Editor's Note: One of Mark's favorite ways to create wealth is to collect treasures like art, antiques, coins, stamps, and other valuables. With a little know-how, you can find yourself amassing a collection that grows in value faster than anything in the stock market.

In our new series on Collecting, Mark will share the secrets to building a profitable collection, so you can skip the rookie mistakes and go straight for the money.

As always, we will add Indian perspectives to each essay, and write additional reports where needed.

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Mark Ford, Founder, Common Sense Publishing “The S&P index had a total return of total crap,” said Bill Saporito in 2011, writing in Time magazine.

Saporito had invested in every asset class he could think of - small caps, big caps, bond funds, foreign stock indexes, and gold funds.

“I should have invested in art,” he said.

According to the Mei Moses All Art Index (MMAAI), which has been tracking art returns since 1820, investment - grade art returned 10.2% that year, crushing all of the stock indexes, which returned basically nothing in 2011.

A single painting by Roy Lichtenstein sold at auction for more than $40 million.

In 2010, international auction house Christie's sold an Indian artist's work for $3.5 million (Rs 16 crore), 'The Saurashtra' by Syed Haider Raza.

The Saurashtra Syed Haider Raza, The Saurashtra

By the way, there is a relationship between art and stocks that is worth noting. According to the MMAAI, there is typically a 12 to 18 month lag between stock market and art market performance. In other words, it seems that wealthy investors use some of their stock market profits to buy art.

Why? “The wealthy view art as a wealth preserver,” according to Michael Moses, a retired New York University business professor and co-founder of Beautiful Assets Advisors, the company that created the MMAAI.

The average wealthy person allocates around 9% of his or her portfolio to art investments, according to a report from Deloitte Luxembourg. And the number of wealthy people in the world is increasing at an unprecedented rate. Every year, China, Brazil, and India are producing millionaires and multimillionaires by the thousands. With more and more wealthy people in the world, we can expect to see more people buying art.

In fact, just last year, international art sales hit $66 billion, smashing records. And according to the Deloitte report, wealth managers worldwide report an increasing demand for art-related services.

Meanwhile, wealthy people aren't the only ones buying art. Wealth managers are becoming more aware of art as an asset class. In fact, 53% of wealth managers (including private banks) reported to Deloitte that they were aware/very aware of the developments linked to art as an asset class, up from 43% in 2012 and 33% in 2011.

According to the Arts Trust, the Indian art market was worth Rs 1000 - 1200 crore in 2014, up from only 50 crores only a decade before.

This suggests one thing: Increased attention is being paid by the general wealth-management community to what is happening in the art market.

So, a good argument can be made for investing in art in the future.

Pepe Karmel, a New York University art historian, puts it this way: “If you are a hedge fund trader or a venture-cap dude or in real estate, you are in the business of thinking about the future, and, in a way, that's what art does.”

That is certainly how I see it.

Kicking Off the Collecting 101 Series: Let's Talk About Art

In today's essay, I'm kicking off a series on one of the most successful off-stock market strategies I've found-investing in collectibles - by talking about art. And by “art,” I mean not only paintings, drawings, and sculptures, but also handcrafted, utilitarian objects like rugs, furniture, and ceramics.

Why start with this? Well, I collect art. I also collect rare books, rare coins, vintage cars, beer bottles, and cigar lighters, among other things. But it's my art collection that gives me the most pleasure.

Now, before we go any further, let me acknowledge that you might not care about art. Not only that, you might think the idea of investing in it is stupid.

And I will say, for the most part, you wouldn't be entirely wrong. Most people who buy art waste their money. That's because they don't buy it for the right reasons… and they don't know how to invest in it the right way. The same can be said about many other collectibles.

But it is possible to create a multimillion-dollar collection of art, or other collectibles, for that matter. I know because I've done it. And I've done it without ever spending more than $35,000 on a single purchase. My art collection has appreciated in value steadily over the years. Today, it's worth about $2 million more than I invested. So, yes, I'm a believer.

However, I want you to know that the Collecting series will go far beyond art. In the coming months, we'll be discussing the ins and outs of many collectible markets: cars, coins, and stamps, for example.

But I want to spend the first few essays talking about art. You are, of course, free to ignore these essays if you aren't interested in them. But I wouldn't recommend it. Because much of what you'll learn are hard lessons that I learned throughout my years as a collector. And much of what we'll talk about can be applied to any collectible.

Plus, I want to point out something here: You hired me to tell you what I know about becoming rich. And collecting art is an integral part of that for me. So, I'd be failing you if I didn't point out the benefits of collecting art - and collectibles in general.

So, let's get started by talking about what I know best…

Why Art Is Part of My Long - Term Investment Strategy

I consider myself an avid art collector. I've been collecting paintings and drawings and sculptures for more than 30 years. I buy art with a very long - actually, a lifetime - perspective. Now, I know that art won't always beat the stock market over 30 or 40 years. But it is likely to keep pace with it - which not only makes art a great wealth builder, but also a safer wealth preserver.

I recently asked my accountant to estimate how much my art collection has appreciated over the years. He looked at the records and told me that my total average annual return has been 7.4%.

That is not as good as my investments in small businesses and real estate (with returns of about 12% and 23%, respectively). But my art collection, as a whole, has appreciated substantially.

I have always managed my own investments using my financial background and employment experience with several of the leading global financial services firms. I must say that your letter is a breath of fresh air, and it has provided many new insights and ideas to use in making my investment decisions. - Subscriber DK. Aside from growing my wealth, art is - like many other collectibles - tangible, portable, and insurable.

I can see it, touch it, and feel it. The wealth that I have in stocks and bonds is, I believe, real wealth. But where, exactly, is that wealth located? In some computer at some brokerage halfway across the country?

This, admittedly, is a somewhat irrational concern. However, it is possible to lose a fortune in stocks and bonds overnight for a dozen questionable reasons. It happens all the time. Not to mention the dozen ways stock and bond brokers can siphon off their clients' accounts. You don't have that worry with tangible investments.

Another advantage of tangible investments is that they tend to appreciate during inflationary periods. Inflation hasn't been a worry for a while now (thanks to the Fed's monetary policies). But if logic prevails, we will sooner or later pay off our nation's debt with some miracle of innovation or with inflation, maybe even hyperinflation. If that happens, there is a good chance the value of tangible investments, including art, will climb higher.

Portability is an advantage most people never consider. But in certain circumstances (i.e., you have to get out of town, for whatever reason), it can be a big benefit. A painting that you can put into a carry-on bag can be worth $1 million or more. And guess what? You don't have to declare it… to anyone. Just carry it with you.

[Note: We're talking about movement within the country. Import/export of course has its own rules]

Finally, art is insurable. While you can't insure your returns from art, you can insure your art against theft or damage. The benefit of insurance is to overcome the question: What if the painting gets damaged? What if a ceramic breaks… or the montage gets stolen?

