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From: wildbill@ucbvax.ARPA (William J. Laubenheimer)
Newsgroups: net.invest
Subject: Re: Should I Invest in Art?
Message-ID: <2178@ucbvax.ARPA>
Date: Mon, 24-Sep-84 23:54:44 EDT
Article-I.D.: ucbvax.2178
Posted: Mon Sep 24 23:54:44 1984
Date-Received: Wed, 26-Sep-84 07:39:04 EDT
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Organization: University of California at Berkeley
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> from Bruce Stephens (hplabs!hp-pcd!bruce):

> Does anyone out there in net.invest.land have any experience
> with art as an investment?

On my budget? You've got to be kidding! But I do know a number of people
who collect art works.

> I am considering the purchase of a newly offered print by
> Salvadore Dali.  It is a nice print but I certainly wouldn't
> consider spending that much (~$1500) on something just to put
> on my wall.

> Does this sound like a reasonable place to put some of the
> money that I have to invest?  

All of these friends, plus all the advice on investing in collectibles which
I have read, stress that their desire to build a collection arose not from
any desire to make money, but from appreciation of what they were collecting.
("What? Sell my three original Carl Barks [Disney animator - most closely
associated with Donald Duck] cels? Never!!!") Be it stamps, coins, fine art,
or even comic books, reliable expert opinion (as opposed to the "experts"
who are trying to sell you on something) is virtually unanimous that
investing in collectibles is a bad idea unless you also appreciate the
object as the object. So, if you are attracted to the print as art, and
appreciate it as art, it is worth considering. If not, you'd be better
off investing your $1500 somewhere else.

> Any ideas about possible return on investment (ie will the
> value really double when the artist dies?)

Hard to say. Since you are dealing with an artist who has been famous for
a long while, you may be able to get some idea by asking a reputable art
dealer (or better yet, several reputable art dealers) in your area about
other Dali prints which have been released in the past several years.
This may give you some ideas about general trends. To determine what
might happen after Dali dies (which could be quite soon, as he is in
a Spanish hospital in poor condition, recuperating from a fire in his
bedroom), you might try looking at prices of reproductions by other
artists who have died recently (e.g., Picasso). You are much more likely
to see appreciation if the artist's personal touch is involved, such as
if the prints are numbered and signed by the artist.

> Are there risks associated with art sale?  

Plenty. This is the main reason why it is not worthwhile to buy if you
aren't especially interested in what you are buying. The major risks stem
from the fact that art is not particularly liquid, has a limited market,
and is difficult to sell. One example of this: say you are short of
cash and decide to auction it off. Well, you might just luck out --
Christie's is having an art auction in three months. You say you needed the
money tomorrow? Gee, that's too bad. OK, i'll try my friendly neighborhood
art dealer. He says he'll be happy to sell it for you, but he doesn't know
when an interested buyer will come along, and no, he can't advance you
any money on it -- you'll just have to wait until he sells it. The bank isn't
interested in it as collateral either. So you scrape up the money some other
way, and notify Christie's that they can enter it in their catalogue. You
are asked if you want to post a minimum bid, so it can't be sold for less
than you hope to get. Back to the art dealer -- you pay him $50 or so to
have him tell you he thinks it's worth $2500 now. Back to Christie's --
they ask for $250 up front, since their cut is 10% of minimum bid whether
it sells or not; 10% of purchase price if sold. Or you can put it up with
no minimum, and hope some bargain hunter doesn't scoop it up for a mere
couple of hundred. Ouch!

> Are there any tax consequences that I should know about?
> Does the IRS have to know?  

Works of art are treated as capital items. The purchase price (less any
taxes/commissions) is the cost basis. The sale price (again less any
taxes/commissions/other costs associated with selling - this includes
things like appraisal fees, appraisal fees to set cost for insurance
purposes (but not the insurance itself) [you should probably adjust
the cost basis for this]) less the cost basis determines the net gain
or loss, to be reported on Schedule D. The gain or loss is long-term
if you held the work for more than the current holding period; otherwise
it is short-term. If you bought the print publicly, assume the IRS knows
about it -- the gallery owner will have made a record of the sale. If
you wind up selling the print publicly, or if it goes into your estate,
you'd better have records indicating what you got it for. Otherwise,
give it away before you get audited.