The Artful Investor

John Morrissey hunts young artists the way some money managers dig for undiscovered stocks. In the evenings the West Palm Beach (Fla.) attorney scours magazines such as Artforum and Web sites such as Artnet. He tours galleries in New York and Miami, chatting up dealers and sometimes the artists themselves. Buying works early can lead to spectacular returns. In 1998 he bought a piece by abstract painter Cecily Brown for $11,000 at her second show, at New York's Deitch Projects, a gallery. Last year, he says, a similarly sized piece from the same show sold at auction for $968,000. "My artists have outperformed any other investment I've made," he says.

Art is hot. The record price for a single painting was broken three times last year. The auction houses Christie's, Sotheby's (BID ), and Phillips de Pury sold a combined $1 billion worth of contemporary art last fall. Attendance continues to surge at art fairs such as December's Art Basel Miami Beach and February's Armory Show in New York. The common explanation is that a new breed of collector, the hedge fund manager rolling in money and looking to show off newfound wealth and sophistication, has hit the scene. There is another factor at work, however: the belief that art is an asset class that belongs in your investment portfolio along with stocks, bonds, and real estate.