When Hurricane Sandy swept over the eastern U.S. in 2012, the art insurance industry was on the hook for nearly $500 million in claims. When devastation sweeps over the stock market, there's no one to cover your losses.

These are a few of the major benefits of investing in art. Big benefits you don't get with stocks.

And when you add in the great deal of pleasure I've gotten over the years from living with beautiful art objects in my homes and offices… I'd be happy if my collection simply maintained its value.

The Joy Factor

As you'll discover in the next few essays, buying art is a lot of fun - especially when you know that you are buying it right. (The same can be said for any other type of collectible you might be interested in or passionate about.) Plus, owning art enriches your life every time you look at it, and it tells others something important about you.

Like literature, art can present intriguing scenes, describe intricate processes, make statements, and tell stories. Like music, art can stir up thoughts and feelings without language or logic. And like dance, art can elevate our very notion of beauty.

Here's the softer side of why I like art so much as an investment…

Art can describe things…

There are many works of art that I could never hope to own, but that doesn't keep me from searching them out in museums when I travel. For example, I love the work of the early Dutch painter Hieronymus Bosch. I like the imagery in his murals and triptychs. I particularly like his grotesque depictions of hell, showing the many ways sinners will be tortured for eternity.

Hieronymus Bosch, Hell 2 Hieronymus Bosch, Hell 2

I love looking at 15th, 16th, and 17th-century Flemish paintings of everyday life, as well. Van Eyck… Brueghel… Rubens… They give me a window into a different time, a world that no longer exists. I like to see what the people are doing, how they are dressed, and the tools they work with.

Rogier van der Weyden, Magdalen Reading (fragment of an altarpiece) Rogier van der Weyden, Magdalen Reading (fragment of an altarpiece)

Quentin Matsys, The Moneylender and His Wife Quentin Matsys, The Moneylender and His Wife

Note: We particularly love this figure on a rickshaw by world-renowned Indian artist Tyeb Mehta that sold for over Rs 14 crore, and this Indian village scene by Amrita Shergil.

Tyeb Mehta, Figure on a Rickshaw Tyeb Mehta, Figure on a Rickshaw

Amrita Shergil, Village Scene Amrita Shergil, Village Scene

Art can tell a story…

Do you remember how, when you were very young, you could read a story over and over again without any decrease in the pleasure it gave you? That's how I feel when I look at the work of figurative painters like Andrew Wyeth and Norman Rockwell.

Andrew Wyeth, Public Sale Andrew Wyeth, Public Sale

Norman Rockwell, (title unknown) Norman Rockwell, (title unknown)

Art can make a statement…

Like this self-portrait by Vincent van Gogh.

Vincent van Gogh, Self - Portrait Vincent van Gogh, Self - Portrait

Art can stir up thoughts or feelings…

Like this painting by Claude Monet, or Indian artist VS Gaitonde.

Claude Monet, Soleil Levant Claude Monet, Soleil Levant

VS Gaitonde, Devanagari on Reverse VS Gaitonde, Devanagari on Reverse

Art can inspire…

Like this sculpture by Umberto Boccioni.

Umberto Boccioni, Unique Forms of Continuity in Space Umberto Boccioni, Unique Forms of Continuity in Space

Many think of art appreciation as a diversion for the rich and the well-educated. In fact, it is a very democratic pastime. You don't need money to appreciate art. You simply need the ability to look at it…

The street sweeper in Florence, Italy, has the same capacity as the CEO of Ferrari to enjoy Michelangelo's famous sculpture, David. The laborer cutting grass on the millionaire's estate has the same capacity as the estate owner to admire the beautiful sculpture sitting in that very garden.

Wealth can actually be a hindrance to the enjoyment of art. I know more than a handful of wealthy people who buy art and pretend to enjoy it. They believe it gives them prestige. They fill their homes with “limited editions” from well-known artists, such as Salvador Dali and Marc Chagall. To that same end, they fill their garages with Porsches and Lamborghinis. I sometimes wonder if - aside from showing off their trophy pieces to visitors - they ever even look at them.

Just as you don't need money to appreciate art, you don't need a specialized education. Having a college degree (even a graduate degree in art history) might help you talk impressively about art. It might provide you with the vocabulary to describe the technical aspects of a piece or explain its historical context. But it doesn't give you an advantage when it comes to really seeing art or enjoying it in a personally enriching way.

And you certainly don't need a college degree to invest in it.

Investing in art may seem like a rich man's game, but the global recognition of Indian art, and a burgeoning number of new Indian artists has made this a possibility for everyone. For example, in the mid-90's you could have bought an MF Husain for Rs 1 lac that would now be worth 50 lacs.

In my next essay, I'll tell you why my art collection has appreciated as much as it has. It's the primary reason so many ordinary, amateur art lovers have acquired amazing, multimillion-dollar collections.

For today, I'll leave you with this.

Eight Reasons to Consider Art as an Investment

If you buy smart, art can bring you very good returns, as proven by the MMAAI (and several other indexes, by the way). It is not hard to understand… especially if you limit your collection to a handful of artists whom you can study in depth. Art collecting - even fine art collecting - is something anyone can do… even people with little in the way of disposable income. Art is tangible. You take possession of the pieces you own. It's not just a number on a monthly statement. Art is portable. That means you can take it with you wherever you go… and for whatever reason… without having to declare it. Art is insurable. And it's relatively cheap to do it. Unlike a stock portfolio, the appreciation on your art collection is not taxable on a yearly basis. That adds up over the long term. If you love art, it will give you personal pleasure every day when you look at it. Your stock portfolio can never match that pleasure.

References and Images Sourced From:

The Art of Riches: http://www.businesstoday.in/moneytoday/investment/invest - in - art - for - sound - gains - - - not - trading - but - investment/story/18151.html

The Art Trust http://www.theartstrust.com/topindianpaintings.aspx

Best, Mark

A while ago, my good friend decided he wanted to start collecting art. He had no formal education in art, yet he had the notion he'd like to develop a collection he could enjoy during his retirement.

His primary interest was in the pleasure it would bring him. But he also wanted to have a collection that would increase in value. We discussed it at length, and I told him everything I have told you up to this point. To get him started, I stressed one thing: Don't ever consider buying anything until you have first looked at 1,000 works of art.

Of course, in reality, I knew he wasn't willing to put off his ambition for another year while he studied at least 1,000 works of art. He wanted to begin right away. I understood how he felt, and I didn't blame him for it. After all, my rule for success is ready… fire… aim.

Soon after, he found an artist whom he and his wife liked. They had seen this artist's work in a retail gallery and were prepared to buy it. But they put off the purchase and decided to consult with me first.

He forwarded me the letter he received from a gallery representative:

Hi, G.:

It was great meeting you on Sunday, and thanks for visiting the gallery. Attached are images of a few of the paintings you both admired, and here are my recommendations:

Regarding investment performance and outlook, the prices of Jamali's paintings have appreciated at an average of 20% for over a decade, and his limited edition giclee prints are appreciating at around 6-8% per year.

