Breakout

From $58 million balloon dogs to $60 street art, how you can profit from art mania

Jeff Macke
Breakout

Last November Jeff Koons’ “Balloon Dog” fetched $58.4 million at auction, the highest price ever paid for a piece by a living artist. It marked another sign that traditional art investing rules have been tossed out the window as hot-money steps past the classics and chases modern works. The question for Main Street investors is whether or not they should try to cash in on the movement.

A former bank executive with a lifelong passion for art, Kipton Cronkite has a mind for deals and a discerning eye. Now Cronkite has taken those skills and started @60”, an e-commerce site that links upcoming artists with collectors. In the attached clip Cronkite says art is a good way to diversify an investment portfolio but buyers shouldn’t expect to find the next Koons twisting up inflatable animals at kids’ parties.

“There’s been a lot of press around what high-end art has been selling for and I think it’s intimidating to the average investor,” says Cronkite, “but I think people should still get into this market and diversify their assets.”

For his clients Cronkite advises taking the time to get to know the artist. Koons and his peers may be living, but that doesn’t mean they were just born. It takes years to develop the reputation and backstory that makes up such a large part of the perceived value in all art. In a market where modern art marketplace records are being set and actor James Franco is able to get $10,000 for “non-visible art”, it’s a little late to expect to make a quick killing.

“Number one: Buy what you like”

The advantage of investing in art over, say, Netflix (NFLX) is that art can be enjoyed on its own merits. That’s why Cronkite’s first rule is to buy only pieces that you enjoy. It’s going to take a long time for even the most promising artist to see his work appreciate. If trading stocks is speed dating, investing in art is akin to having someone's face tattooed on your forearm; you can break off the relationship whenever you want but it's going to be painful and scar you for life.

From a risk-reward perspective Cronkite says artwork resembles a penny stock. New artists may find their work selling for $500 to $1,000 but if they manage to stay in the marketplace and establish themselves, those values can gradually move higher but you probably shouldn't bank on it.

“It’s anyone’s guess how far that artist is going to go. It all depends on the collectors that are buying the art, the curators that are selecting the art to exhibit in the museums” says Cronkite. It really requires a long-term approach.”

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Koons's aluminum bunny balloon

Watch for bursting bubbles

Again the trick is time. Returning to Jeff Koons, while the story of “Balloon Dog” is inspiring the market for Koons-related merchandise is bumpy. In 2007 Koons was similarly hot, peaking in November of that year when his aluminum bunny soared over the Macy’s Day Parade. Less than a year later the recession hit and froze the market solid. By 2010 the company responsible for the actual manufacturing of Koons’ dogs was put to sleep in bankruptcy.

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