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Fine Art of Investment

When it comes to sinking your money into the art market, caution is critical.

Which is the better investment--a $100,000 Jasper Johns acquired at a prestigious Manhattan art gallery or a $1,000 painting purchased from an undiscovered artist on a SoHo street corner?

With the recession battering prices of everything from luxury homes to exotic cars, it's tempting to think that great art is out there waiting to be snapped up at bargain prices. And, to some extent, that's true: Annual sales of contemporary art plunged 75 percent at Sotheby's and Christie's evening auctions in 2009, Bloomberg reported, down from $1.97 billion in 2008 and a record $2.4 billion in 2007. (Recent auctions, such as the Sotheby's sale in February that saw a Giacometti sculpture fetch a record-setting $104.3 million, indicate that the art market may be starting to recover.)

Buying art can be tricky because every painting, print or sculpture is unique. "If you're buying art as an investment, you need to investigate the artist and his work before you buy," says Alan Bamberger, a San Francisco art consultant, appraiser and author of The Art of Buying Art. "It's no different from doing due diligence on a stock."

Here's Bamberger's step-by-step guide to becoming a savvy collector:

Find an artist or period you like.

See and Appreciate

Art fairs offer the opportunity to see artists' work firsthand, as well as develop relationships with dealers. A guide to some upcoming events:

Los Angeles Modernism: May 1-2

New York International Tribal & Textile Arts Show: May 14-17

Eastside Millennium Art Festival, Chicago: June 4-6

Des Moines Arts Festival: June 25-27

Francisco's Farm Arts Festival at Midway College, Midway, Ky.:June 26-27

Scope Hamptons, East Hampton, N.Y.: July 7-11

Art Santa Fe, Santa Fe, N.M.: July 15-18

Ann Arbor Street Art Fair, Ann Arbor, Mich.: July 21-24

Visit galleries, museums and art fairs, talk to dealers, and surf the web to find an artist whose work "speaks" to you. After all, even if the artist never attains the status of an Andy Warhol or a Picasso, you're still going to have to look at the work every day.

Do your homework.

Study everything you can about the artist's background, career, shows and the prices that the works have sold for in galleries and at auction.

Find a dealer you can trust.
Galleries typically work on commission (usually a 50/50 split with the artist unless the artist is extremely well known and highly salable), but a dealer whose gallery specializes in a particular artist can help you decide what to buy and how much to pay for it. It's possible to buy directly from an artist, but you need to know what you're doing.

Understand the risk you're taking.
"You're taking a bigger risk" buying the work of a relatively unknown artist than you would with a blue chip artist, Bamberger says, "but you're paying a fraction of the cost. If the artist's career takes off, your return could be huge."

Beware of buying into a bubble.
If an artist's work has soared from $5,000 to $50,000 in a short period of time, that might be a sign that the market for that artist is heading for a fall. Likewise, Bamberger says, beware of artists whose work seems to be everywhere.

"You want to start slow and do a lot of reading," he says. "Start with reasonably priced items and work your way up the ladder. Take the piece home, look at it, live with it. It's always good to be cautious until you know what you're doing."

Rosalind Resnick is a New York-based freelance writer, entrepreneur, investor and author of The Vest Pocket Consultant's Secrets of Small Business Success.

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This article was originally published in the May 2010 print edition of Entrepreneur with the headline: Fine Art of Investment.

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