INVESTINGObject Lesson for an Unstable Market
Charles V. Zehren gladly accepts e-mails at zehren @newsday.com
September 29, 2002
So it's time to diversify our portfolio. Let's see. There's stocks, bonds, cash and, oh, how about an original Eames chair?
With confidence in the financial markets waning, and "nesting" in vogue, more people with money to manage are dabbling in antiques and other art forms in hopes of preserving their capital and enhancing the quality of their lives. Yet, while it can be financially and psychically rewarding, long- term investing in tangible objects poses a unique set of challenges.
"People are not so much shifting into a new asset class as they are telling themselves that the stock market has not worked out for them," said Sharla Bailey Kidder, president of Biddington's, the Manhattan- based online art and antiques auctions and contemporary art gallery. "They have a nice place to live, they buy something they like, and they feel that it at least will appreciate in value while they enjoy it."
Falling demand for some high-end art and antiquities at auctions in New York over the past few weeks has some dealers concerned that the slowing economy may drag down prices.
But more and more these days, investors are "pulling the trigger" and buying tangibles, whereas a year ago they were waiting, Kidder said, noting that Biddington's buyers typically invest in pieces running in the $2,000-$5,000 range. "Buyers today are viewing objects as less of an indulgence."
Similarly, Kenneth Leahy, vice president of Manhasset Galleries, said stock market jitters are driving more clients to consider making a purchase.
Antiques sales posted a "significant increase" between October and May, slowed over the summer, and increased - especially for higher-end investment pieces - in the last month, Leahy said. "Our clients aren't taking that trip to Rome," he said. "Instead they're putting money into their homes."
New York University Stern School of Business professor Michael Moses and other experts told me there's no accurate way to closely track how antiques as a group have performed vs. stocks and bonds over time. That's because most antiques don't come with records of prior sales.
Nevertheless, experts say that anecdotally, at least, prices for a broad array of pieces are rising more and falling less than the Dow and the S&P 500 index.
Further economic instability could stem demand for fine art, said Jori Finkel of Art & Auction magazine in Manhattan. "If people are scared, they won't be spending their money on anything," she said. Still, Finkel said, there's no sign of a slowdown at this time.
Manhasset Galleries is moving grandfather clocks and 18th and early 19th century British timepieces, French inlaid furniture from the 1850s and 1860s, as well as early 20th century chandeliers and French chateau fixtures, according to Caroline Gambassi, who owns the business with Leahy, her son, and her husband, Robert.
Finkel said colorful design furniture from the 1950s remains popular, with many pieces priced under $20,000. Reuters recently reported that fine violins - now running in the $1 million-plus range - have turned out to be among the best investments of the past 30 years, with some Italian instruments appreciating 10-12 percent annually since 1960. And other dealers cited interest in 18th century English furniture, century-old faux bamboo, Stickley and Charles Eames pieces.
"Even before the stock market fell, people were starting to get edgy. The thinking was, if it's time to diversify, it's not illogical to consider art and antiques," said Moses, who's also the author of "Master Craftsman of Newport" (MMI Americana Press), which, appropriately enough, is itself an out-of-print antique that dealers are now selling online for about $800.
On the other hand, investment returns on quality paintings are easily quantifiable, according to Moses, who, along with his Stern colleague professor Jianping Mei, maintains the Mei / Moses Fine Art Index, which tracks artworks sold and resold at auctions (www.mei mosesfineartindex.org).
From 1875 to today, art has underperformed stocks and outperformed bonds, but since 1950, art and stocks have posted about the same rate of return, Moses said. Research shows high-priced works generally appreciate at a slower rate than low-priced works.
The most recent reading of the art index shows that while art values have fallen slightly in the last two years, they have not fallen as much as the equity indexes. Moreover, the downturn in art prices followed the downturn in equities by about six months.
Investing in antiques can mean bidding at Sotheby's, Christie's, and Doyle New York in Manhattan; Northeast Auctions and Skinner in New England, or perhaps Thomas Cornell Galleries Ltd. in Patchogue. Keep in mind that there are seasons to the antiques market, with the New York auction season running from September through June. Some sales of European pieces take place in London during the summer.
Sure, it may cost more, but it may pay for beginners to work with a local dealer they trust. The magazines Art & Auction and Art & Antiques are extremely helpful, as are the books of Albert Sack.
Fakes and frauds are a problem. And be aware that when investing in antiques, the value of a piece can stabilize or decline if tastes shift among collectors. That's because appreciation of antiques has a lot to do with scarcity or a new generation of collectors embracing certain types of objects.
Also, unlike investing in securities, it takes many years to amortize the transactional costs of buying antiques. Commissions paid to antiques dealers and auction houses typically run high. "Over time it works out, but there's nothing quick about this type of transaction," said Joel Groover, associate editor of Art & Antiques magazine in Atlanta. "You have to really love the piece and understand it to buy it. Let the object itself, not the financial aspects, drive the whole decision. If you get into it solely for the money, the experience can be tough."
Kidder said Biddington's advises its clients to buy the best items they can afford. Also, stay abreast of trends and look for pieces that come with a compelling story and an intriguing paper trail of ownership, or "provenance." Try to buy "typical" objects for the genre that are small in scale, signed and in perfect condition. In most cases, you can get written condition reports on pieces and more extensive information than offered in the catalogs.
As with anything else, don't buy at the height of fashion and consider selling an object if it starts showing up in mass media. Once you own an object, keep it in perfect condition, including storage containers and boxes. Learn all you can and specialize, some experts advise. And don't believe what you see on TV. Most of us don't have hidden treasures in our attics .
"Buying at auction is not rocket science," Moses said. "Just pay as close as you can to the low estimate. And don't chase a price unless you've become a real expert and managed to discern that what you've discovered is a diamond, and not a stone."
On balance, Moses said, it's worth considering buying a less-than-perfect piece if it is unique and could be in demand in the future. "Pristineness is often discounted in the price," he said.
Charles V. Zehren gladly accepts e-mails at zehren @newsday.com
Copyright © 2002, Newsday, Inc.
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