Markets

ART as an alternative investment

BATANAI MATSIKA

The norm among most investors all over the world is that they tend to buy and hold gold during periods of uncertainty.

However, in some cases, gold has failed to protect against a loss in the purchasing power of the dollar.

This has cast some doubt on the ability of the ordinary investor to protect himself against inflation by putting money in gold.

As a result, investors are now looking at new categories of “things” or “valuable objects” that have had striking advances in market value over the years such as art, first editions of books, rare stamps and coins.

More and more investors are looking at the art market (and other collectables) as an alternative to traditional investment assets.

A number of wealth managers globally have reported that clients are asking for help with investments in art and collectibles.

Unlike shares, bonds and commodities, for instance, each work of art is a unique entity that cannot be replaced by another.

The rarity of a work of art is what gives it value.

 Art can be defined as a diverse range of human activities in creating visual, auditory or performing artworks, expressing the author’s imaginative, conceptual ideas, or technical skill, intended to be appreciated for their beauty or emotional power.

The three classical branches of art are painting, sculpture and architecture.

Most definitions of art mention an idea of imaginative or technical skill stemming from human agency and creation.

On the other hand, the word art may refer to several things: (i) a study of a creative skill, (ii) a process of using the creative skill, (iii) a product of the creative skill, or (iv) the audience’s experience with the creative skill.

Art is viewed as an alternative investment given that it has no correlation to the stock market.

The price of paintings can go up in value even when the market crashes, making it a good diversification for an investment portfolio.

Since it is impossible to determine an artwork’s true value—a lot depends on the artist’s reputation.

Every artwork is unique, and the art market has ups and downs just like any other market. Investors should be comfortable assuming some risk.

So, is investing in paintings a good way to get rich fast?

An event that attracted a lot of attention was in November 2017 when a record price of USD450 million was fetched for Leonardo da Vinci’s “Salvator Mundi” (saviour of the world).

Stories like the Leonardo painting make it seem attractive, but such cases are relatively rare.

Most art industry experts suggest that you buy a piece of art because you like it, not because you want to get rich.

That said, most high net worth individuals are spending an increasing part of their wealth on art and collectibles.

Then there are the collectors— people who buy and sell items whose value are far more than their original worth.

It is very possible to make money by buying and selling collectibles.

These are items that can be purchased or sold for much more than their original value.

If they are really rare, they can be worth even more. The collectible market is enormous.

According to Mike Japp, a dealer in fine art, stamps and coins, the collectibles market may even include cigar rings, marbles (a certain type of glass) and even coat hangers.

In conclusion, it would be interesting to see the development of a robust art and collectibles market in Zimbabwe as this will also provide an alternative investment option for retail and institutional investors.

As highlighted, the price of paintings can go up in value even when the stock market crashes or worse-still, is suspended, making it a good diversification for an investment portfolio.

Batanai Matsika is the Head of Research at Morgan & Co. He can be contacted on +263 78 358 4745 or email: batanai@morganzim. com

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