John Daly: The art of making a master investment
What to do with an unexpected €40,000?
Such was the dilemma confronting a fortunate friend recently, finding himself the unexpected recipient of a fortuitous legacy from a benevolent aunt.
After we clinked glasses to his auspicious state, the question of what to do with such a sum loomed large. With his mortgage almost paid off and having no interest in buying a second property, I suggested blue-chip stocks.
Wary of a possible downturn on Wall Street, he shook his head. Given that my friend frequently spends weekends happily wandering the galleries of the Louvre, the Prado and the Metropolitan Museum, why not invest in something that will deliver an everyday visual reward, as well as a potential monetary appreciation in years to come?
After all, who amongst us hasn’t rummaged in flea-market bins, hopeful of unearthing a forgotten Old Master and solving the retirement conundrum in one fell swoop. The last 10 years have seen the global art market break all sorts of records, as the bidding for precious canvas has pushed prices “into a fantasy dreamland,” as one appraiser observed.
Back in 2011, a new world record was created when the Qatar royal family paid $250m (€226m) for Cezanne’s The Card Players, a moody representation of two Aix-en-Provence peasants in a card game dating from 1895.
Four years later, that was eclipsed by the sale of Interchange, an abstract landscape by Willem de Kooning, which sold for $300m to a US hedge fund manager. While both of these sales fairly rocked the international art markets, particularly as the global economic downturn was still being felt, the sale in 2017 of Leonardo da Vinci’s lost work, Salvator Mundi, painted around 1500, achieved a staggering $450.3m at Christie’s in New York— five times the previous record set for an Old Master. This time it was another oil rich state, Saudi Arabia, that took the final gavel.
When Salvator Mundi was previously sold in 2005, it reached a mere $10,000 due to the common belief it was painted by a student of da Vinci’s, rather than the master himself. The following year, one of Caravaggio’s lost canvases, Judith and Holofernes, was discovered in a Toulouse attic, coated in dust and stained by a water leak.
It was bought privately two days before auction for an estimated $170m. But while the global market for Old Masters gets ever more stratospheric, many Irish artists are yielding auction values well above the reserves.
At the recent sale of the Irish revolutionary Ernie O’Malley’s collection in Dublin, ‘Reverie’ by Jack B Yeats made €1.4m — over double its reserve, followed by ‘Evening in Spring’ for €1.3m, ‘The Enfolding Night’ €520,000, ‘Death for Only One’ €470,000 and ‘The Fighting Dawn’ at €320,000.
The collection grossed over €5.5m, with every lot auctioned, making it a ‘white glove sale’— the definition a 100% sold rate at auction.
Earlier in the month, an Irish art auction at Sotheby’s recorded a number of record sales totalling €3.4m, including works by Roderic O’Conor and Louis le Brocquy. However, it was a canvas entitled ‘The Owl Run’ by the less well known Hughie O’Donoghue that caused greatest surprise, achieving €109,557 against a reserve of €17,000. It set a new record for the artist, far exceeding his previous best of €37,000 in 2007.
Similarly, ‘Cork Bowler’ by Gabriel Hayes, from the collection of former motorsport chief Eddie Jordan, achieved €94,949, double its reserve and a record for the artist.
“What we are experiencing in the art market over the last 15 or 20 years is something that has never happened before in art history — it is a little bit like a revolution,” explained Adriano Picinati di Torcello, a director within the advisory and consulting department at Deloitte Luxembourg.
His presentation at a recent private banking seminar, entitled ‘Investment in art — what is driving the record-large interest in art investment?’ noted a number of factors affecting the market at the same time.
“If, some time ago, the art market was mainly focused on Europe and the US, today it is definitely global — Africa, South America, Asia; the art market is everywhere now. Democratisation means more and more people are interested in art.”
Illustrating the changed environment, he cited the financial crisis in the early 1990s, from which the art market took 14 years to recover.
However, the more serious global economic meltdown of 2008 only affected the art market for 18 months. “This means that the art market can absorb shocks faster than previously, mainly because of globalisation. Just look at China’s art market share: in 2005, it was 3.7%, but in 2016 it was already up to 19%.”
It is estimated that ultra high-net-worth individuals have now invested around $1.6 trillion in collectible assets, a figure set to rise to $2.7 trillion by 2026.
“More and more wealthy people are buying art objects, thereby creating a demand for art and wealth management services,” said Mr di Torcello.
As to how the beginner might take those first tentative steps into the world of art investing, that phrase “information is power” will help in the initial stages. Gallery owners and art experts will generally advise visiting galleries like the IMMA, the Crawford, the Hugh Lane and the RHA Summer Exhibition to develop a sense of your own taste before considering that first purchase.
Indeed, as art can often be an investment taking a decade or more to realise a substantial increase, perhaps the fledgling buyer should be drawn primarily to those canvases that bring a daily pleasure hanging in a prominent place in the home.
“If art is to nourish the roots of our culture, society must set the artist free to follow his vision wherever it takes him,” opined John F Kennedy. “We must never forget that art is not a form of propaganda; it is a form of truth.”
