NINE WAYS TO MAKE MONEY IN THE ART MARKET

Last week, we looked at the many ways that careless collectors can lose money when they buy and sell works of art [see "Nine Ways to Lose Money in the Art Market," July 16, 2009]. Of course, money can also be made in the art market. It goes without saying that a true passion for art is the first requirement. That love of art helps you believe that you possess the sound judgment to pick good artists, and gives you the discipline to hang on to them -- 15 to 20 years being optimum. The bottom line is not to be greedy when it’s time to sell. Remember the sage advice supposedly given by Lord Rothschild when asked the secret of his success: "I always sold too soon."

1. Buy the program. Imagine if you had bought one work from every show at the Daniel Weinberg Gallery in Los Angeles during the late 1980s. You would have ended up with a Robert Gober (and a sink, no less), a John Chamberlain, an Eric Fischl, and a Robert Ryman. Ingratiate yourself with a dealer who has picked winners in past eras, such as Paula Cooper, or more recently David Zwirner, James Cohan, Adam Baumgold and Zach Feuer, and watch your art portfolio soar.



2. Sacrifice your pawn (to get to the queen). Often, to make the above strategy viable, a collector finds him- or herself having to buy a work or two by a gallery’s less celebrated artists. Many years ago, some believed that a good way to approach the Mary Boone Gallery to obtain a work by Fischl or Schnabel was to offer to buy a Gary Stephen or a Michael McClard. Even the great Leo Castelli smiled upon those seeking a Lichtenstein, Johns or Stella if they asked to buy a Cletus Boyer, Mia Westerlund Roosen or even a Keith Sonnier.



3. Buy from an artist’s estate. Be it Sam Francis or Andy Warhol, lucky are the collectors and dealers who can get close to an artist’s estate, and be able to cherry pick from the trove of paintings the artist has left behind. Estates often sell work below market for several reasons, including to avoid speculation. Their strategy is to place pictures with bona fide collectors who will hold onto the work rather than ship it off to auction. If you are lucky enough to be able to acquire pictures from an estate, handle your opportunity responsibly -- there are no second chances.



4. Buy new release prints. Even though prints are less likely to jump in value than paintings, they do offer opportunities for appreciation. And when it comes to prints it’s all about the publisher. Having a subscription to ULAE, or to a lesser extent to Gemini and Crown Point Press, insures you of the opportunity of buying prints at their IPO (initial public offering) price. Once the edition sells out, the publisher automatically raises the price.



5. Buy items that pass at auction. Risky business but highly lucrative when it works. When an artwork fails to make its reserve, anyone can approach the auction house with an offer to buy it after the sale. On the negative side, the whole art world is aware the thing didn’t sell and hangs the scarlet letter "B" (for Burned) on it, claiming it was either inferior, grossly over-estimated, had dubious title or some other defect. Think independently. If you decide that it’s a quality work, go for it and make the auction house a lowball offer. If the firm accepts, not only will you have gotten a bargain, but no one will know what you paid for it. When you go to sell someday, that will prove extremely beneficial.



6. Buy directly from an artist’s studio. Some artists are extremely loyal to their dealers. Then there are those. . . . If you choose to work with an artist who sells direct, be aware that most of them like to be paid in cash. You’d be shocked at some of the big names who will bend the rules to pick up spending money for vacations, greens fees and fancy restaurants. Remember, I’m not advocating that you do anything illegal. Just be cool about it so neither the artist or his dealer are embarrassed. Under certain circumstances, some dealers are willing to look the other way when an artist makes deals on the side, such as Andy Warhol’s arrangement with Leo Castelli.



7. Buy pre-retrospective. If you discover that a major art world figure is about to receive a full-dress retrospective, it’s time to spring into action. There’s nothing like anticipation of a major show to put an individual artist’s work in play -- the price of a work of art always goes up on the come. If you already own a painting by the artist about to be canonized, do everything in your power to lend your work to that show -- all the better to have your painting documented, which increases its value.



8. Buy an artist who is switching galleries. Artists are human. When an opportunity to exhibit at a more important gallery comes their way, chances are they’re going to take it. Try and buy a painting before the changeover becomes official. In one recent example, Robert Bechtle jettisoned a 30-year relationship with O.K. Harris for greener pastures at Gladstone Gallery. By exhibiting at a gallery with a stronger reputation, Bechtle’s work was seen in a fresh context, which helped his prestige, to say nothing of his prices.



9. Piggyback a purchase on a museum trustee. If you want to make a sharp investment, just find out which artist your local museum’s trustees are currently acquiring for their personal collections. You will find that even though it’s a conflict of interest, a "value-increasing" show of that particular painter, at that particular museum, is rarely far behind. Years ago, the San Francisco Museum of Modern Art held a large survey of Sigmar Polke’s recent work. While reading the wall labels, I noticed that a good proportion of the show was owned by members of the board. What a surprise.

NINE WAYS TO LOSE MONEY IN THE ART MARKET

With collectors being more selective than ever, it stands to reason that anyone left in the game is watching his or her cash more carefully than ever. While no one is certain how to make money in this environment, I guarantee the following examples are nine sure-fire ways to lose money.