[Giclee prints are high quality, high resolution reproductions in which digital images are printed onto various surfaces using quality inks.]

Giclees are a good place to start for a medium or large work of art, as works measuring around 49 by 57 inches are priced at $6,200 including frame, and works around 31 by 43 inches cost $4,800.

Originals in the 27-by-27-inch size, such as the one you and your wife loved at $6,800, are among the best investment opportunities in the artist's collection. A limited edition print of this work, framed to match the original, would cost $3,500. This is an attractive price, but I would recommend the original instead of the print.

If you want to spend less for your first Jamali, unframed limited edition prints are available as follows: 20 by 20 inches $1,200; 27 by 27 inches $2,400; and 28 by 38 inches $2,800.

I'll be glad to answer any questions, so please call me anytime. I'm in the gallery every day, except Monday and Friday, from 10 a.m. to 6 p.m.

Sincerely,

Anne (not her real name) Art Consultant

I was concerned. Although I didn't know this artist, I didn't need to know his work to know G. would be making a mistake in buying his work. I knew it was a bad idea because of what the broker had said. So, I wrote him this email:

Dear G.,

I applaud your intention to get into collecting.

I did not recognize Jamali's name, but I looked him up.

He's very much a commercial artist. By that, I mean he is in the business of selling consumer-quality art - art designed to sell at retail galleries to the general public, not to collectors.

There are two additional things I should say:

First, the gallery is marketing him very aggressively - almost irresponsibly. His handlers have created a false market for his work through various techniques, including dominating both the paid and unpaid space in its Google search results. And they are promoting his art as an investment. Responsible art dealers don't do this.

My guess is - outside the false and temporary market his handlers have created - his art will never appreciate in value. Just think about it: This guy has painted more than 60,000 paintings! This is more than 10 times the number of pieces you might expect from an artist over a lifetime. The supply is huge. Art appreciation is a matter of supply and demand.

Also, it appears you can purchase his art only via the Internet or commercial galleries. Not good. I see no record of any museum or dealer of standing buying his art. This being the case, I very much doubt museums will ever exhibit his work or big auction houses will sell his pieces.

Second, his images have a certain eye appeal, but he very much designs them to sell to beginning collectors. To accomplish this, he borrows elements from other, more established (and popular) artists and blends those qualities into a pleasing presentation that is “his own.”

There is an artist right in town you might have noticed who does this, too. He is very good at it, and I admire him for it. But this is the kind of thing art collectors hate.

If you are paying a lot, you may become disappointed. I suspect as you continue with your collecting, you will find his images less appealing, and then, you may want to sell them… At which time, you'll find out what they are really worth.

By the way, you can find out their true value by calling up the galleries and telling them you have one of his paintings and asking what you can get for it. They will likely tell you to “come in” because they won't want to tell you on the phone they'll buy it back for no more than 10 cents on the dollar.

My conclusion: If, after hearing what I've said, you still feel you want to buy one of his pieces, buy one if it is priced as decorative art.

By that, I mean you should only pay what you would pay to buy a similar type (oil, gauche, etc.) and size from an unknown artist in a consignment shop for furniture. In other words, pay no more than $500 (Rs 30,000) for a small oil painting and no more than $1,500 (around 1 lakh) for a large and impressive one.

Hope that helps.

Mark

He wrote back:

Mark,

Thanks so much for your input. I didn't realize how involved this could get. I thought you just bought what you liked, and, for the most part, art was like jewelry - you just bought it for the enjoyment factor. I never thought of it as an investment.

I'm willing to learn. I have a budget of $1,000 (Rs 60,000) this year - not a lot, I realize. If it's okay with you, we will keep asking for your advice as we go.

Thanks,

G.

And here was my next letter to him:

Dear G.,

You have a choice… You can buy decorative art and think of it as wallpaper… Buy it, enjoy it, and replace it when you want without any feelings of regret.

Or you can buy investment-grade art… Which means you are buying art for the long term… even assembling a group of artistic works that will gradually document your appreciation of art over time.

Obviously, I prefer the idea of being a collector of investment-grade art. Of course, this doesn't mean your art investments won't give you increasing pleasure over the years, as mine have. They'll be more financially valuable, as well.

If you tend to agree with this, my advice would be to begin with these rules:

Buy only unique and original pieces. Avoid artists who replicate their art for the masses. While prints and lithographs of some artists can be extremely valuable, you need to know a great deal about art to know if you're getting something valuable.

Before you buy, learn what you can about the artist: when he worked, where he worked, with whom he worked, if his works hang in museums or major brokerages trade them, what his pieces typically go for, and so on. Read below for resources you can use.

Look at as many images of the artist's work as you can to become familiar with his style. If the artist is known, this can be done quickly on the Internet.

Always negotiate the price.

Get as many details and as much proof as you can regarding the authenticity of the work (i.e., its provenance). These details are an important part of the appraisal process and can dramatically affect the price of a given work. If a work has a particularly intriguing ownership history, its price will reflect it.

With a budget of $1,000-2,000, (so about Rs 100,000) you will have a choice:

You can buy pencil sketches of known and collected artists (not Picassos, but artists such as Andre Derain or Raoul Dufy, whose works are in every major museum in the world).

Or you can buy oil paintings, watercolours, and gouaches of young, up-and-coming artists.

Or you can buy both.

The pencil drawings will tend to appreciate in financial value along with the artists' other works. Buying up-and-comers is much trickier from an investment point of view, but it is a very good and enjoyable way to document the history of your developing aesthetic tastes.

Best, Mark

I tell you this story to illustrate an important point. And that is: The value of art, from an investment point of view, is not simply subjective. There are hard rules and metrics you can use to identify whether you are getting a good investment at a fair price. Following these rules will ensure you won't get suckered into making a poor purchase, like G. almost was.

How Do You Know What to Buy?

From an economic perspective, art is valued by the marketplace, just as stocks are. An artist's work is valuable because important critics at some point decided it was good. Because of that, it went to the big museums, got into books, and is taught in art courses. And when it goes to auction, people bid it up.

Once there's a 10- or 20-year market for a particular artist, the value of his art is unlikely to collapse. By that time, so many people - museums, brokers, and wealthy collectors-are invested in it. None of them, if they can help it, will allow it to collapse.

For example, who is ever going to say Rembrandt wasn't a great artist? Or his paintings aren't worth millions? Nobody. That doesn't mean he was the best Dutch painter of his time. If you look at paintings by his contemporaries, you might think some of the other Dutch masters (or even a few of the minors) were just as good.

Portrait of Jan Six “Portrait of Jan Six” by Rembrandt van Rijn is considered his most important work in private hands. It's valued as high as $250 million.

But Rembrandt's values will hold. Why are his paintings worth 100 times more than another artist's paintings that are technically just as good? Because history has decided it should be so. Art critics - experts who dedicated their lives to studying art - have decided. The marketplace has put a value on them, and that's what makes them more valuable.

