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How to be a wise passion investor

Don't end up with a collection of worthless artwork that you don't even like.

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"Every artist has good days and bad days, and these masters are no exception. There are plenty of bad Picassos on the market. You might think that you've found a bargain - a cheap Picasso! But most likely there is a reason it was inexpensive." - Edie Hu (above)

INVESTING in art, like all other investments, can be a risky undertaking, especially when one is not fully aware of or familiar with the nuances of the art world.

The worst that could happen is that you end up with a collection of worthless art that you do not even like. A more optimum outcome would be that you enjoy the art and when you sell them, you are able to make a return on your investment.

Here are some tips for buying art with a view for investment.

First rule of buying art is: Do not buy art for investment. Most art advisors tell their clients to buy art that they like. Even if the art that you bought does not increase in value, at least it is something that you can still enjoy - another reason why this is called passion investing.

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Enlist the help of an unbiased art advisor. It is always helpful to have professional guidance because the art world thrives on insider knowledge. So if you are just going at it on your own, you might miss opportunities, overpay or end up buying a fake.

If you rely solely on the advice of someone with a financial interest in the work you are buying, you may end up with pieces that are overpriced or of inferior quality. If you are asking them for advice on what to buy, they might just push you on to something that they know they are having trouble selling.

An independent art advisor not hoping for a commission from a gallery or auction house could offer a more balanced view.

If you are just starting out collecting, do not focus on what is super hot at the moment. It's easy to get caught up in the hype because all you read about in the news are the headline-grabbing prices.

But the most popular artists are more often than not, going to be extremely expensive and often peaking. Instead, look at earlier trends that were once considered in vogue, like Old Masters, American and 19th Century European art.

Like fashion trends that come and go, top-performing artists who are overlooked at the moment could come back in popularity in future.

You can also consider artists from regions that are seen by the West as "emerging", like the Middle East and Africa. Other areas that are currently under-valued are Contemporary Chinese Ink painting and works by female artists.

A mistake that many collectors make is focusing too much on the brand names like Picasso, Monet and Warhol. Every artist has good days and bad days, and these masters are no exception. There are plenty of bad Picassos on the market. You might think that you found a bargain - a cheap Picasso! But most likely there is a reason it was inexpensive (quality, condition, date, subject matter) and you will find out only later that your "bargain" might not have increased very much in value.

"Art investment" companies have been cropping up all over Asia in the last few years. Many are targeting individuals who are investment-savvy with some disposable income, who want to get into alternative investments like art but are art neophytes.

The companies generally tout how much returns you will get in two years, and that you do not even have to see the art because they will help you rent the art out to an office as wall decoration while you collect rental income. After the one- or two-year contract is over, you are stuck with worthless art that no one wants. Many of these are set up like a Ponzi scheme and should be avoided.

Be patient. Be prepared to hold on to your art for at least five years or longer. Good art collectors take their time and see what's out there first before buying. Don't buy in a hurry, do your homework.

Build rapport within the art community. It is seen as bad form to flip art that you just bought at a gallery and turn around immediately to sell it in an auction. It could get you blackballed from buying in galleries. Galleries like to sell to people they can trust to hold on to and appreciate the art, and not purely for the purposes of making a quick return.

Subscribe to an art database like Artnet to keep track of the prices of your favorite artists. These databases cull thousands of auctions around the world and sort them into a user-friendly format that is searchable using many different criteria. It is an invaluable tool for keeping track of the art market.

Buy art with a proven secondary market. Choosing artists who have had their works successfully sold at auctions might make it easier later when you want to sell the art. Buying up-and-coming artists is more of a gamble because you do not know if they will have a future. If you take this route, just be prepared to hold the art for quite a while with the possibility that you will still not get big returns at the end of the day.

Buying is easy but selling is hard. When the time comes to sell a piece from your collection, you can first try auction houses. But don't go to every auction house in town to try to get the best deal. Limit it to one or two.

If a work has been "shopped" around too much, it could already be doomed before it even goes onto the auction block because there is no element of a discovery, as everyone has already seen it. Unlike the buyer's commission, which is universal, the vendor's commission is negotiable at most auction houses.

You can also return to the gallery where you bought the work, and it might be willing to take it back on consignment or offer a swap as part of an overall relationship with you.

It is important to understand the risks involved with investing in art. Besides the potential of financial rewards, the process itself can be enjoyable as you discover the rich background of an artwork or an artist.

Buying an artwork that "speaks" to you and provides you with immense enjoyment as you gaze upon it for years to come is possibly be the best return on your investment.

  • The writer is art advisory specialist, Citi Private Bank