'Never think too much about the market...'

The Indian art market witnessed a tremendous boom especially as the new millennium set in. Prices reached a new peak between the years 2000 and 2007. The rise was indeed unprecedented! As a result, most people unaware of nuances of investing in art, turned to galleries that mushroomed during the heady phase. Auction prices set new records and several Indian art funds were launched...

Sadly, the whole scenario changed in a couple of months and the world was hit by financial scandals, recession and the market crash. Art too, suffered. Suddenly flow to art funds dried, galleries started shutting shop and investors shunned the auctions that were anyway few and far between. Suddenly the spectacular success stories of artists like Tyeb Mehta, Souza and Subodh Gupta, selling at over a million dollars, became inconsequential. It left many new-starters asking: “Is art really a good investment?”

In essence, art as an investment option has received extreme set of reactions, as the situation has swung from positive to negative and good to worse and now again slowly settling down a bit. Moving away from these short-term reactions, several research-based studies have been conducted world over that compare the long-term average financial returns of art as an asset class vis-à-vis more traditional investment tools.

The studies have compared the art index performance with returns generated by equities and bonds. Some of them track as much as three centuries of data. The study done by New York University professors Michael Moses and Jian Ping Mei, among the most popular with art professionals, suggests that art has not outperformed the Dow Jones industrial index or S&P 500.

In spite of the under-performance, if people buy art, it's because they love art! As celebrated art collector Charles Saatchi has famously remarked: “I never think too much about the market. I don't mind paying three or four times the market value of a work that I really want.” There's a lesson to be learnt here...