Remember: When you're collecting art, you're collecting the history of what art critics have decided (objective). You might disagree with them on an aesthetic basis (subjective), but you'd be foolish to disagree with them with your money.

Beyond what the market says, there are general guidelines you should consider when determining the value of works of art. Here are a few:

There is almost always a range of values according to the medium. For example, as a general rule, you will pay more for an oil painting than you will for a pastel, and you'll pay more for a pastel than you will for a drawing.

There is one notable exception to the above rule: A medium an artist is “known for” will always demand the highest price. For instance, the artist Andrew Wyeth is known for his watercolours, so they will be the most expensive of his works.

It is better to buy a top-quality, wholly representative work by a second-tier artist than an uncharacteristic piece by a major “name.” So many collectors get wooed by names and prestige. But nobody wants a painting of a barn by Jackson Pollock. They want his “splatter” work. You must know your artist to know this about him.

Another factor that comes into play is size. As a general rule, the larger the piece, the more expensive it will be.

Yet another thing to consider is the period. Most museum-level artists are best known for certain periods of their careers. Their works composed during those standout periods are considered most valuable.

And don't forget about image. Certain artists are best known for certain images. Andre Derain's “best” images, for example, are somewhat abstract. When he got older, he reverted to a more representational style. These pieces are beautiful… I have one. But they will not fetch the prices his abstract works do.

One last thing that bears reminding: As I've said before, you always want to buy the best you can afford. If you are very rich, you should buy large paintings or sculptures with the right image, painted at the right period. The best of the best is going to appreciate the most.

Some Additional Resources to Get Started Some Additional Resources to Get Started

There are some very good websites that track auction prices of investment-grade artists.

These will give you the key elements: the image, the medium, the size, and the year. As you familiarize yourself with the sites, you'll get a stronger sense of the market and how it works.

You can always contact an expert to learn more about starting your collection. Below is the contact information for the woman who manages my own art portfolio. She will be glad to give you free advice on starting a collection. You don't have to pay her, and you don't have to buy art from her, either. Suzanne Snider Ford Fine Art fordfineart.com (561) 900-7167 suzanne@fordfineart.com Sotheby's: Perhaps the most famous auction house of all, Sotheby's is headquartered in New York City and is one of the world's largest brokers of art and collectibles. I don't recommend you buy your first big piece of art here (most of the art will be wildly expensive for your first purchase, and you'll have to pay a “buyer's premium”). But I do recommend browsing the site and familiarizing yourself with the art world. If you do want to make a bid, you can register your profile and browse e-catalogs.

Go here for Sotheby's India.

Christie's: The other huge name in the auction game is Christie's. In fact, while its brand is perhaps lesser known among the public, it is currently the most powerful auction house in the world: in 2014, it made a record $8.4 billion in sales. Again, I wouldn't recommend you begin your collecting career at Christie's, but its website is an excellent resource for learning about the industry.

Also look at Indian art at Chrsitie's

The Arts Trust : The Arts Trust has been actively engaged in promoting Contemporary Indian Art since 1990. ‘It focuses on the promotion of innovative art by established as well as young artists. The viewers at the exhibitions have increased tremendously in the last 5 years, as general awareness and interest in Indian contemporary art has developed over the years.'

Invest Art India: This startup serves as an online auction house for fine art and collectibles that ‘have been appropriately identified, selected and authenticated to ensure that you get the very best art works that not only are valuable today but will considerably appreciate in time to come'.

artnet: Based in Berlin and with offices in New York, artnet is an international trading platform that allows users to research artworks, buy, sell, and contact galleries directly. For a small fee, you can use its price database to compare artworks, track price histories, and conduct unprecedented research on the industry.

Studio 3 India: Studio3 views itself as a catalyst that hopes to create a synergy between artists & art collectors constantly trying to find a fresh perspective on the vibrant art scene that India has to offer.

Artsy: This is a vetted site that incorporates museum collections of each artist, biographies, and auction results, as well as art for sale from leading galleries.

Blouin Art Sales Index: Search over 5 million auction records for free by artist's name.

When I have questions now, I go to my friend Roger Hurlburt. This guy knows everything about art. He has been an art history professor for more than 30 years and wrote a fine arts column for the Sun Sentinel for 20 years.

He has also been an art collector and a buyer for clients for decades. He has literally attended hundreds of exhibitions, met and interviewed dozens of artists, and personally dealt with more dealers and gallery owners than anyone else I know.

Below, I've included a list of do's and don'ts he has compiled. It also includes his contact information. These general guidelines should get you started.

“Do's and Don'ts” of Art Collecting

By Roger Hurlburt

DO some homework. Check out exhibitions, prices, and, most of all, what the artist creates that might interest you. The Internet has changed everything. Most of the time, it is easy to research an artist via a website.

DON'T make a gallery owner your art adviser. Galleries are great places to visit, but remember: Gallery owners are in the business of selling. They will be high on their wares no matter what. Avoid the hard sell, the promise of how prices for an artist's work will surely soar, the “better get one now” pitch… that sort of stuff. No one can predict an artist's market.

DO some traveling. There is nothing wrong with living in Kansas and buying art at a local art gallery. But if you strive to put together a collection of beauty, interest, and value, you must go to New York City. [Or, on our case go to Delhi, the art capital of India]

DON'T expect average interior decorators to fill your home with fine art. They are adept at “furnishing” a residence with art objects for a hefty fee. But virtually none will ever be worth anything. Often, for nearly the same budget, a homeowner can become a collector of valuable material. So, maybe there isn't the sense of immediate gratification… Patience is a collector's virtue.

DO pay heed to the words of art critics and reviewers. Their observations are born of knowledge, objectivity, and an intimate connection with the art trade. If they say some up-and-comer is worth watching, watch that artist. And if you like the work, consider buying it.

DON'T buy art at a gallery that runs “sales.” Prices for viable artists - established artists whose work may or may not appreciate - invariably rise, but they NEVER go down. Never. Steer clear of mall galleries and ersatz art emporiums that are really framing stores in disguise. And avoid those weekend hotel-lobby extravaganzas promising “original oil paintings.” If you want to match a painting to the hues in the couch cushions, call your decorator.

DO maintain a sensible art-buying budget. You don't have to mortgage the house to collect quality art. Collecting does cost money, but what matters is not how much money you spend - it's what you spend your money on.

DON'T “invest” in copies, facsimiles, or reproductions. They are worth nothing - tangibly or emotionally. All collectors, whether or not they recognize it, desire satisfaction in a work of art. Something outwardly bogus will never deliver.

DO develop and follow your own collecting eye, taste, and spirit. Shy away from trends, who celebrities buy or endorse, and who just caused a sensation at the Venice Biennale. Art collecting is one of the most personally rewarding endeavors if you stick to your own emotional and visual guns.

