Skip to main content

Behind the Gavel: Banking on the investment value amounts to insecure speculation

In his latest Behind the Gavel column Wayne Jordan explores the reasons why the old adage "collect what you love" is the core lesson in collecting, and why putting more weight on the investment value can be a misstep.

In the early 1980s, I was fortunate to live near Wilmington, Delaware’s Winterthur Museum. Winterthur is a former estate of the DuPont family and was used as a residence until 1951, when it was converted to a museum. The estate contains one of the country’s finest collections of 18th and 19th century furniture and decor.

Like many wealthy American families, the DuPonts furnished their homes with pieces that

Winterthur Museum cabinet

Red oak, red cedar, soft maple cabinet, attributed to the Symonds Shop, Salem, Massachusetts, circa 1676, measures 17 ¼” in height. (Photo courtesy Winterthur Museum)

were both practical and investment-quality. No run-of-the-mill, mass-produced furniture could be found at one of these elite estates. Wealth wasn’t maintained by investing in disposable consumer goods; only antiques and fine art would suffice.

The “antiques are a good investment” mindset endured through the 20th century, but is losing its appeal in the 21st century. The Annual Furniture Price Index, a compilation of Great Britain’s Antique Collectors Club, shows that values of antique furniture have steadily declined since the 1980s (a fact well known to American antique dealers). The club’s February 2014 report attributes the value losses to the decline in formal dining and falling demand for dressers and “coffers.” Investment quality furniture is only an investment when demand goes up. Those of us who watched antique prices rise in the 1980s were shocked to find values evaporate 20 years later.

Art is currently a fashionable investment in the same way that antique furniture was in the 1980s. About 10 years ago, business professors Jianping Mei and Michael Moses built a database to chart the value of artwork over time compared to other financial assets. They monetized their research by creating the Mei-Moses Art Index, which is promoted through their company, Beautiful Asset Advisors LLC. The Mei-Moses research was published by The American Economic Review in 2002 and was an instant hit among investment advisers.

Investment funds based on art soon cropped up to capitalize on the new trend. The new funds were touted as out-performing some Wall Street indexes, and advisers began to press the idea that at least 5 percent of an investor’s portfolio should be comprised of art.

I understand why art and antiques enthusiasts would find the idea of investing in art funds and antiques appealing. But are such investments sound?


This Mei-Moses Art Index chart tracks the rate of return of this fine art piece of Marilyn Monroe, by Andy Warhol. (Photo courtesy Mei-Moses Art Index Market)

The brokers who sell art and antiques as investments are not subject to the same regulation that traditional stock and bond brokers are subject to. Art and antiques funds, in my opinion, are much like the Wizard of Oz: all smoke and mirrors. Let’s take a quick peek behind the Wizard’s curtain and see what Toto can expose.

The Investment Advisers Act of 1940 (IAA) requires that investment advisers register with the U.S. Securities and Exchange Commission. The IAA does not generally apply to art funds, because most art funds operate below the “assets under management” threshold of $150 million. Fewer than 30 art funds currently operate worldwide, and only a few have attracted more than $50 million in capital. Given the economic havoc wreaked by regulated Wall Street investment advisers in 2008, I’m not willing to trust what’s left of my retirement funds to unregulated advisers. Are you?

The returns advertised by the funds are also suspect. Two prominent players in the market are London-based Fine Art Fund Group and the Kansas City-based Collectors Fund, who report compound annual returns (CAR) of 20 percent and 28 percent, respectively. Artvest principal Jeff Rabin, principal of the investment group Artvest, offers a more realistic assessment: “The actual returns when all is said and done are often very different,” pointing out that more-difficult-to-sell works may not be disposed of until the end of a fund’s life.

Is art a better investment than stocks?

Over the past 50 years, stocks have slightly edged out art, having a 9.73 percent CAR vs. 9.23 percent for art. Shorten the period of comparison to the last 25 years and stocks have performed even better vis a vis art: 9.91 percent CAR vs. a 6.43 percent CAR. In the past 10 years, though, the sharp increases in auction prices have enabled art to outperform the stock market, 4.86 percent for art vs. 3.59 percent for stocks.

art as investment

How do you see art? As something to collect, a potential investment or both? (Photo courtesy Financial Times LTD)

The results produced by both art and stock investments are pretty close — close enough to cause investors to seriously consider art and antiques as part of an investment portfolio. But before you run out and invest your retirement fund in art and antiques, consider that neither are liquid investments.

Both must be held for years before any substantial increase in value can be noted. While art and antiques are being held, they accrue holding expenses: storage, maintenance and insurance. When they are sold, they incur stiff selling fees, sometimes exceeding 30 percent. Stocks incur selling fees of about 2 percent. Real estate, another popular investment, incurs selling fees of about 5 percent.

*Ultimately, the question of monetary value of art and antiques comes down to cultural value. For art and antiques to hold their monetary value, the cultural values of future buyers must be similar to the cultural values of the original investor.*

In the 1980s, Victorian and Edwardian mahogany furniture were held in high regard and very collectible. In 2014, you can’t give the stuff away. The cultural value that collectors vested in these mahogany pieces in the 1980s is not shared by the current Millennial generation. Thousands of collectors who invested in these items to preserve their wealth were tragically wrong.

Certainly there will continue to be a market for collectible art. But current art prices (and the prices of many other collectibles) scare me. Investors are still reeling from the real estate bubble that burst in 2008. I see the same trend in art: The auction prices recently being achieved by art are not sustainable.

Daniella Luxembourg, the founder of Geneva-based ArtVest, shares my caution. She says, “There’s no guarantee that if you buy something for $200,000 it will be worth anything in 15 years ... Everyone assumes the market will continue. And then when it stops, they will all be quite astounded. Later, everyone will say, ‘I said it couldn’t last!’”

Like all bubbles, this one, too, shall burst. What, then, is a sound approach to collecting art and antiques? Collect what you love, and enjoy your collection while you own it.

If you’re lucky, you may be able to benefit financially from your collection. But if you’re collecting only for financial rewards, you will miss the beauty, nostalgia and history collectibles can bring into your life.

Weekly Showcase



Over 100 YEARS of Chinese History - Our pristine Jade Collection is extensive and beautiful!  Please visit our web site to get an idea of how beautiful this collection is.