It was sold at Christie's New York in 1999 for $22.6 million. That's an annual return of almost 17 percent, outperforming the S&P 500 by about 5 percentage points a year.
But few investments get this kind of return. Even the hottest up-and-coming artists could fizzle out, and their work could become worthless. The same goes for trendy collectibles like Beanie Babies or baseball cards.
For many passion investors, their enjoyment makes the risk palatable.
" It's nice to make money, but it is also fun finding the one you have been looking for," said comic book collector Randall, who says his collection is worth about $5,000.
" I don't think it will send my kids to college," he said. "But it is a hobby I would like to pass down to them."
Local artist Daniel Martin Diaz doesn't give to much thought to the long-term value of his paintings, which often have dark, religious themes.
" It's hard to tell, when someone purchases one of my paintings, if they are planning on reselling it," he said. "I really think that collectors see my work and see that it is always evolving. But the first reason they buy it is because they are truly drawn to the work."
Diaz -- who has been painting full time for six years -- thinks his work will increase in value, because he is putting more effort into each piece.
" The way things are going, my work is definitely going up," said Diaz, who recently sold a painting for $6,500.
" The prices are based on what people are willing to pay and what they have been paying," he said. "Lately, I have been doing some very high-end projects that are bringing the value of everything up."
In exchange for dividends or capital gains, investors get intangible benefits during the time they own the investment.
" The greatest value is the invisible dividends, the constant joy of having something on your wall or having it for your children when they grow up," said Lowry, the art gallery president.
Like the stock markets, alternative investment markets are influenced by forces beyond simple supply and demand.
" Following Sept. 11, the art market did well," Lowry said. "Sales grew as people were looking for an emotional investment."
Like all investments, the keys are to learn all you can about what you're investing in, and to not put all your eggs in one basket, A.G. Edwards financial consultant Bob Dorson said.
" You want to be able to have the best background and be educated about your investments," Dorson said.
Also, know that even the wisest passion investment is unlikely to pay off immediately.
" You can flip a stock real quick," Lowry said. "The art world goes much slower. Art investment is for the long run."
Timing is also important. "There is a lot of hype that may influence the market," he said. "For example, the best time to sell a James Bond poster is a month before the next James Bond movie comes out, when the hype is up."
For passion investors, financial risk may be trumped by the risk of losing the item.
" You can't protect against fluctuation in the market," said Chubbs' Teresi. "But you need to protect against the physical loss."
She specializes in insuring high-net-worth customers at Chubb, a property and casualty insurer that covers about two-thirds of the Forbes Billionaire List and about half the CEOs of Fortune 500 companies.
In addition to theft, passion investments take some money to protect and maintain.
" Any client who has a passion and is investing significantly in their passion -- whether art, antiquities, jewelry or real estate -- has to have the proper insurance," she said.
Stocks certificates can sit in a drawer, but valued assets need constant care.
" I have to spend anywhere from $2 to $50 on each book to keep it in mint condition," Randall said of his comic books. He keeps his most valuable ones in a safe deposit box.
" If they are truly passionate about a piece of art or a bottle of wine, loss control is very important," Teresi said. "If it's a Picasso or a Monet, they can't buy it again."
Passion investing has another potential pitfall: when it's time to sell, the truly passionate investor may be too attached to let a treasured item go.
" Wine investors purchase bottles because they are passionate about it," Teresi said, "and a lot of them do drink it. They enjoy going to the cellar and drinking a $2,000 bottle of wine with their friends."
Local beverage distributor Andrew McCreery, a certified sommelier and avid wine collector, grew up in a family where wine was a part of his life -- from Sunday dinner to military service that took him to a wine-producing part of Germany.
" I am not looking for a financial return," said McCreery, 37, who has more than 200 bottles in his collection. "I have sold a few bottles in the past, but I really do it because it adds to quality of life."