DON'T consider becoming an art collector if any of the previous “do's and don'ts” make little sense. There are always baseball cards, Beanie Babies, and vintage wines to collect.

Contact Info:

Roger Hurlburt is an art historian, fine arts critic, and acquisition consultant.

If you would like to contact him, you may call him at (561) 251-9860 or email him at rhurlburt2@bellsouth.net.

Finally, remember: When it comes time to purchase a piece of art, you need to have a clear, traceable path from the artist to you - its provenance. Save emails, invoices, receipts, and especially, any handwritten correspondence between you and the artist. If you're buying a piece from a gallery or auction house, be sure it provides you with documentation proving how the art arrived in its hands. If you ever want to sell the work, you will want to provide this history to your buyer.

Remember: The price of the artwork usually does not include the cost of shipping, framing, or insurance. And auction houses also charge a “buyer's premium,” which can be as high as 25%.

So, before you launch into the world of art collecting, be sure to draft up the dreaded “b-word”:

Budget.

Best, Mark

Anyone who wants to develop a serious and profitable collection of stamps should get to know Stanley Gibbons. The business, founded in England in 1856, now has investment offices across the globe.

The Palm Beach Wealth Builders Club had the privilege of sitting down with Geoff Anandappa, an investment portfolio manager at Stanley Gibbons. You can read part of our discussion below to learn how stamps can be a fun - and rewarding - investment.

WBC:

Is there a difference in the stamp world between collecting and investing?

Anandappa:

Yes. The main difference between a collector and an investor is that a collector will usually focus on a specific area of stamp collecting. So, they might only collect stamps from one country, or they might only collect stamps from one specific period.

For example, they might only collect British stamps, or they might only collect British Queen Victoria stamps. Some collectors are even more specialized and will only collect a particular series of stamps of Queen Victoria, for example.

They would spend a lot of time studying those stamps and would develop an in-depth collection in a very small area of stamps. And they would aim to have a complete collection in whatever area they focused on.

So, for example, if they were aiming to collect Queen Victoria stamps, they would start with the very first Queen Victoria stamp and aim to collect every one until the end of Queen Victoria's reign.

WBC:

But all of those won't be valuable; is that right?

Anandappa:

Exactly. Some will be worth maybe $1-2. Some of them may be worth hundreds of thousands of dollars. Not all of them will be rare, and not all of them will go up in value. To a collector, though, that doesn't matter because he gains the complete collection of whatever area he focuses on.

WBC:

But isn't having a 'complete' collection of something valuable? Or not so much?

Anandappa:

Not necessarily. Most of the stamps in the collection would not be rare. In a typical collection, 90% of the value will be in just a handful of items.

WBC:

And with an investor?

Anandappa:

With an investor, it should be very different.

Some of my clients, for example, only have 10 stamps. And those stamps aren't from one particular area of collecting. Instead, they are diversified across a lot of different areas of collecting. Because not all areas of collecting go up and down in value at the same rate.

For example, you might find British Queen Victoria stamps do extremely well one year, and prices go up. But after two or three years, they may flatten out, or they may even fall in value. And in the meantime, Indian stamps could start going up in value. So it's difficult to predict trends in the collecting world.

This means we can't predict which particular area of collecting is going to perform the best, from an investment point of view. But what we can do is find rare stamps in excellent condition. And we find these investment-grade stamps in different areas of collecting. So, an investor in a portfolio of 10 stamps might have stamps from five, six, seven, eight different areas of collecting.

The expectation is that not every stamp will go up in value every year, but over the course of five or 10 years (or more), every stamp should give a reasonable return. And then hopefully two or three of them will show exceptional returns, doubling or tripling in value in a short time.

So, that's the strategy behind investing in stamps. You don't aim to focus on a particular area because that's too narrow. And you don't aim to have a complete set or a complete selection. Your goal should be to get yourself a diversified portfolio from different areas.

WBC:

But how can the amateur do that reasonably? Does he have to trust a broker, who could be a 'wealth stealer,' as Mark would say?

Anandappa:

Unless you want to spend days, months, and years studying stamps, you cannot hope to build up enough knowledge to know which stamps to invest in. And even then, you likely won't learn about all the different areas of collecting. So, your best option is to find a dealer you can trust - one who has the necessary expertise and a good range of investment-grade items to offer. Or at least help you know where to look.

WBC:

Okay. When we were doing our research on coins, for instance, we found there were different types of coin collectors. There were error collectors, rare coin collectors, bullion collectors, and type collectors…

Anandappa:

It sounds like it's similar within stamps.

If you start when you're a child, you may just collect stamps from the whole world, any stamp you get. You may collect some stamps with pretty pictures, actual pictures of birds or ships, and you will start off with a general collection.

But as you carry on collecting, you will probably become more serious about it, and you will have a bit more focus. So, instead of collecting stamps from the whole world, you might just focus on stamps from the country you're living in. Or you may go on a vacation to a country like China and decide to dive into collecting Chinese stamps.

WBC:

And can you describe the process for narrowing one's expertise?

Anandappa:

For example, you could specialize in artists' designs for stamps, which are often hand-painted 'essays.' You could collect printers' proofs, color trails, or 'specimen' copies of stamps. All of these are much rarer than issued stamps, but they appeal only to the specialist collector.

And then you may collect the stamps, not just single stamps but perhaps in blocks or sheets. You may collect all the tiny variations in the printing on the stamp that you can find. You may collect examples of the stamp used on letters or postcards from around the world.

So, you could end up having a whole album full of examples of exactly the same stamp but in lots of different variations. Now, that would be a very specialized collection of the artist, and such a collection wouldn't necessarily appeal to the general collector who's only collecting pictures of birds on stamps…

The investor, meanwhile, should examine all these different areas of collecting, and then from each of those areas, pick one or two items to add to their portfolio. So they may, for example, pick a printer's proof of a particular stamp because that will appeal to the specialist collector.

They may pick a fine example of the stamp in used condition, which might be good for a general collector. They may pick the same stamp with a printing error - for example, one that is printed with one color missing by mistake.

WBC:

Do you have to have a passion for stamps to do this right? Mark argues that having a passion for collecting may help you as an investor, because you tend to hold a long-term perspective. But there's a downside to this, as well. Because you have to be willing to let something go to turn a profit. For this reason, he often says from a strict investment perspective, you shouldn't fall in love.

Anandappa:

I don't think you necessarily need to have a passion for investing in stamps to make money investing in stamps. I have many clients, for example, who never see the stamps they buy. They might initially see a picture of the stamp, which I can email them.

But they're not particularly bothered by the specific stamp - as long as it's rare, in good condition, and will make them money. And if it's in a particular area of collecting that fits into their portfolio, then that's an added bonus. That's the criteria they go by.

There are some clients who do fall in love with their stamps. But that is not a requirement. You don't need to have a passion for collecting to be able to invest and make money in stamps, in my opinion. But you have to be guided by someone who does have a passion or who does know what they're talking about.

