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In Art the Safest Bet is the Biggest Bet

"Abstraktes Bild" by Gerhard Richter is on display at Sotheby's during a preview of their Impressionist and Modern Art sale in New York on October 28, 2011. Photographer: Emmanuel Dunand/AFP via Getty Images

Every time a billionaire collector breaks another sales record at auction, those in the know snicker: Yet another hedge fund prince has publicly overpaid for an asset that's almost guaranteed to fall in value.

The examples are plentiful, like the disastrous Damien Hirst auction the night Lehman Brothers went under. At that auction, £98 million of art was sold, and then promptly lost 30 to 50 percent of its value.

Felix Salmon took on the claim that the top 50 contemporary artists in the world outperform the S&P 500, pointing out that the art price index rose largely by dropping the artists whose prices fell. "The real point here is that contemporary art is always full of here-today-gone-tomorrow art stars, who create art which goes from being white-hot to being pretty much unsellable," he writes. "In 1988, for instance, the C50 included where-are-they-now names like Theodoro Stamos, Pierre Alechinsky, James Havard, Jean Fautrier, and even Saul Steinberg, the New Yorker illustrator, who appeared just above Robert Rauschenberg on the list. Last year, the most expensive Steinberg sold at auction reached just $28,750."

I've written about same phenomenon -- one about art flippers, and one about the Frick Collection's collecting symposium. Hoping to quantify the chance of making money in the art market, I requested a report from Artnet that compiled the top 10 living artists in 1993 and 2003 and followed their sales through 2013, expecting to see a story of booms and busts. Surprisingly, almost all the artists at the top of the rankings maintained or expanded their market value.

Let's go back about 10 years. It's impossible to track all the ways that art is sold, but there are databases of auction sales that give us a rough idea. According to Artnet, the top 10 living artists of 2003, ranked by total auction sales, were:

Gerhard Richter: $32,127,829
Cy Twombly: $10,716,969
Jasper Johns: $8,625,096
Frank Stella: $8,392,128
Ed Ruscha: $7,335,674
Agnes Martin: $6,037,900
Tom Wesselmann: $5,880,799
David Hockney: $5,135,596
Zao Wou-Ki: $5,133,200
Damien Hirst: $5,084,114

And here's what their growth looks like:

Total sales for every one of these artists grew. For eight out of 10, the increase was more than 200 percent in a decade. Most had not only seen an increase from 2003 but (with the glaring exception of Damien Hirst) have now exceeded their sales in 2008, the last art market peak.

Maybe 10 years is too short a period to see the bust. How about 20 years back? Here are the sales of the top 10 artists in 1993:

Roy Lichtenstein: $3,898,219
Fernando Botero: $3,624,240
Sam Francis: $3,186,429
Gerhard Richter: $3,041,133
David Hockney: $2,887,245
Willem de Kooning: $2,802,658
Frank Stella: $2,723,597
Cy Twombly: $2,652,662
Karel Appel: $2,567,574
Roberto Matta: $2,102,424

And here's a chart of those artists over 20 years.

Not too shabby. Even if, like Karel Appel or Frank Stella, their prices haven’t gone gangbusters like Gerhard Richter's -- and no living artist has gone gangbusters quite like Gerhard Richter, whose auction sales have exceeded $100 million for six of the last seven years-- everyone’s sales are solid. There's certainly no evidence that their work is unsellable. Sales for four out of 10 went up more than 2,700 percent over that period, an astonishing number for any asset category.

The glaring caveat is that these numbers reflect total sales at auction. The median price for each artwork isn't included, so in theory, one Lichtenstein artwork could have been sold in 1993, and 1,000 could have been sold in 2003. This information, in other words, gives a picture of the artist's market share in broad strokes.

But broad strokes are all we need here: The charts are decent indicators of the market relevance associated with each name. If you bought a Cy Twombly in 1993, there's a very high chance you'll find a buyer for the work now.

A second caveat is that looking at 10- or 20-year periods masks some ups and downs along the way. You can see the full data for the 1993 and 2003 lists here and here. For this post, I've simplified the charts to highlight the long-term trend, but there are years of worse performance along the way. That kind of fluctuation has always characterized the art market. Take the tale of Lawrence Alma-Tadema, a pinnacle of the Victorian-era Academic Style whose painting "The Finding of Moses" sold for $25,000 in 1905. In 1942, his art was so passé that the same painting sold for $682. In 2010 it sold again for $23.5 million.

So what does all this mean? I had expected that tracking the sales of 20 artists would show a few big successes and a lot of cratering disappointments. In fact, sales for almost all of the artists have grown. But that doesn't mean Salmon and the rest of the contemporary art market detractors are wrong. It simply demonstrates that the very pinnacle of the art market follows its own rules.

Instead, the real explanation may be that these artists are bought and sold by a very small group of very, very wealthy individuals who have pockets deep enough to weather the tempestuous swells of world financial markets. It would go a long way toward explaining why prices remain steady even as the lower 40 artists in each year's C50 index underperform or simply disappear.

Whether or not the cream of the crop stays on top forever is uncertain. For now, it seems that buying the artists at the top of the sales rankings may be a successful 10- to 20-year approach. And that means that if you're hoping to get stupendously rich from the art market, the best strategy (ready to write this down?) is to start out rich.

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