The blue-chip art market has attracted investors for decades due to its high appreciation rates and low correlation to other asset classes. Notably, contemporary and post-war art has appreciated 12.6% between 1995 and 2022, putting the asset far ahead of the S&P 500, corporate bonds, and other alternative asset classes like real estate.
Nevertheless, investing in fine art can be baffling for everyday investors with limited exposure to the market.
How do you know which artworks will generate high returns in the long run? What about the right time to sell a painting? If an artist’s paintings are trending, will they continue to hold strong in the future?
It’s just a glimpse of the questions that’ll pop into your mind the moment you think about investing in blue-chip art. And these are precisely the challenges Masterworks’s fractional art investing platform can help you overcome.
With the Masterworks app, investors can take a data-driven approach to art investing and take the guesswork out of the process, buying fractionalized shares of paintings purchased by the company. The platform’s extensive database of auction sales records allows retail investors to venture into the world of fine art with confidence, knowing that Masterworks has done its due diligence.
Building the Art Transaction Database
The art market has been generating many sales data for decades, and some of it is publicly available. However, it lacks a centralized database where the information is presented in a useful way for investors.
It can be for everyday investors to take a lot of work to find this data and derive actionable insights from it. That, in turn, makes art investing more challenging than other assets, such as stocks or real estate.
When the Masterworks team identified the challenge, they built their proprietary database. Over a year, it took the data collection team to scour through auction catalogs from the last three decades and compile an extensive database.
Next, they used auction sales figures from the database to build an accurate price index. It involved the “repeat sales” approach, which compares resell prices of a specific painting over the years to calculate its price appreciation.
Putting the Collected Data to Good Use
With decades of auction sales data at their fingertips, Masterworks’s research team doesn’t have to rely on their subjective views of a painting. Instead, they use a combination of historical sales figures and machine learning algorithms to identify artist markets with the best potential for appreciation.
Such data-driven insights inform the acquisition team’s decision-making process. They can identify artists whose works have consistently generated high returns for investors.
It’s particularly crucial, considering that the art market isn’t formally regulated (although investments with Masterworks are securitized with the SEC), and prices can fluctuate drastically. The value of artwork depends on several factors, including its historical significance and the artist’s reputation. Paintings that sell for millions today may not hold much value in a few years if the artist loses traction.
Masterworks’s data-oriented approach considers these factors to handpick high-yield art investments. Additionally, the use of predictive analytics tools helps identify emerging artist markets with good potential for price appreciation.
Besides facilitating strategic acquisitions, Masterworks uses data to determine the right time to sell a painting. The platform usually holds a painting for three to ten years before selling it and distributing the returns to shareholders. However, at times, short-term resell opportunities can generate higher returns.
The company’s acquisition and private sales specialists constantly monitor the market to collect first-hand demand and supply data. Combined with machine learning algorithms, their insights help identify and harness opportunities to deliver high gains to investors.
For instance, a mere 36-day hold on a Simone Leigh piece resulted in a staggering 325.5% annualized return. In another resell, a Cecily Brown work held for less than a year (259 days) generated a 77.3% annualized return. Waiting for the regular three to ten-year period may have yielded different gains.
Such calculated exits are only possible through the judicious use of first-hand insights and predictive analytics tools.
Making Blue-Chip Art Accessible to Everyday Investors
Worldwide art sales surpassed pre-pandemic levels in 2022, indicative of the market’s resilience. As an investment asset, fine art is largely immune to the economic forces that influence stocks, bonds, commodities, and other financial instruments. At the same time, while no investment is a sure thing, it’s more dependable than other digital marketplace-friendly alternative assets, such as cryptocurrency and NFTs.
That makes blue-chip art an excellent choice for building a robust portfolio that’ll generate high returns in the long run. However, traditionally, the market has been out of reach for retail investors unfamiliar with the nuance of art transactions.
Masterworks’s fractional investing platform is helping eliminate the mystery associated with blue-chip art. It allows regular investors to buy fractional shares of museum-caliber paintings for as low as $20.
Using proprietary data and machine learning algorithms helps the acquisitions team select paintings that promise high returns. As an investor, you’ll worry less about losses if a painting doesn’t appreciate as expected.
Moreover, the data-driven approach helps the company’s private sales specialists identify lucrative short-term exit opportunities. That, in turn, amplifies the chances of high profits for investors and helps minimize the inherent risks associated with fine art investing.