WBC:

So, you strongly recommend against going at it alone?

Anandappa:

Yes. If you do it yourself, it's very difficult to a good job because you won't know which stamps are investment grade and which ones aren't.

Probably the most common stamps that 'laypeople' come across are modern stamps, which are issued by the post office.

The post office issues 'first day covers.' These are the stamps that are issued and put on an envelope and canceled with a nice hand stamp. And they are called first day covers because they're canceled on the first day of issue.

Now, collectors collect these as a hobby, and some people think that if they collect first day covers, they are bound to be rare. And that's a big mistake because these are designed for collectors as collectibles. There are millions of collectors around the world, and the post office prints hundreds of thousands of first day covers every year.

So, people think that if they keep them for 50 years, they will become rare. And that's a mistake because these will never be rare. They're never going to go up in value, and most likely you're never going to get your money back. So, that's a classic way of losing money in stamps.

Instead, investors should aim for older stamps, the ones that are truly rare. And again, they should pick stamps from different areas of collecting - based on their true value rather than on their ability to fit into a unified collection.

WBC:

This sounds like it's the same with art and with coins as well. Can you talk a little about what the trends are currently with stamps?

Anandappa:

There are trends in all different areas, and they come and go. And that's not just for stamps but even in art. For example, in impressionist painting alone, there are certain things that suddenly become fashionable to collect, and then suddenly, 10 years later, for whatever reason, they become less fashionable and start to fall or flatten out.

The same is true with stamps. You might find that, over the last 10 years, British stamps have done extremely well, going up around 12% in some cases. But over the last couple of years, that market has slowed down. Now they're only going up 1-2%.

Meanwhile, Chinese stamps are still doing extremely well. The Chinese stamps are of interest to collectors not only in China but around the world as well. And some of these date back to the late 1800s.

There are vast numbers of collectors in Asia. In fact, one-third of the world's collectors are in China alone. Chinese stamps have been increasing in value 10-15% per year because all these collectors in China and Asia are competing for them. Some of my clients who have Chinese stamps have seen their stamps double or triple in value in 18 months, which is a very short period of time for stamps.

The famous Rs 10 Mahatma Gandhi stamps, issued in 1948, are another good example. A single stamp of this lot went for Rs 2,449,000 in the David Feldman's auction sale on October 5, 2007.

Another area that is very good as an investment is the field of printing error stamps. Sometimes stamps are printed with a particular color missing or part of the stamp outside down. The Inverted Jenny Stamp is a very famous printing error stamp.

A block of four inverted Jennys was sold at a Robert A. Siegel auction in October 2005 for US $2.7 million.

There are stamps like that around the world, and some collectors only collect printing errors. Many of them have been going up over the last five years or so. There are hundreds of different little areas of collecting that become fashionable for a while and then become less so.

And if you were not a stamp collector, you wouldn't know that these areas exist. So, this is why you really need to find advice from an expert when you seek high-value stamps.

WBC:

How does the stamp market compare to the stock market?

Anandappa:

We have catalogs (or price lists) of rare stamps going back to the 1860s. So for any stamp in the world, we have a price history going back over 100 years. Using some of these catalogs, we can calculate the increase in the prices for stamps over many decades. And we've actually compiled a number of indices, which show how values in stamps have changed, and we can use those to compare with stock markets or property, or even gold.

If you're investing in the stock market and investing in stamps over 50 years, I think the stock market is going to beat stamps because over the long term, it will probably outperform everything else. However, stamps still perform very well. The indices return around 9%, going back to the 1950s, which is quite good.

Although the stock market does extremely well in the long term, there is a lot of volatility in the short term. The market can fall 1%, 2%, or 5% in one day. And you don't get that kind of volatility with rare stamps.

Even though I've mentioned that there were trends and areas that become popular and less popular, these trends happen over many years, not over days or months. So, generally speaking, the stamp market is a lot more stable than the stock markets.

Also, the rare stamps are bought mostly by collectors, not by investors. In fact, 99% of all the rare stamps in the world are owned by collectors, not by investors. That means a collector may spend many years looking for a particular stamp for his collection.

And suddenly when he sees it at an auction or a dealer, he will buy it. He will pay whatever price he can afford because he's waited a long time to get this stamp. And once he gets it, he's going to keep it in his collection for many years, or even until he dies. This makes the market extremely stable. These sorts of rare stamps aren't created on a daily basis or even a weekly basis. Some rare stamps are only auctioned once per year or once in five years. So it's a very stable market.

The other thing is that when a collector sees the stock markets falling in value, he is not going to rush out and sell his stamp collection to raise money; in fact, he will probably do the opposite. A collector who has spent many years trying to build his collection will hold on to that collection for a long time and, as I said, probably until he dies.

So, this makes the market extremely stable and uncorrelated. We saw, for example, in 2008-2009 when the stock markets around the world were falling in value, rare stamps actually went up nearly 20% between 2008 and 2010. Rare stamps and rare collectibles went up in value because people were more confident about buying rare stamps for their collection than putting their money in the bank.

That's why the market is uncorrelated and much more stable and less volatile than the stock market. I would say, actually, over the long term, stamps and equities would probably perform about the same. But in the short term, you're getting a much more stable investment.

WBC:

That's a good point. You mentioned that the stock market and stamp market are uncorrelated. Don't you find that when the stock market does poorly, people tend to rush into alternative investments, such as collectibles?

Anandappa:

People don't rush into buying stamps because it's not an obvious investment. People are more likely to put money into something like coins or art. I think people are just more familiar about investing in art than investing in stamps. Stamps, as an investment, attract a very small portion of investors. And I think people realize that they need special knowledge, so they're kind of intimidated.

Of course, historically speaking, stamps, diamonds, gold coins, and other physical assets have been used to protect wealth for many generations.

In the 1930s and 40s, King Carol II of Romania was known as the 'Playboy King.' He was a stamp collector, and he was actually ousted from his kingdom and had to flee the country with his mistress. As he was fleeing, he took his stamp collection, which held some extremely rare stamps.

So, stamps have been used as a kind of transportable wealth for many generations but mainly for a very small group of high-net-worth families and royalty. Stamps are also a kind of wealth that is transferable for generations because many wealthy families pass their collections down through the generations for over a hundred years.

WBC:

Have you seen the stamp market heating up at all, and if so, what type of investor is coming to it?

Anandappa:

We've certainly seen more interest from investors. I've been working with Stanley Gibbons now for 10 years. I started going to the conventions about eight years ago, promoting stamps to investors and to people who didn't know anything about them. Initially, we only had a few clients buying portfolios, and they would spend $5,000-10,000(Rs 30,000 - 65,000).

Now we have investors around the world. I regularly have clients who are investing for the first time and spending over ten times that in portfolios of stamps. So it depends what you mean by the 'average' investor. The minimum entry-level investment that we nowadays require is Rs 10 lakh.

