Why is the art market so opaque?

Unlike stock market prices or the real estate market, those outside the market do not know how the value of a work of art is constituted. Who actually determines when an artist is on the rise? How am I supposed to know how much style and material will be worth one day? There is no investment advice on art (yet) - although it is chic to collect it. Works of art have long been understood as capital investments. 

Nevertheless, the entire market seems to take place under the surface. Various financial and art experts have already tried their hand at tickling concrete figures to the surface, at opening up the market movement to everyone. Twenty years ago, the anthology ArtInvestor (2002) offered 56 authors a stage to perforate the art market a bit more. The editors: artist Rissa, tax consultant Lothar Pues and Edgar Quadt, publisher of the eponymous platform artinvestor.de. All publications agreed that it is extremely difficult to see through trends and prices on the art market - this has not changed to date. 

Value does not equal price

The art market is so opaque because it is controlled by insiders, the secondary market and a few super-rich people - and because there are no clear valuation criteria. Codes that have been agreed upon determine who can demand how much. Deciphering them: difficult. It is easy to find out at what price real estate or cars are traded. People willing to invest get an overview whenever they are ready to redistribute their money. In a pinch, there are plenty of advisory services they can rely on - roughly, they know what's coming. And there is a basis for negotiation.

Art collectors, however, don't act so frankly. They say that credibility is one of the criteria they use to speculate in which direction the value curve will swing. However, according to Hubert Thurnhofer, it is simply wrong to derive the price from this value. In his book die Kunstmarkt-Formel (The Art Market Formula, 2014), he advises making a strict distinction between the value and pricing of a work of art. These are two completely different things: »The value of a work of art is produced by the artist's creative process, and this value itself cannot change. Only the price of each work of art can change, that is, only the value for the buyer can change.«

Accordingly, those who »make the market,« Thurnhofer calls them the market makers, decide the price. He counts museum directors among them. They move a lot of money around, even though they consider themselves independent of the market - deciding how much time and money to put into marketing a work. For example, in the form of publications, exhibitions, and art fairs: »Thus, while marketing is irrelevant to the valuation of a work of art, it is more important to pricing than in any other market.«

Fascination discretionary

Art dealer Iwan Wirth considers this intransparency in pricing to be »great.« In an interview with Bilanz magazine, he emphasizes that the situation is in the nature of things. Art is not calculable like the production and sale of goods in the »normal« economy. It is the fascination for it that is a pure question of discretion, desire and the wallet, which determine this price. Pretty succinct this reasoning, but perhaps there is more to it than meets the eye. 

Art historian Dieter Ronte sums up this sobering certainty very aptly in the ArtInvestor anthology mentioned above: »In the case of art, there are no objectively verifiable criteria with the help of which one could judge quality. One cannot even say objectively whether a particular object is art at all or not.«

If you really want to know how the market is developing, you have to dare to invest yourself. One must not be afraid of losses, but so risk seems to be the only way to gain clarity.