The principal of this is nothing new. In Tudor times a prudent man of wealth bought land and property, then sought the advice of his agent to acquire the best and most desirable goods and chattels of artistic or intrinsic worth. At that time many of these were imported from newly discovered countries on the other side of the world. These wares became increasingly popular. A century later there was a demand close to frenzy among the upper classes for a wide range of foreign luxury novelties, including oriental porcelain and lacquer furniture.
In the 18th century young British gentry extended the acquisition of foreign artefacts to those of historical interest. Horace Walpole put his seal on the vogue for the antique when he claimed to be the first person to travel 60 miles to an auction to buy ‘a set of old India chairs of ebony.’
With a few minor exceptions these goods, for the most part, held their value and, at best, showed quite handsome returns when sold. So the security of buying contemporary objets d’art and treasures from a bygone age became well established towards the end of the 20th century. How simple it all was then.
From the 1950s until the 1990s people who collected antiques as an academic exercise and those who furnished their house with them found ever-increasing demand. This caused their collections and household furnishings to earn money while they admired and studied or simply used and enjoyed. Anything old seemed to be a good investment, a concept encouraged by the British Rail Pension Fund’s art investment of £40 million in 1974. This
is probably why at the time comparatively little was written about the disadvantages
of such investments. The turn of the last century is when things started to change.
Today - and for most of the last decade - it is only the impassionate investor who can confidently expect and achieve a satisfactory return. Of course collectors can still enjoy their collections and will continue to buy academically. The furnisher can still use their furnishings and continue to buy enthusiastically the pieces they like. However, it can no longer be taken for granted that either will see their purchases automatically increase in value. If they do it will be because other people, i.e. ‘the market’, likes them too, thus creating a demand. But that is luck not logic, which is no sound basis for an investment.
In essence, investing in antiques should be no more complex than buying stocks and shares. Your adviser, the equivalent of your broker, tells you when there is an opportunity for a purchase, suggests a time scale for lock-in, the likely return forecast and the reasons behind his recommendation. You take his advice, buy and place the item in store. When he tells you to sell, you sell. While it should be no more complex than that - it is.
Antiques are emotive. They represent an element of personal creativity, individual artistry and skill, quite outside the artistry and skill required to build a major company. A work of art is a tangible object - the price and demand for which is dictated not only by current economics and the material of which it is made but by an unstable element - fashion.
So where is the logic? What do advisers look for and how do they justify their forecasts?
To begin with there is criteria that must be adhered to. An investment item must be of supreme quality within its category and have significant provenance. Whether it is Captain Cook’s humble, but elegant, wooden chair, the Duke of Manchester’s magnificent marble Cabinet or the Koh-i-noor Diamond, provenance is the master key.
• This needs to include an owner, a designer or a maker at least, and the more of these to a single piece the better.
• It must then have a saleability factor so that in the case of a sudden need for liquidity there will be a salvage value. It is true there is never a bad time to buy a fine work of art, only a bad time to sell, but a good investment piece should stand up to that situation.
• It must also feature growth potential in either its unrevealed history, as in a ‘sleeper’ or ‘lost’ item, or in its out-of-fashion style or in its currently unfulfilled functionality.
Forecasting growth in any asset class is based on experience, solid research, hard work and common sense. For example when a country known for its long-established production of works of art goes into recession, the national heritage comes onto the market and prices fall. When inevitably that country’s economy wishes to recoup its national treasures, prices will rise. Changes of government, regime or natural disasters may also have an affect on supply and demand and therefore world prices. Equally if a country’s antiques, for example English silver, become more saleable in America then they are easily transported there to take advantage of the better market.
Fashion, albeit unstable, is not difficult to predict. Like national economies, it will swing. The recommended minimum lock-in period for an investment is five years. This is based on the change in demand from one artistic style or fashion to another - from Shabby-chic to Minimalist; Old French to Robert Adam; Arts and Crafts to Art Deco. Since the 1970s all have changed within a five to seven year period.
Most of the above applies to high-end major investment items, whereas functionality has more affect on the lower end of this market. For example, the slope-front bureaux lost
its appeal in favour of flat top desks when the computer replaced the more compact typewriter. As a result the price of slope-front bureaux fell to a third within a period of 18 months. During the following 18-month period the average price doubled from its
low but remained below its former peak.
Over the previous 30 years an avaricious demand had lead to a vast amount of originally cheap, ordinary, mass-produced domestic items dating from the late 18th and early
19th centuries, with no more merit than that they were old, coming onto the market. These were often physically ‘enhanced’ and at inflated prices. By 2005 prices for
‘brown furniture,’ household silver and plate, Victorian desert services and domestic brass and copper tumbled to a fraction.
Obviously these prices were too low and this afforded anyone with a little capital and
a lot of space to buy such pieces in bulk and store them for the first of what turned
out to be a short-lived revival. Some prices doubled in a year before falling back again.
Unfortunately, any inducement that now is a time to buy usually backfires and a series of articles in magazines and quotes from institutions during the 2007- 2009 period proved to be no exception. When such an august body as Deloitte announced in 2009 it had turned its attention to the antique furniture market and concluded it was a good time to acquire a “proven asset at a low price” and that it “offers a hedge against future inflation,” it
had little other than a negative affect. Particularly when in the same statement it claimed the best argument for buying old over new was “simply that antique furniture is better made and cheaper than new furniture.” This was an inaccurate over-generalisation on both counts.
Historically the finest examples of any category of work of art or antique, from arms and armour to statuary, furniture, ceramics and metal ware, have shown a 7.5% - 10% pa compound interest increase after a five-year period. Nevertheless there are two main disadvantages that apply to all aspects of such investment that should be made clear:
• Liquidity. You cannot call youradviser and sell over the phone. Even if there are potential buyers in the wings, negotiations can take several months.
• The whole business is unregulated, so trust in the adviser is crucial.
It is the adviser’s duty to assimilate information from a wide circle of expertise in addition to his own by working with museum and gallery curators, auction houses and independent specialists to feed information to wealth and specific fund managers and through them to the investor.
Having gone through a period when any old domestic items gained value irrespectively, we are now back to Tudor basics where investment is concerned; advice was sought and only the best was bought. Providing that same diligence is applied today there can be no doubt a fine antique or wonderful work of art should be part of any prudent investor’s portfolio.
