What is the optimal holding period for art and antique investments? This is a common question among alternative asset investors. And, unfortunately, it is a question with no simple answer.
But there is at least one clear guideline surrounding the ideal holding period for art investments. The longer you hold fine art and antiques, the better. As the famous investor Warren Buffet once said, “(my) favorite holding period is forever.” Buffet originally applied this wisdom to stocks, but I believe it applies doubly to investment grade art and antiques.
There are a couple of reasons for this. First, most traditional assets like stocks and bonds are very liquid – meaning easy to trade. This is not the case with alternative assets, which are usually extremely illiquid. This means that art and antiques tend to have wide bid/ask spreads and are difficult to sell for fair value on short notice.
While illiquidity is, paradoxically, both a blessing and a curse, it absolutely precludes short-term trading as a profitable investment strategy. Therefore, it is only possible to consistently turn a profit in art and antique investments by holding them for significant periods of time. Patience is one of the savvy art investor’s greatest virtues.
This stands in stark contrast to the paper asset markets where holding periods have declined dramatically over the last several decades. While many stock investors like to think of themselves as adhering to the traditional buy and hold philosophy, the reality doesn’t seem to align with the myth. According to a 2015 Wall Street Journal article, the average holding period for stocks has reached a nadir of only 4 months, after having declined steadily since the early 1980s. If you like traditional buy and hold investing, the art market, unlike the stock market, still rewards patience.
Another compelling reason to hold art and antique investments for longer is because their full potential is only realized over extended periods of time. Artistic styles naturally cycle in and out of vogue over multi-decade timeframes. A well chosen, but unfashionable antique purchased cheaply today may very well be tomorrow’s must have piece.
Vintage European mechanical wristwatches are a great example of this phenomenon. In the 1980s, these miniature works of art often sold for bullion value – perhaps a couple hundred dollars each. Untold numbers were unceremoniously shipped to gold refiners as scrap. But today, circa 2017, vintage mechanical wristwatches from renowned makers such as Vacheron Constantin, IWC and Omega routinely sell for several thousand dollars apiece.
It can also take society decades to understand and appreciate the aesthetic genius of great art. An old saying in the art world is that “No artist is truly appreciated until after he dies.” Johannes Vermeer, Paul Gauguin and Vincent Van Gogh are just three ultra famous artists that died penniless and unappreciated by their contemporaries. They all had difficulty selling their work when they lived, even at heavily discounted prices. Yet even a minor work by any of them would easily sport an impressively large price tag today.
I think the optimal holding period for art investments is clear: as long as possible. But I also understand that holding forever is not always realistic or desirable. So a good rule of thumb is that the absolute minimum holding period for art and antique investments should be 7 years. If you don’t hold for at least this long you should fully expect to take a loss on resale.
And simply holding for 7 years certainly doesn’t guarantee a profit either. In fact, I think that 10 years is really a more reasonable minimum holding period. A full decade gives at least a reasonable chance for stylistic tastes to change and underappreciated artists to develop a following. Art and antiques are excellent investment vehicles, but their true potential is best realized over decades. Art connoisseurs who understand this fact will have a tremendous advantage over those who don’t.
