The Big Picture : Art Market Enjoys an Investment ‘Boomlet’

When “Angel Fernandez de Soto,” a rare portrait from Pablo Picasso’s blue period, sold at auction this month for a record $29.15 million--three times its estimated value--industry pundits immediately proclaimed that investing in art was back with a vengeance.

Even before the Picasso sold to composer Andrew Lloyd Webber, many brokers, dealers, gallery owners and investors were saying they’d perceived a quiet resurgence in buying paintings for more than just aesthetic value. But the auction at Sotheby’s--arguably the first “important” sale of the year--had some experts crowing about an industry renaissance.

“It’s getting to be like the 1980s again,” gushes Ellen Gmelich, a principal at Tirage Art Consultants & Gallery in La Canada Flintridge.

The art market could use it. Through the late 1980s, art speculation was rife and the prices of paintings, sculptures, lithographs and prints soared. But the bloom fell off the rose in the early 1990s, and investors who thought they could buy and resell art at a profit were stuck with pricey paintings that plunged in value.

Still, unlike the wild, big-money speculation that hit the art market in the 1980s, today’s “boomlet” appears to be fueled by middle-income investors who are buying middle-priced art, says Michel Witmer, president of Michel Witmer Fine Art Inc. in Washington.

For investors, the middle may be the best place to be for the most practical of reasons. “There are a lot more million-dollar masterpieces to be sold than there are millionaires to buy them,” Witmer notes.

The market for $500 and $1,000 paintings, on the other hand, is broad. And those who hit it right find that relatively modest investments can pay off in dramatic fashion.

Consider Alison Johnson, a Los Angeles-area interior designer. A few years ago, she bought an early California painting at an antique store for $900. She recently attended a show where the same artist’s paintings were selling for upward of $4,000, she says.

Daniel Hancock, a Manhattan, Kan., physician and art collector, says some of his paintings have doubled in value in just a few years.

Art dealers tell even more dramatic stories. One woman bought a series of Italian portrait paintings for $100 each at an estate sale a few years ago. Today, each is worth more than $5,500, says Karen Hackett, another principal at Tirage. Another customer called Tirage to appraise an old painting that the original owner’s heirs were ready to give to Goodwill. The painting turned out to be a Walter Ufer, which later sold at auction for $85,000.

“After the [Northridge] earthquake, we did a lot of work for insurance companies to determine the value of art that was damaged,” Hackett says. “There were several instances where the replacement value of the listed artwork was five times the original purchase price.”

Glory stories aside, buying artwork for investment is at best an uncertain enterprise. That’s partly because it’s difficult to determine the right price to pay for a piece.

There are no objective measurements of value relative to size of the painting, Witmer notes. Thumbnail-sized portraits can occasionally be worth 10 times more than mammoth canvases--even when done by the same hand.

Still, where stock market investors can turn to price-earnings ratios, dividend yields and earnings projections to gauge whether a particular company’s shares are overpriced or a bargain, art investors can turn to auction books.

The “Art Sales Index” and “International Auction Record” list the price, artist’s name, name of the work and the size of each work sold at auction in a given year. Although there’s still plenty of additional work required to accurately judge worth, art appraisers religiously use these books, which provide a starting point for virtually all estimations of value.

“Buying art is kind of like buying real estate,” says collector Hancock. “With real estate, the key to making money is ‘location, location, location.’ With art, it’s ‘the artist, the artist, the artist.’ ”

But even when you choose an established artist, buy an “important” work and pay what appears to be a reasonable price, you can lose money for no other reason than the fact that the art market is fickle.

“Art is highly susceptible to fads and international cycles,” says Terry King, a Denver-based appraiser and vice chairman of the international personal property committee at the American Society of Appraisers in Washington. “It has no ability to produce income. So if it goes out of fashion, it just sits there.”

Indeed, experts say, there is but one inviolate rule for investing in art: Buy what you like, because there’s a decent chance it will be hanging on your wall for a long, long time--whether because you like it too much to sell or because it won’t sell at a reasonable price.

Says Hancock: “The art market is schizophrenic. Things go up in value--sometimes more than they should. And then they fall back again without any rhyme or reason. I have friends who bought paintings that they didn’t really like, for investments, but then the market cooled and they were stuck with them. Paintings are not really liquid investments.”