Remember, we're not suggesting that everyone should rush out and spend half their investment portfolio on stamps

Typically, you would invest 5% or less of your total investment portfolio in rare stamps and collectibles. It's a small percentage of your portfolio, but it's an important percentage because that's the thing that's going to give your portfolio stability.

WBC:

So, if you need Rs 10 lakh as a minimum investment, and this represents maybe 5% of someone's net investable assets, you need to be quite wealthy to invest with Stanley Gibbons.

Is it possible to make meaningful wealth in stamps if you don't have that kind of status?

Ananadappa:

People who are approaching retirement are looking for more stable, consistent returns. So, they may put a higher proportion of their investments in something like stamps simply because they know they may not get the returns of gold or the stock market, but they know that at least their returns will be stable and consistent.

An older person may decide to allocate a large percentage of their investments to stamps.

Your returns might only be 2-5% per annum, but you have the comfort of knowing that that your investment is extremely unlikely to fall in value. You can sleep well at night because you know that none of the volatility around the world - the uncertainty of the constant fluctuations - is going to affect your stamps.

WBC:

So, stamps could almost be a pure wealth preservation move if you have money that you've already made, and you want to put it into a safe haven.

Anandappa:

Yes, exactly.

WBC:

What do you anticipate for the upcoming decade? Do you think there will be a continued growing interest in stamps?

Anandappa:

I think the main interest in stamps is going to continue to come from Asia. Huge numbers of people have suddenly been exposed to the Internet, and they can buy stamps from around the world. They're also becoming wealthier.

As a result of this market, Asian collectibles are going up in value. But many Asian collectors also love the old, classic British Empire stamps.

Another thing that might happen is we'll see post offices printing fewer stamps. Most post offices lose money when they print a stamp because it's much cheaper to print a label. When people stop seeing stamps on their letters, they will suddenly have a much higher interest in the world of stamps.

It's interesting to note that most collectors never really had an interest in stamps growing up, but when they inherited their father's or their grandfather's or their uncle's old stamp collection, they developed an interest.

When they develop this interest, they try to buy a stamp that's missing from the collection. So they seek out the rarer, more expensive stamps.

The hobby itself is in a very good state. Collectors are spending billions of dollars around the world, and I'm very optimistic for the future of stamp collecting.

WBC:

How liquid are stamps?

Anandappa:

The short answer is that they are not very liquid. You can't just buy and sell a high-value stamp over the Internet the next day. It takes time to find a collector who is willing to pay the right price for your rare stamp.

That's another reason why you shouldn't invest a large portion of your portfolio in stamps - because chances are it could be tied up for several weeks or a few months before you can get money from your portfolio.

You need to work out how you're going to sell the stamps and how you're going to make money from the stamps. And until you do that, you're only a collector. You can go to an auction and buy a really rare stamp and get it for a good price. But you're not an investor unless you've devised a strategy for selling it - that is, worked out your exit options.

WBC:

One of the advantages of investing in art is that, unlike stocks, they're tangible, they're portable, they're private and insurable, and they're good wealth preservers, as well. Would you agree with those in terms of stamps, and would you add any others?

Anandappa:

Yes, I would agree with all that. I would also add there may be some currency risk involved because Stanley Gibbons' stamps are priced in British pounds. But to me, that's an advantage because it's good to have some of your investments in different currencies.

WBC:

How would you recommend someone get started in the world of stamps?

Anandappa:

I suggest they find a dealer they trust. Stanley Gibbons, for example, is the largest and oldest stamp dealer in the world. It was established in 1956. It has the largest stamp shop in the world here in London. It's got the largest website in the entire industry. And it has investment offices around the world.

Now, we have about 3 million stamps in our stock, but we probably only recommend about 500 as an investment. The others are for collectors.

Your local stamp dealer probably doesn't have many investment-grade stamps. And Stanley Gibbons has people who have been working in the business for many decades. Some have spent their entire lifetimes working for Stanley Gibbons, and each of them are experts in their own particular area of the stamp world.

Now, your local dealer may have an expertise in a particular area of collecting. They may be experts in U.S. stamps or colonial stamps or Queen Victoria stamps, but they're not going to have their expertise in the whole range of collecting.

Also, if you buy from a small stamp dealer, you may get a stamp at a good price because he can sell a stamp to you at a lower margin. But when you go back to the stamp dealer to sell the stamp, he is not going to have a very big pool of clients to sell that stamp to. We are the biggest dealers in the world, so we've got access to some of the wealthiest collectors and a large number of collectors around the world.

When you come to sell, your best option is to ask Stanley Gibbons to sell your stamps for you at our full retail price. We will put your stamps on our website, and send details out on mailing lists to collectors around the world.

We charge a commission when we sell a stamp for you - that commission is a fraction of your profit, not a percentage of the total price. So, if your stamps have not gone up in value, we don't get any commission on the sale.

In addition, Stanley Gibbons does not have any annual charges or management fees. We also offer free storage and insurance, if required. This, along with the attractive exit options, makes it a cost-effective way to invest in rare collectibles.

WBC:

Okay, great. Thank you, Geoff, for the advice and the help. I think this goes a long way to get us started.

In his wealth building essays, Mark Ford often advocates that you diversify your investment portfolio. Apart from stocks, real estate, and gold, there are various collectible commodities and artifacts that can yield terrific returns over time… Collecting rare coins is one such promising field of investment.

Most people don't realise the size of the coin market. It is not a small market for coin geeks. It's one of the largest collectibles markets, and there's a lot of action. Like other financial investments, you do not need specialised education to invest in rare coins, but you should take some time to understand the market.

The basics are simple and quite logical. In general, gold coins are more valuable than silver coins, which are more valuable than copper and nickel coins. In general, larger denomination coins are more valuable than smaller denomination coins. But rarity, importance, and condition ultimately drive the present and future value.

Recently we got a chance to speak to Mr Vaidyanadhan - a senior coin collector and investor for more than two decades - who threw light on some intriguing facts about the coin market. The size of the market, the potential returns on offer, and how a newcomer can get started were some of the vital questions he answered during our discussion.

WBC:

Please introduce our readers to the coin market.

Vaidyanadhan:

Investing in coins, generally called numismatics, is a relatively uncommon field of investment for Indians. It has already been tapped by investors in the US, the UK, and Europe.

The annual sales turnover in the US is around US$3 billion. There are at least ten top companies which specialise in coin trading. The renowned Heritage Auctions alone has a turnover of $860 million.

WBC:

So…it is a promising field of investment outside the country. Any intriguing figures about India?

Vaidyanadhan:

Well, you can judge the depth of the Indian coin market from the fact that a collector from Mumbai bought a rare Jehangir zodiac mohur for Rs 1.5 crore at Todywalla Auctions in February this year.

Those who know the field inside out would never disagree that it has tremendous returns.

