Valuing Art – How an Art Price Index Could Change Everything !!!
One of the reasons that more people don’t invest in art is the lack of a means of measuring the value of their investment on a day to day basis like you can with shares. As the old saying goes, “knowledge is power” which means that a lack of knowledge equals a lack of power and a lack of power equals a lack of control. Investors tend to associate the level of control they have over their investment with how secure their money is because a high level of control would allow the investor to quickly react to an event that is causing a reduction in the value of their investment thereby minimising the negative effects. Because most people are extremely selective and cautious when it comes to investing their money, the level of control that people have over their money is a crucial deciding factor when it comes to deciding what their money will be invested in which is why the stock market is such a popular option.
Because of the nature of the art market there has not been a successful attempt as yet to produce an index that would allow people to sufficiently measure the “health” of their investment on a regular basis so those that do invest in art are relying on the factors that determine an increase in value in the long term as opposed to those that determine an increase in value in the short term.
Imagine for a moment that a price index was able to be created for each individual artist that constantly tracked the value of their work (or shares in art) and that there was a way of instantly trading works of art (or shares in art) in real time. The way people approached the art market, the way art was bought and sold and the factors that determine the price people are willing to pay for an artwork would be completely changed if such an index were available. Auction houses and galleries would most likely become obsolete with art brokers taking their place as representatives for artists and service providers for investors. Although such an index would solve the problems of determining value it would also cause most of the advantages of art investment such as the stability, potential for growth, value of the asset etc. to disappear thus probably rendering the whole art market obsolete.
The above scenario will obviously never eventuate (thank goodness) but it does highlight the need for everyone involved in the art world to carefully consider what effect their actions are having on the art market especially when the art market is experiencing such growth.
**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.