Art and collectibles are supposed to be an independent asset class and to benefit from “un-correlated” risks. Investing in collectibles is also supposed to be a way to diversify wealth. Since prices of collectibles do not depend on other possible components of a portfolio, they are supposed to act as a cushion when other markets are not doing well. This is debatable because this has not been tested exhaustively. Who has figured out how well a piece of art does over time? How, indeed, can one choose the right piece? What are the risks? What is the opportunity cost of having Rs50 lakh locked up in a 5x8 piece of canvas and seeing your favourite stock rising 15% year after year? However, if you do invest in art here are 13 points to remember:
1. Beware of fads in collection – when the fashion passes the collection is not worth much.
2. Have a clear idea about the time horizon and gestation period for a particular work to appreciate in value.
3. Be patient – both financially and temperamentally – do not buy collectibles for speculative reasons. If you are looking for quick returns, your best bet is works of well-known artists.
4. Collect only if you like the quality of work, and not just the artist.
5. The art should be of manageable size for easy transferability and preservation. Obviously, it will be difficult to transfer a giant mural or a life-size statue. The larger the object, the more difficult it is to preserve.
6. Your collectibles must be authenticated by a recognised authority, if possible. Otherwise, it may be deemed a fake. Worse, the collector himself can be declared a forger and face legal action.
7. Make sure you have the infrastructure to preserve the collectibles in the best possible condition. Any item, which is in bad shape, is rejected in the market.
8. Ensure that you have a thorough knowledge about the collectible and the market. Otherwise, you can be cheated by dealers or buyers. Up-to-date knowledge about your collection is a must.
9. Read thoroughly the provisions of the Antiquities and Art Treasures Act, 1972, the items that are covered by this Act and the definition of ‘art treasures’ and ‘antiquities’. The law places restrictions on exporting, importing, trading or exhibiting certain collectibles. The problem is that the main markets for collections are all abroad. And if you are forbidden to take anything out of the country, you cannot sell.
10. Everything is collectible, but not everything is saleable, because if there is no easy and accessible market for the collectible, it cannot be sold.
11. Most collectibles rarely have a market, or have thinly-traded markets. You would have to go through much hassle when you plan to sell. Prices can be dealer-rigged. “It is not easy to convert money into beauty and then back into money again,” say authors Ben Stein and Phil De Muth.
12. In a recession, prices of collectibles will be the first to fall.
13. At exotic car auctions more than half the cars do not fetch their reserve—antique car prices are difficult to estimate.
