There are two types of assets…one delivers a return…such as rental property, stocks or a farm and [one] you buy where you hope that somebody pays you more later on, but the asset itself does not produce anything…I regard the second as speculation.” – Warren Buffett (from an interview on CNBC, December 2014)
For many owners of paintings, their collections are heirlooms to be handed down over the generations as a source of pleasure, a connection with the past and a store of wealth. Now, as these paintings do not produce income, in a purely financial sense according to Warren Buffett, they are speculative.
But is the purchase of a painting speculative? Surely a speculative asset is one which is intended to be sold at a profit in the short term. People rarely sell the paintings they have bought – that is the work of future generations.
In the early 1960s Flaming June by Frederic, Lord Leighton (see above) was put up for auction (Victorian era paintings were out of fashion at the time): it failed to sell for its low reserve price of US$140. In 1963, Andrew Lloyd Webber, the great collector of Victorian art claims to have missed the opportunity, for want of funds, of buying it in a junk shop on the Kings Road in London for just £50. Shortly afterwards, it was purchased for US$1,000 by the Museo de Arte de Ponce in Puerto Rico, where it still resides.
Recently, a less accomplished painting of an attractive young woman by Leighton sold for nearly $2m. Although I imagine the Museo de Arte de Ponce is unlikely to sell, this would imply a roughly 15% average annual increase in price for Flaming June. Not bad even by Warren Buffett’s exacting standards.
Does this Puerto Rican experience mean art is a sound store of wealth? Not if you consider the very mediocre return of the very first owner of Flaming June…
What should we conclude? Well, Warren Buffett is right; from a purely financial viewpoint, art is speculative. But if you buy a painting that you like at an affordable price, you will not need to worry about its value and you will have the benefit of owning a fine picture and an heirloom.
You will find most works by Louis Ryan still very affordably priced.