How Much Money Do You Need to Start Investing in Art?

How Much Money Do You Need to Start Investing in Art

When most of us imagine investing in art we normally think of multi-million dollar paintings by Picasso, Van Gogh or Gauguin hanging in the secluded, highly secure mansion of some eccentric billionaire who may or may not be plotting to take over the world.  The concept of the fabulously wealthy art connoisseur has been reinforced for decades via movies, novels and countless other works of fiction.  An unfortunate side effect of this myth is for art – particularly art for investment purposes – to seem distant and inaccessible.  It gives the illusion of art investing as a hobby of the rich and powerful – the sort of hobby an average person could never hope to pursue.

This long-held idea of art belonging solely to the realm of the obscenely wealthy is a complete lie, though.  Yes, there are ultra rare and desirable artworks in the world that you and I will never be able to afford.  But the vast majority of art and antiques are surprisingly affordable.  In fact, one can start investing in art for only a few hundred dollars – and sometimes even less!  So how much money does a prudent investor really need to start a serious art or antique collection?

While art can be hideously expensive, this is not the norm.  In fact, I would argue that vanishingly few pieces exceed the $10,000 (USD) price point.  The bread and butter range, where many dealers and artists do the majority of their business, typically rests in the $250 to $2,500 area.  However, even these more modest values might appear intimidating to the aspiring novice collector.  Happily, there is fine art available at even lower prices, and I don’t mean junk collectibles either.  Very high quality antiques that are artistically interesting and sometimes centuries old can be purchased for remarkably little money.

For example, many series of beautiful medieval and ancient coins can be started for a shockingly small investment.  Indian Mughal silver rupees are impressively large and seductively exotic silver coins from the 16th and 17th centuries that are often available in excellent condition for less than $100 each.  Struck before the birth of Christ, good quality ancient silver denarii of the Roman Republic can be bought for $200 a piece – and occasionally even less!

Vintage fountain pens are another area where a decidedly modest investment can net choice specimens.  Many fine examples of World War II or Mid-Century era Parker, Sheaffer and Wahl-Eversharp fountain pens are commonly less than $100 each.  These stunning pens prominently display the characteristic zeitgeist and style of their age – a must for any desirable work of art.  Some of them even come with their original cases, a factor that greatly enhances desirability.

Silver liquor labels – indispensable for a well appointed liquor cabinet – are another great example of antiques that can be surprisingly inexpensive.  During the 18th, 19th and 20th centuries, wealthy British families hung these solid sterling silver objets d’art on wine, rum, sherry and whiskey bottles (among others) for identification purposes.  Prices are modest, given their tremendous beauty and history, with wonderful specimens readily available for just over $100 a piece.

While I’ve only touched on a few different examples, there are many more artworks available for only $100 or a bit more.  There is no need to be intimidated by the world of fine art and antiques.  There are styles, sizes and price ranges to fit every imaginable palate.  The only requirements before you start investing in art are to have a few hundred extra dollars and the desire to learn about the most gorgeous and overlooked parts of the art market.  There really is something for everyone in the world of art and antiques and the price of admission is oftentimes only a $100 bill.

Why Good Antique Stores Go Bad

Why Good Antique Stores Go Bad

In the mid 1990s a small town I lived near was experiencing a full-fledged economic revival.  As part of this renaissance, the former Murphy’s Five and Dime building downtown had been leased to an antique cooperative.  And what an antique store it was!  It had everything from Victorian to mid-century American pieces and all at very reasonable, if not ridiculously low, prices.

I would buy little plastic zip-lock sandwich bags stuffed full of junk jewelry for a quarter.  Yes, you read that right – only 25 cents.  Only the “junk” jewelry wasn’t always junk.  These grab bags were peppered with sterling silver items – rings, necklaces and bracelets among others.  There was even the occasional solid karat gold piece.

So I did what any good antique truffle pig would do.  I kept going back for more.  Over the next several years I probably visited that antique store dozens of times.  Each time I put down a $10, $20, or very rarely a $50 bill in front of the cashier and in return walked away with a small (or sometimes large) pile of treasures.  But then, very gradually, the deals stopped being quite as good.  I had to dig progressively deeper into the dusty corners and dark niches to find my next treasure.

And then, one sad day, the deals were gone.  A couple years later the antique store closed.  I had thought that we had a good thing going.  What happened?  Why do good antique stores go bad?

The short answer is that I, and people like me, mined the store out.  Like a horde of locusts descending on a lush field of ripe grain, we stripped it clean.  I purchased every 25 cent junk jewelry bag the antique store had.  First I chose the ones with the best looking contents, gradually working my way down the stack until there were none left.  And the antique dealers simply couldn’t replace their inventory at anywhere near the same prices.

I suspect that most of those unbelievably cheap antiques came from local estate sales.  There was a large elderly population in town at the time and I think a lot of the executors administering these estates just didn’t want to be bothered.  They let the antique dealers clean out the estates’ houses for a pittance, just so they could move on quickly with their lives.  This allowed the dealers to turn around and sell junk jewelry bags for a quarter.

