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There is so much talk about investing in art. There is also a lot of misunderstanding. My book Artful Dodgers: Fraud and Foolishness in the Art Market will soon discuss the topic in some detail. It will point out that the idea does not meet any of the requirements for an investment listed in any basic book of economics. Among them are that an investment must be made in a regulated market. There is no less regulated market than the art market. Even the international drug trade has more internal regulation.

Without going into all of the details you’ll eventually find in the book, let’s take a look at one critical factor. You cannot invest in the work of a living artist – you can only speculate. That is, you can speculate that the artist will not do something that will ruin his reputation and his market and that his prices (and hopefully resale values) will appreciate.

Here’s a sad, but true story:

A Texas watercolor artist who did high quality realistic cowboy subjects was doing quite well in the market and major dealer Bill Burford of Texas Art Gallery in Dallas was telling buyers, “This artist is going to soar. Within two years he’ll be as important as James Boren and his prices will be up there.” Within two years the artist was a hopeless alcoholic and his career had crashed. His collectors hopefully still liked what they had purchased, but they had no chance of recouping their “investment” through resale.

Remember, a Stanford University study reported by Gil Edelson showed that fewer than 1% of living artists have a secondary (resale) market in this country. Dr. Alex Rosenberg, ASA, AAA estimates that 98% of contemporary artworks will never again sell for as much as they did the first time.

Buy works by living artists if you like and want to live with them. Don’t buy them to eventually fund your kid’s college education or your retirement.