What will the World look like when we get back to "Normal"? How will Coronavirus change the world? Who will loose and who will gain? How can we create financial stability in this unstable World?
Times of upheaval are always times of radical change. Everything feels so new and so unbelievable. At the same time, we all realize that we’ve walked into a new world, but the contours of this new world we’re entering are not yet clear.
Financial markets crisis, real estate collapse, Coronavirus pandemic ovewhelming the world, failure of the Nation States and of the European Union, massive monetary emission and its corresponding high inflation...
Every day brings news that, as recently as 1,5 months ago, would have felt impossible. It’s not just the size and speed of what is happening that’s dizzying. But here we are. We refresh the news not because of a civic sense that following the news is important, but because so much may have happened since the last refresh. These stricking changes are coming so fast that sometimes it’s hard to realize how radical they are.
Cast your mind back a few weeks and imagine someone telling you the following: within a month, schools will be closed. All public gatherings will be cancelled. Millions of people around the world will be under lockdown…
The world feels so strange right now, but not just because it is changing so fast and any one of us could fall ill at any time, or could already be carrying the virus and not know it. It feels strange because the past few weeks have exposed the fact that the biggest things can always change, at any minute.
Compared to the opaque financial crisis, the coronavirus is relatively easy to understand. It is a dozen crises tangled into one, and they’re all unfolding immediately, so that not a single person can miss it.
Covid-19 is likely the biggest global crisis since the second world war. It causes radical changes in the world and in our behaviour , how we live, learn, communicate, work, sell and buy. What happens next?
Any glance at history reveals that crises and disasters have continually set the stage for change, often for the better. And we better frame crises not just in terms of what is lost but also what might be gained.
"Some people will raise up taking advantage of post-crisis opportunities, while the rest are too dazed to notice them"
If we try to look optimistically on the current situation, we should admit that disasters can also open up human reserves of improvisation, it might shake us loose from old ways.
The crisis we are facing today is - according to most experts - much stronger than the one of 2008 which had already gave birth to a new type of diversification strategy of investments in tangible assets such as (gold of course) paintings, classic cars, wine and vintage watches. Those tangible assets are safe heaven investments and great anti-inflation instruments.
Investment in art may today seem like a far better investment than a bank deposit. A main advantage of investing in art is the attractive average annual return - contemporary art generates tens of billions of dollars of revenue each year.
"You can create financial stability investing in art and making it a part of your overall investment portfolio"
The fine art market is viewed by many as a fascinating but worrying world. Not so long ago, there was a perception that fine art assets were reserved for the rich and the very rich. However, with the long-termed, worldwide trend of increasing wealth, alongside the growth in knowledge about collectible markets, a much larger community has started to be interested in collecting and investing in art.
There is indeed a limited number of collectors pieces avaiblabe (the Supply) while the number of collectors (the Demand) keeps on increasing every day, driving prices upwards.
The art market is not sensitive to the collective panic generated by political instability or economic chaos. The price of art certainly changes in times of crisis, but less so compared to the stock market or real estate. During the 2008 financial crisis, for example, art indices fell by 4.5%, while those of the S&P 500 plummeted by around 37.5%.
Another important trend to point out is the increasing interest from the financial industry. While a tacit relation between art and finance has been existing for centuries, we can now see a development of art services among financial institutions.
The proportion of all luxury spending on art willc ontinue to increase as investors look for assets that would retain their value in the longer term especially in a period of economic uncertainty.
The current socio-economic context creates a demand for ‘real assets’ because many lost a lot of money in the financial crisis by investing in products they did not understand and are turning back to things that are closer to their heart and which at the same time offer protection and a return on investment.
"There is a growing recognition of art as an investment asset class by investors. People become more sophisticated in their financial planning and estate planning and they begin to view art as an investment"
As a gallerist with economics degree, Liubov Belousova, founder of BOCCARA ART Galleries, explains: "Though art market is highly manipulated, there exist some observable parameters which determine value. As an art dealer with economics background I ve been observing the art market for the last 15 years. I try to stay objective about the trends I see and focus a lot of efforts on art market research and analysis of the major trends in the global art market. What stands out to be the most important - is to buy a right art work at the right time."
Besides a potential increase in value, art provides additional financial benefits:
- Art provides a hedge against inflation and currency devaluation
- There is little risk of losing your principal if you purchase wisely
- No minimum investment is required
- Art has no geographical risk and can be moved easily
"Art market is global, with no predominant nor absent 'zone' or 'currency', the risk being geo-politically well spread around the world and not exposed to currency exchange fluctuation"
However, high-end art is one of the most manipulated markets in the world. Being supported and well advised by a reliable specialist is extremely important today.
If we look at the value of some Artists and artworks over the last 10 years, we can see that in some cases the value increased by 1000% and many artists have doubled in value over the last 2 years.
"Paintings are timeless, and investing in them comes with a lot of security"
Here are a few notable examples to encourage you:
- Basquiat's painting was purchased by two collectors in 1984 for and $21.000 and sold recently for 110.5 million at Sotheby's in NY.
- Joan Mitchell's " 12 Hawks at 3 O'Clock" acquitted for $310.000, sold for $14 mln.
- Andy Wharhol's "Mao" purchased for $1mln, sold for $47.5 mln. Art is one of the best investment.
- Mark Rothko "No.11 Untitled", 1957, acquired in 1992 for $1.1mln, sold in 2013 for $46.1mln., resulting in a return of 41x for the seller.
"We tailor our process to our clients' preferences, whether they wish to acquire an individual work or build an entire collection," - says Liubov Belousova, - "Our role is to articulate our clients' vision and guide them throughout the choice of art works, expertise procedures and the purchase process."
It is important to help navigate today's art world, with all these opportunities and risks. Today, the art market has exposed, it's larger than at any point in history. We don't know what a Past-Covid Art World will look like, but it's definitely the best time to acquire important works and invest in prospective artists..
"There is Time for Selling and Time for Buying"
BOCCARA ART Advisory Team
March, April 13, 2020