Valuing Art - How an Art Price Index Could Change Everything !!!

One of the reasons that more people don’t invest in
art is the lack of a means of measuring the value of their investment
on a day to day basis like you can with shares. As the old saying goes,
“knowledge is power” which means that a lack of knowledge equals a lack
of power and a lack of power equals a lack of control. Investors tend
to associate the level of control they have over their investment with
how secure
their money is because a high level of control would allow the investor
to quickly react to an event that is causing a reduction in the value
of their investment thereby minimising the negative effects. Because
most people are extremely selective and cautious when it comes to
investing their money, the level of control that people have over their
money is a crucial deciding factor when it comes to deciding what their
money will be invested in which is why the stock market is such a
popular option.

Because of the nature of the art market there has not
been a successful attempt as yet to produce an index that would allow
people to sufficiently measure the “health” of their investment on a
regular basis so those that do invest in art are relying on the factors
that determine an increase in value in the long term as opposed to
those that determine an increase in value in the short term.

Imagine for a moment that a price index was able to
be created for each individual artist that constantly tracked the value
of their work (or shares in art) and that there was a way of instantly
trading works of art (or shares in art) in real time. The way people
approached the art market, the way art was bought and sold and the
factors that determine the price people are willing to pay for an
artwork would be completely changed if such an index were available.
Auction houses and galleries would most likely become obsolete with art
brokers taking their place as representatives for artists and service
providers for investors. Although such an index would solve the
problems of determining value it would also cause most of the
advantages of art investment such as the stability, potential for
growth, value of the asset etc. to disappear thus probably rendering
the whole art market obsolete.

The above scenario will obviously never eventuate
(thank goodness) but it does highlight the need for everyone involved
in the art world to carefully consider what effect their actions are
having on the art market especially when the art market is experiencing
such growth.

**Nicholas
Forrest is an art market analyst, art critic and journalist based in
Sydney, Australia. He is the founder of artmarketblog.com, writes the
art column for the magazine Antiques and Collectibles for Pleasure and
Profit and contributes to many other publications.