1) Buy a mediocre painting instead of a great print. Or for that matter buy a mediocre painting rather than a great drawing. Too often collectors get caught up in art’s snob appeal. The objective is always to buy the best within your budget, regardless of medium. As wonderful a draughtsman as Jasper Johns is, not all of his drawings are up to snuff. It’s much better, from an investment standpoint, to buy one of his great prints, such as Ale Cans. There’s no doubt that it will appreciate at a faster rate than one of Johns’ murky ink-on-vellum drawings.



2) Let the auction houses talk down your reserve. From the auction house’s perspective, it’s all about convincing consignors to accept the lowest reserve possible. If, for instance, you put a painting up for auction and agree to a presale estimate of $600,000-$800,000, and a reserve of $600,000, you can expect a call a few days before the sale that will go something like this: "Look, we think your picture will do well, but given the economy, let’s be on the safe side and lower the reserve to $500,000."



Don’t do it. If your painting passes at $600,000, the auction house will field offers for it after the sale. Chances are the bidding stalled at $550,000, which means a potential after-sale buyer is likely to offer $500,000 (or less). If your reserve is already down to $500,000, you’ll probably be offered $400,000 (or less). The bottom line is that if you have a good painting, someone will pay up. If not, you shouldn’t have put it up for auction in the first place.

3) Accept a mere 10 percent discount from a gallery. For the purchase of works by contemporary art gods such as Brice Marden, Ellsworth Kelly and a handful of others, a buyer would be lucky to receive a 10 percent discount on any purchase from their galleries. But superstars aside, accepting a standard 10 percent off on even a successful mid-career artist is a mistake.



Galleries generally work on a 50-50 split with artists they represent. This means you should be able to get at least 20 percent off with a little negotiating. Right now, not only are galleries hurting, but so are their artists, who got used to flush times. From a dealer’s perspective, few things are worse than having an artist bug him or her for money. If for no other reason than that, galleries are likely to accept your 20 percent discount request. Try it.

4) Buy with your ears rather than your eyes. Here’s a great way to be taken to the cleaners. I’ll never forget the time the Los Angeles painter Chuck Arnoldi told me how he was at a party when Eli Broad, the country’s richest collector, came over to say hello and ended their discussion by saying, "See you at your studio."



The merely rich collector Douglas Cramer overheard this snippet of conversation and immediately approached Arnoldi requesting to do the same. In this case, Arnoldi was merciful enough to tell Cramer that "nothing was afoot with his career," after which Cramer promptly canceled his studio visit. You get the idea.

5) Buy an atypical work. Another sucker bet. There always seems to be one artwork in any given show where the subject matter veers off into the ozone. If you’re buying a Wayne Thiebaud, you obviously want to buy "sugar." Even though Thiebaud is a first-rate portrait painter, the art market could care less.



No matter how tempting one of his figurative paintings may be, or how attractive its price, treat it like drugs and just say "no." You may even decide that you genuinely like the painting regardless of market forces. But if you acquire it, when the time comes to sell, you will come to despise your "inspired" purchase when you see how difficult it is to unload at any price.



6) Buy a work from a blue-chip gallery without being properly introduced. I once dealt with a wannabe collector named Paul S. who always bragged to me about his buying trips to New York. He waxed poetic about how "Ileana" (Sonnabend) rolled out the red carpet for him and how fortunate he was to buy a Peter Halley from her.

The only problem was that it was a weak painting that had already been rejected by Sonnabend’s better customers. The point of the story is that if you want to play with the big boys (Gagosian, PaceWildenstein, Marks, etc.), you had better be damn sure that one of their top collectors recommends you. Otherwise, you’ll receive the "Paul S." treatment.


7) Buy a work by an artist who’s "in play." If you decide that you want to buy a Richard Prince "Nurse" painting, you might as well put your money into California boutique wine futures and watch them go down — at least you can drink the wine. Richard Prince "Nurses," originally offered at Gladstone in the mid-2000s, for around $85,000 to members of the "club," climbed to over $8 million in 2007 (they’ve since dropped back to under $3 million).



Regardless, the speculator gang that ran up his prices at auction are like an elite fraternity house that you can’t join because you aren’t cool enough (in this case substitute "rich enough") -- so don’t even bother trying. Now that Prince has run his course, the next artist "in play" appears to be Peter Doig. Ditto for staying away from his work and market. Better to be an independent thinker and put your money into an artist who’s poised for slow and steady growth -- like Fred Tomaselli, Philip Taaffe or Christopher Brown.



8) Buy a work right after an artist has died. One of the biggest myths in the art market is that an artist’s work shoots up in value right after his or her death. Wrong (with the exception of Warhol). Most actually go down in value. The reason is that his market usually becomes flooded, thanks to family members struggling to pay estate taxes and dealers and collectors looking to cash in. Better to wait a year or two and let the dust settle, even if you end up having to pay a bit more.



9) Buy works of unusually large scale. The late Los Angeles dealer Paul Kanter once told me, "Never buy a painting that you can’t lift." He was right. There’s nothing harder to resell than a painting that’s larger than eight feet in any dimension. Even seven feet is cutting it close. Oversize paintings become white elephants in the marketplace.

Only a small pool of potential buyers have the wall space to handle these often ego-driven paintings. If you have a substantial wall that cries out for a massive work that makes a statement, you’re better off buying two smaller works to fill the void.