The Fallacy of a Unitary Market

Continuing McCarthy's discussion on 'The Fine Art of Investing', The notion of an 'art market' is misleading. Art is defined by four broad categories: fine art, decorative art, antiquities, and collectibles. According to David Kusin of art research firm Kusin & Company, the 'art market' is made up of approximately 150 discrete, independently moving markets. This obviously is one of the challenges of investing in art, but it is also one of the reasons art can be extremely useful in diversifying an investment portfolio.

Art transactions occur in two distinct channels: Auctions and dealers, with each having half the market. The big auction houses, such as Christie's and Southeby's, cover a wide range of markets, while the dealers are smaller, each focusing on a sub-market. Sale prices from auctions can be tracked, but dealer sales and direct buyer-to-seller transactions are not disclosed.
Art tends to disappear into collections for long periods, which means that intra-sale valuations require private appraisals. Turnover on average is roughly 30 years.

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