Art as Investment?

Welcome to another edition of “In the Minds of Our Analysts.”

At System2, we foster a culture of encouraging our team to express their thoughts, investigate, pen down, and share their perspectives on various topics. This series provides a space for our analysts to showcase their insights.

All opinions expressed by System2 employees and their guests are solely their own and do not reflect the opinions of System2. This post is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of System2 may maintain positions in the securities discussed in this post.

Today’s post was written by Yuan-Chien Yang and Adriana Oprea.

Summer is here! The inflation struggle still has a long way to go, but most of us are saving pennies to enjoy the traveling season. More traveling means more art museums for us art lovers. Wait — inflation and art, art and inflation, art… against inflation? 💡

As a tangible asset not tied to stock market performance, art can be a good hedge against inflation while also providing diversification. Here we'll look at data to try and see what information may be useful for investing in an art piece. 💰 

Artist and Artwork Evaluation

🎨 Is there any methodology for evaluating the value of an artwork?

There is Kunstkompass, which literally translates to "art compass" in German. It was developed by the German art critic Willi Bongard and ranks artists based on indicators of fame. The system gathers data from museums, commercial art galleries, and art journal reviews, then calculates the success of an artist from year to year, and finally compares it to gallery prices to determine the artist’s investment potential. It is widely used in Germany today as a guide for investors speculating on contemporary art.

Below is an example of Kunstkompass results from analyzing pop artist Andy Warhol’s data. The black line indicates the “success points” growth from 1970 to 1979 based on Kunstkompass calculations while the red line shows the overall Kunstkompass ranking.

🎨 That still sounds too vague. What data matters the most for an art piece's value then?

We collected below data points for the top fifty painters based on a Google search. Our goal is to find the most relevant data point(s) to an art piece’s turnover value:

  • Artist's lifetime, nationality, and style

  • Wikilinks count

  • Google Books count

  • Shows: solo, grouped, and total

  • Past and upcoming auctions

  • Followers of the artist’s auction page

  • Marketplaces

  • Works for sale

  • Sell-through rate

  • Price over estimates

  • Lots sold

  • Lots unsold percentage

  • Google search interest

  • Kunstkompass worldwide ranking

Fun facts: among the top fifty painters in our analyses, most were alive between the late 19th century to the 20th century, though both the Renaissance and Baroque eras were as popular as Impressionism. It is not surprising that almost a quarter of these top painters were French Impressionists while American Modernists started attracting attention later.

🎨 Does a painter’s popularity today increase their artwork turnover value?

From a quick glance at Pop artist Andy Warhol’s data, the overall price index has been trending downwards along with his Google Interest. Yet, the data says differently for the Post-Impressionist Vincent van Gogh as his Google Interest trend was more related to film or TV show releases than any art events. The disconnection was more pronounced when looking at Michelangelo’s data.

🎨 Does the artist’s style impact their artwork turnover value today? Are the better known painters getting higher turnover value today for their art pieces?

Among all the data points we gathered, instead of measuring by Wikilinks count, Google Books count, or the number of artwork lots sold, data showed turnover values correlated better with artist auction followers. The highest correlation was at 0.75 with the artist exhibition count.

Let’s use Andy Warhol vs. Michelangelo as an example again. Unlike Warhol, Michelangelo’s artwork is rarely seen in auctions and very few art shows are held. Thus, Michelangelo had a lower turnover value and a lower Kunstkompass worldwide ranking, compared to Warhol, despite having the highest Wikilinks count and Google Books count among all the top fifty painters.

🎨 Is artwork really a good investment when stock markets fluctuate?

The correlation between these top artists’ overall price indices and turnover values against S&P 500 Total Returns only sits at 0.05 and (0.01) respectively. The analyses below with Monet and Picasso’s data points show how their artwork values are dissimilar to stock market performance. So, as always, there are no sure bets.

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