Nofie Iman

A friend of mine wrote about “art” which is sometimes work perfectly as an investment vehicles and give us far better result than cash. The idea itself was so simple. Something is far better than cash when its value stays the same while inflation dilutes the value of money (cash). When something actually increases its value when inflation dilutes the value of money then such a something is far-far better than cash.

You can, of course, buy any kind of art work imaginable through auctioneers and don’t have to have a major fortune to do so. And the transaction costs are pretty reasonable. Although I haven’t bought anything from them in 20 years and don’t remember offhand if I paid a buyers premium the last time I did so or not, though typically the seller pays most of the transaction costs.

Art dealers and galleries keep telling the public, and especially their buyers, that “art” is an investment, specifically their art. What is the mathematics?

Before the mathematics let us examine the art that galleries sell. Art dealers and galleries make their money selling art that can be preferably mass produced by their artists so lots can be sold, at inflated prices. Artists that take time to produce their originals do not, as a rule, fit the formula that art dealers need to make their money.

For their formula to work galleries need fads and gimmicks. Unless these fads and gimmicks take off into the mainstream of history, however, they will fade into oblivion with the galleries that pushed them, with their artists and their fads and gimmicks. There is another story to this formula of fads and gimmicks. Only when fads and gimmicks take off into the mainstream of history can they benefit the buyer. But only if they purchased the artwork of those artists that were first connected with the fads and gimmicks. The artwork of the artists that follow fads and gimmicks simply fade into oblivion with their artists, galleries and their gimmicks and fads.

What is the mathematics of investing in art purchased from galleries? The rule for investing in art purchased from galleries is a word called: quadruple.

Most galleries make at least 50% commission. Today many popular galleries are promoting the art of Russian and Chinese immigrants but only because they can exploit them with commissions far beyond the ordinary 50%.

So if the buyer purchases artwork from a gallery its price has to double before the artwork is worth the paid price. The way around this 50+% commission is for the buyer to take the time and effort and buy directly from the artist.

For an investor the gallery does not determine the value of art only the selling price. For an investor the real value of art is what the artist gets paid. The economics of investing in art: the owner of a piece of art is not likely to sell it for more than what the artist can sell it to a gallery.

So the rule in investing in art, purchased from galleries, is that when the price quadruples the buyer can then sell it through a gallery and get his money back, minus inflation –- IF HE CAN FIND A GALLERY that is not preoccupied with gimmicks and fads that exploit Chinese and Russian immigrants.

Buying the originals of illustrators has no formula, and little mathematics. Illustrators get paid for doing their illustrations/artwork by their agents. So when illustrators can keep their originals then anything they get from selling them is usually just a tax-free bonus. And so they often sell these originals for less money than they got paid for creating them in the first place. There is a story that when Norman Rockwell was well established, with The Saturday Evening Post, he would sometimes sell, and even give, his originals to younger less-successful colleagues as a kind gesture. These Norman Rockwell originals, which he probably sold for less than a few hundred dollars, have made some of these younger less-known — and some even unknown illustrators — far more wealthy than Norman Rockwell was.

The originals of those illustrators who have made history are beyond the reach of ordinary buyers. These originals will rarely if ever find their way into galleries for the simple reason that their owners know that what they have is far-far better than money.

When illustrators are firmly established in history then there are, and there always will be, all sorts of buyers who will pay cash for their originals so that not only does the seller not have to pay galleries their 50+ % but the profit is often, legally or illegally, tax-free.

This is the main reason the average person will never see the original illustrations of N.C.Wyeth, Norman Rockwell, John Clymer, James Bama, Howard Terpning, Frank Mc Carthy, Fred Otnes, Mark English, Michael Deas… for sale: because these originals work far-far better than money.

The simple fact is that illustrations can often be sold and resold for cash, and thus tax-free, until the IRS discovers that they exist, but only because they are officially sold.

And there are few good reasons to sell something — officially — as long as it is far-far better than cash.

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