But it could only last as long as the cheap estate sales kept coming.  Once those tapered off, there was no more 25 cent inventory to be found.  There is a powerful lesson to be drawn from this experience.  The antique and art market is a living, breathing thing.  Those items that only cost a few dollars today may become completely unavailable tomorrow, except at exorbitant prices.  And yes, sometimes good antique stores go bad.

Antique 0.32 Carat Fancy Colored Old Mine Cut Champagne Diamond

Antique 0.32 Carat Fancy Colored Old Mine Cut Champagne Diamond
Photo Credit: MyDiamondZone

Antique 0.32 Carat Fancy Colored Old Mine Cut Champagne Diamond

Buy It Now Price: $169 (price as of 2016; item no longer available)

Pros:

-This is a 0.32 carat fancy colored old mine cut diamond, measuring 4.24 millimeters by 4.37 millimeters.

–Old mine cut diamonds tend to emphasize fire (multi-colored flashes of light) over brilliance (pinpricks of white light).  This lends an enticing warmth and charisma to old cut stones that is lacking in modern brilliant cut diamonds.

-The old mine cut was developed in the early 18th century and remained popular until the late 19th century.  The quintessential Victorian diamond, old mine cut diamonds look amazing in both candlelight and gas light.

-Fancy brown diamonds are also known as champagne diamonds.  This exceptionally attractive stone rates around C3 – a pleasing light chocolate brown – on a scale of C1 (least intense color) to C7 (most intense color).

-This diamond has a relatively round, regular shape which is uncommon for an old mine cut stone.  Most old mine cut diamonds are distinctly cushion shaped.  Having been hand cut, it also isn’t unusual for old mine cut diamonds to be obviously asymmetrical – a negative trait absent in this specimen.

-Although the inclusions (flaws) look very noticeable in the photo above, in reality they will barely be visible to the naked eye.  It is normal for old mine cut stones to be more included than modern cut stones – a factor that should be considered when determining the value of older cut diamonds.

-The buy it now price on this fancy colored champagne diamond is only $169, which works out to a mere $528 per carat.  That is remarkably inexpensive, especially for a fancy colored diamond with so much eye appeal and charm.

-I don’t normally do this, but I’m going to reiterate how ridiculously cheap $169 is for an old mine cut champagne diamond of this caliber.  Pricing typically trends from $300 to $500 for a stone of this size and quality.

 

Cons:

-This diamond, at 0.32 carats, is definitely on the small side for an investment grade stone.  It is generally not advisable to purchase old mine cut or old European cut diamonds smaller than 0.25 carats for investment purposes.

-The seller claims this stone has a clarity grade of SI2 (better) to I1 (worse).  I believe it falls closer to I1 clarity.  This is on the edge of the acceptable range for investment grade old mine cut diamonds.  However, given the fact that the diamond’s flaws don’t interfere with its optical properties, it is still a desirable stone.

-Some people prefer their diamonds to be as white as possible.  If you are that person, a champagne colored diamond – old mine cut or not – isn’t for you.

eBay Changed the Rules for Investing in Antiques

eBay Changed the Rules for Investing in Antiques

The antique market has undergone dramatic changes in the last 20 years.  It has transformed from a closed industry where only insiders flourished into a market where anyone with some knowledge can achieve sensible investment returns.  In 1995, before the commercial advent of the internet, the industry was dominated by dealers who purchased items from private individuals and auctions and then re-sold them in physical shops with a markup ranging from 100% to 300%.  The spread between the bid and the ask price of most antiques was too large for a retail buyer to ever expect to make a reasonable – or even positive – investment return except by luck.  This made antiques a problematic investment recommendation.

For example, let’s suppose you bought an investment grade antique for full retail price in the pre-internet days.  It then appreciated by 7% per annum for 15 years straight at which point you decided to sell.  But when you sold, you were forced to accept an antique dealer’s wholesale price, which was 50% of his retail pricing.  The huge difference in the bid/ask spread (in this case a 100% markup) would mean your initial 7% annual return atrophied into just a 2.17% return.  And as bad as that seems, your return would have been even worse if the dealer were to have offered you less than 50% of his retail pricing.  In effect, buying antiques at a retail price and later selling them at a wholesale price destroyed your potential investment return.

The inception of the online auction house eBay in the late 1990s was a sea-change for the antique market.  At a stroke, eBay allowed dealers to sell their goods to the highest bidder nationally or even internationally.  By the same token, private individuals cleaning out their garages could list items on eBay and receive the same prices that dealers got on their auctions.  The antique market bid/ask spread which used to be 100% to 300% suddenly shrunk to eBay’s listing fee – only 10% to 20%!  This tremendous decline in the bid/ask spread made antiques and art far more accessible as an investment vehicle for the average person than ever before.

For instance, if you bought the same antique as in the example above and held it under the same conditions, you would be able to sell it for approximately 87% of retail today versus 50% of retail in the bad, old pre-internet days.  This would leave you with an average annual return of 6.01% out of a theoretically possible 7% – an immanently reasonable return on your investment.  And it is distinctly possible that spreads in the antiques/art market could tighten even further in the future as the online marketplace continues to mature.  To sum it up, antiques and art were simply not a viable asset class for the average person before the arrival of the internet.  But today they represent a unique opportunity for those astute investors bold enough to seize it.