Forbes: Thoughts On Collecting Art
The recent death of famed art collector Sheldon Solow has raised in my mind the more common question for estate planners about what to do with art in an estate. Once a person starts accumulating Art, their mind often turns to forming a Collection. Any estate planner for the collector should ask some hard questions. The fact is that Art of every description are sold each year as adding to a collection; unhappily, most of these collections fail in the long or short term to be financially or artistically successful and end up being broken up at the death of the Collector. If you are intent on creating a collection, here are a few thoughts on what to do, and not do, from an estate planner’s perspective.
Since the great majority of collections are financed out of your own pocket, the high failure rate of collections to add financial or social value should be a sobering statistic for your family. It may be fortunate for the art economy as a whole that so few buyers are daunted by the decline in the financial value of art, but it is hard on the individuals who inherit the art to make it a lasting collection.
Much of the popular material on Collecting is ebullient in its optimism. It can be hard to keep one's head in the face of popular literature extolling the giant winners in the game— Saatchi, Guggenheim, Kravitz and their peers, creators of new collections, indeed new categories of Art, which dominate the market and return hundreds of times the initial investment. The giants are an integral part of the mystique of Art collecting, but a Kravitz comes along once in a lifetime.
The odds against hitting big are astronomical. Accordingly, books which record the anecdotal history of how J.P. Morgan or Henry Frick put together their collections make fine reading, but the home-run expectations they promote can be dangerously intoxicating. A Collector faced with the "go, no go" decision—whether or not to invest his savings in a new collection—is fooling himself if he stacks the reward side of the equation with the possibility of making hundreds of millions of dollars. It sometimes happens, of course, and someone has to win the lottery, but the vision of those sugarplums is not a sound basis for an intelligent collecting decisions. To be sure, it remains realistic for many collectors to think of big rewards, perhaps even millions of dollars, albeit after a long period of enormously hard work and great risk. Nonetheless, it is important to understand that in the vast majority of the collections—indeed, for the majority—the returns on the founder's investment (and that investment must be calculated to include opportunity costs) are modest. Many founders may be satisfied, but their heirs find that, at the end of the game, the Collection has either lost money.
There is a saying, attributed to Lord Palmerston, that many foolish wars have been started because political leaders read small maps. Many collections have been imprudently started because of the founder's inability to understand how difficult it is to achieve a significant Collection. Some art investments have, in fact, outperformed the stock market in the postwar years and, in many cases, quite handsomely. There have been periods when 25 percent compounded rates of return have been available to the investors; indeed, substantially higher rates have been achieved by many contemporary art collectors, and over long periods of time. But it is an economic impossibility to compound any substantial sum of money at a 25-percent rate of return indefinitely. It is 0ften the estate planner’s job to point out that reading the success stories in the papers is all well and good, but you need to focus on the hard work and risk involved in collecting.