ARTicle

THE PHYSICAL POSSIBILITY OF CONFIDENCE IN THE MIND OF SOMEONE BAFFLED BY THE MARKET

 5 August 2008

 
When considering the Contemporary Art market, one has to admit that times are interesting indeed. Art dealers, like everybody else, are finding business very different to, say, eight months ago. The reasons are well-known: financial institutions caught in a debt trap of their own making, property and stock markets down by large percentages and industrial uncertainty. 

Sponsorships of art and art events have all but disappeared and although art fairs still record large visitor numbers, sales have slumped, turning them into promotional more than selling events. Auction houses, whose aggressive pace and (in retrospect, reckless) guaranteed pricing, had contributed to the unprecedented growth in the market, are now experiencing mixed fortunes. ArtTactic Art Market Confidence Indicator, which ‘measures’ international investor sentiment, dropped sharply in November 2007, but has now stabilized at a roughly 50-50 mix of positive and negative attitudes in Contemporary Art markets worldwide. Some commentators take September 21, 2008, the day Lehman Brothers filed for bankruptcy, as the day the markets ‘crashed’. Coincidentally, this was also the day of Damien Hirst’s famous solo auction, where 218 out of 223 lots were sold for a total of around 200 million pounds. This means the same day can be commemorated as the day contemporary art convinced the world of its investment value, outstripping almost any other asset class. 

Is the glass half full, or is it half empty? The answer each individual investor has to this question, will dictate how he/she proceeds in today’s market conditions. 

Walter Battiss 77x103 cm
12 000-18 000 POUND
SOLD 60 000 (R870 000)

Alexis Preller 66x76 
40 000-60 000 POUND
SOLD 132 000 (R1.9mil)

Maurice van Essche 42x70 
12 000-18 000 POUND
SOLD 39 600 (R574 000)
A recent article by Ben Lewis and Jonathan Ford in Prospect Magazine (prospect-magazine) is a fine example of the 'half empty' mind-set, the kind that spreads panic in the minds of collectors and havoc in the marketplace. Lewis and Ford argue that the boom in art markets worldwide during the early 21st century displayed all the hallmarks of a classic investment bubble. They liken the contemporary art market to the 17th century tulip craze or the 18th century South Sea share trade. Predictably, they forecast a similar disastrous ‘deflation’ or ‘crash’ to the current art market. Not only do they argue that art as investment is dead, but lack of regulation makes the market in it just this side of fraudulent. Material of this kind can intimidate beginning collectors, or scare them off altogether, but there are as many positive opportunities as challenges. Seasoned investor-collectors understand financial markets and know that downswings are as integral a part of business as upsurges, that they will follow one another as surely as night follows day, and that each brings its own unique opportunities and prospects. 

To put the idea of a market downturn into perspective, one might well ask the question, how bad is bad? Or, how much is still OK? If an investment loses twenty, thirty, even fifty percent of its value in six months, but previously had gained over ten times that much, can one really speak of a burst bubble? For example, Banksy edition 50 prints which five years ago sold for 1500 UK pounds rose to 90 000 pounds before pulling back to 60 000 pounds in November last year. Still a neat profit, by almost anybody’s register, if, that is to say, one bought five years ago. If one bought last year at 90 000 pounds, well, then the picture is different, but presumably such a purchase would have been done with a clear investment goal in mind, or purely to satisfy desire, in which case money doesn’t count. Lewis and Ford mention in their article that contemporary art sales in China increased in value by 983 percent in 2005 to 2006 alone. Other sources put the rise in the Chinese contemporary price index at 583% between January 2004 and January 2009. The investor with a long view surely need not feel too unhappy about some adjustment?

Jacob Pierneef 456x60 
40 000-60 000 POUND
SOLD 43 200 (R626 800)

Gregoire Boonzaier 64x78 
40 000-60 000 POUND
SOLD 36 000 (R522 000)

William Kentridge 30 cm
16 000-20 000 POUND
SOLD 20 400 (R296 000)
In assessing the current position, an analysis of results at the second session of Bonham’s South African Sale of 18 Feb 2009 presents the most recent and most applicable data available. Much of the work is older than would normally qualify as ‘contemporary’, but arguably, significant trends generally remain valid across different market segments. The most obvious observation is that there were many unsold lots, an indication of buyer discernment. Quality dictated; where more than one work by an artist was on offer, frequently only the better quality or more desirable image sold. One or two extremely high prices were achieved (Boonzaier, Preller and Laubser), while other stalwarts (Stern, Pierneef, Naude) remained at or close to previous high levels. This seems in line with recent trends at Christie’s and Sotheby’s too, were results could be described as subdued (comparatively speaking) but encouraging, with six of the top ten lots exceeding pre-sale estimates. Desirable works offered at reasonable estimates drew healthy bidding, a confirmation that active buyers are still out there looking for good art. There are also no signs of panic selling, boding well for the future of the market.

Some suggestions to the beginning investor on how to make the best of present market conditions may be in order. As the Bonham’s sale clearly demonstrates, there are opportunities to buy good pieces at better prices, simply because supply outstrips demand. Prices are more negotiable than in a rising market, so practice your skills of persuasion. Visit exhibitions, sales and auctions without necessarily making purchases, but with the purpose of gaining insight, so that when a bargain does come your way, you will recognize it. Weigh up different niches of the market against each other, for example buying smaller works by well-established artists as opposed to venturing on the best work by a newcomer or prints as opposed to sculpture or painting; consider international artists as opposed to local. Most importantly, do solid research on artists and prices.
 

Stephen Welz and Mark Kretchmer, both players in the South African art market, are quoted at length in a recent Financial Mail article, cautiously describing a half-full glass. They believe that serious collectors will buy at any time, good or bad, when a piece they want becomes available, and that this has a stabilizing effect on the market. In the same article, Stephen Bales, longtime art consultant of FirstRand, expresses the view that the real opportunity now lies in collecting new, young artists.  This stands to reason - their work still has decades of appreciation ahead.  The only question is, which artists?
 
34Long Fine Art, through their linked company Onauction, offers an invaluable tool for doing such research. In a first for South Africa, Onauction operates the only South African website where auction results for works by South African artists (in some cases going as far back as 1999), may be accessed. This constantly updated service is available to registered users upon payment of a nominal annual fee at www.onauction.co.za . The site may be compared to ArtPrice or ArtNet which present international results. 

Information gained from Onauction may be used to accurately assess potential value of artworks, taking into account qualitative considerations concerning condition, subject matter and desirability. For example, an evaluation of the Hugo Naude Namaqualand scene sold at Bonhams for about R600 000 this week, reveals that on average, similar works by Naude have fetched between R500 000 and R700 000 over the last two years. This indicates price stability, not a crash at all. Comparative evaluation such as this will always carry a margin of generalization, but with hard facts about published prices in hand, the investor can make informed decisions in stead of succumbing to vague predictions of doom. According to Art Market Insight, February sales at Christie’s and Sotheby’s in London confirmed trends seen at Bonham’s: results were mixed; no records were achieved, but there were no fatal disasters either. The classic investment conundrum remains: whether the glass is half empty or half full is a function of personal point of view, and point of view is all powerful.

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