You would be surprised to know that the Hinduja Group owns 34,000 rare Indian coins worth several crores, and plans to catalogue the collection. Ashok Hinduja once said, 'we have invested crores of rupees on this collection, and will invest more in the future.'

WBC:

Means the returns are indeed substantial…

Vaidyanadhan:

Indeed. A one-rupee silver coin made in 1939 was valued at Rs 7,000 in 2007…but now the same is worth more than Rs 4 lakh. Sridhar Vaidya from Chennai who recently inclined to invest in numismatics was lucky to get an uncirculated 1939 rupee and a clutch of highly graded silver coins like half rupee, quarter rupee and two annas.

A friend from the US offered him 80 certified coins issued in other metals like copper and cupro-nickel. His investment is now around Rs.15 lakhs. A five or ten-year lock in period is enough to drive the value sky high.

Similarly, the British India gold mohurs (Rs.15) issued in 1835 were only worth Rs 25,000 in 2007. Now they cost between Rs 2 lakh and Rs 5 lakh.

WBC:

How can an individual enter this market? Does he require any specific qualification to know it better?

Vaidyanadhan:

Any newcomer can enter this market. You can simply start by becoming a member of any numismatics group on Facebook. I find a lot of openness and fairly knowledgeable collectors/dealers there. These groups are also a good place to buy coins.

Apart from this, there are over half a dozen Indian auction houses where you can get genuine coins, with description, catalogue number, etc with invoice. This will become a sort of documentation.

Well, you don't need any special education or qualification to enter, or grow, in this market. While experience is the biggest teacher in any field of investment, you can always do a pre-research about the market.

WBC:

What are some good auction houses in India?

Vaidyanadhan:

Top Indian auction houses are Mumbai Auctions, Todywalla Auctions, Oswal Auctions (all three in Mumbai). Classical Numismatcs Gallery in Ahmadabad, Imperial Auctions and Marudhar Auctions in Bangalore.

WBC:

And good catalogues?

Vaidyanadhan:

The Uniform Coinage of India (1835 to 1947) by Paul Stevens and Randy Weir issued last year is the best work in terms of cataloguing and valuing the coins.

WBC:

What makes a coin rare and how much do rare coins cost?

Vaidyanadhan:

Coins become rare as their supply gets short. There are some rare coins that are less than a dozen in number. So obviously their price is sky high.

Most rare coins come in the range of Rs 2,000 to Rs 500,000. Coins that cost from Rs 2 lakh to Rs 10 lakh are gold mohurs.

WBC:

How can a person be sure of a coin's grade?

Vaidyanadhan:

The American coin grading companies like PCGS, NGC, and ANACS grade coins from all over the world, assign catalogue number and quality of the coin.

Ever since their inception, they have made the market more liquid and boosted investors' confidence. The number of participants and the volume of business increased dramatically. Pricing is more transparent, and market information is much more accurate. It has been a great thing.

WBC:

So the beginners can be sure of what they are buying!

Vaidyanadhan:

100% sure.

WBC:

When does the coin market fall?

Vaidya:

In my knowledge, the coin market never fell drastically since the 1700s. However, the market is somehow affected if the prices of gold and silver decrease dramatically.

WBC:

How much of his net investible wealth should one allocate to collectibles like coins?

Vaidyanadhan:

There's no specific answer. You should buy whatever amount fits your comfort level. And if you're a beginner, this should be a small amount.

WBC:

Any last piece of advice from your side?

Vaidyanadhan:

The coin market is a good place to be in. There's so much information available, maybe more than any other collectible. And pricing is very transparent. If you just do a little bit of homework, you will start to learn about it very quickly.

It is one of the most intriguing fields of investment where you not only get a chance to grow your wealth but also get to know the currencies of yore. There's a story behind every rare coin - each fascinating in its own way.

If you are serious about it, all you need is a good catalogue on Indian coins and you can start right away.

WBC:

That was some good information and advice, Mr Vaidya. Thank you for your valuable time.

Vaidyanadhan:

You're welcome!

The European Central Bank (ECB) left its 1.7 trillion-euro stimulus program unchanged at its policy meeting on Thursday. The governing council of the central bank also stood pat on interest rates and its asset purchases program. It left the main refinancing rate at zero, the deposit rate at minus 0.4%, and asset purchases at 80 billion euros a month.

The consensus at the meeting was that Britain's decision to leave the European Union (EU) poses no immediate danger to the euro-area recovery.

The council stated it expects the key ECB interest rates to remain at current or lower levels for an extended period. It further said that the monthly asset purchases of 80 billion euros are intended to run until the end of March 2017, or beyond, if necessary.

Soon after the council's statement, all focus turned to ECB President Mario Draghi. Market participants were keeping tabs on whether Draghi would announce any technical adjustments to the ECB's quantitative-easing (QE) program.

Draghi, however, disappointed hopes for more QE and kept the plan unchanged until the planned March end-date. He said that the ECB was looking at options to enable it to pursue the money-printing program.

While speaking at a conference, Draghi said he was concerned about persistently low eurozone inflation. Eurozone inflation has fallen short of the ECB's near 2% target for more than three years.

The ECB, in March, announced aggressive moves that lit a fire under European markets. It cut its main interest rate from 0.05% to 0% and its bank deposit rate from minus 0.3% to minus 0.4%. Four long-term loan schemes were also announced, with banks given incentives to boost credit growth with the help of cheaper rates. Borrowing terms under the scheme were as low as minus 0.04%. This meant the ECB would pay banks to take its cash if they could show they were lending it to households and firms. The bank also expanded its quantitative easing program from 60 billion euros to 80 billion euros a month in an effort to boost inflation and revive a stuttering eurozone economy.

So the ECB's recent announcement is just a continuation of the central banks easy money policies. Central banks across the world are trying to prod growth through stimulus measures and near-zero or negative interest.

But are these measures viable? Asad Dossani, editor of Daily Profit Hunter, calls these measures the definition of insanity. He has also written on how one can successfully trade such events and build a trading business.

Data released during the week showed that US jobless claims fell to a six-week low last week. The US Department of Labor reported initial jobless claims in the week ending 3 September decreased 4,000 to a seasonally adjusted 259,000. This was recorded as the 79th straight week that claims remained below the 300,000 threshold, which represents a robust labour market.

While the jobs data fuelled optimism for the US economy, the services sector data came in below expectations. Data released during the week showed US services sector activity slowed to a six and a half year low in August. This was seen amid sharp drops in production and orders.

The Institute for Supply Management (ISM) said its non-manufacturing activity index fell 4.1% to a reading of 51.4, the lowest reading since February 2010. The drop from July was the largest monthly fall since the 2008 financial crisis. The ISM reported a majority of companies noted a slowing in their level of business. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of US economic activity.

This was further negative news for the US economy. Last week, the ISM said its index of national factory activity fell 3.2% to a reading of 49.4 last month. This was the first contraction since February. The index, however, remained above the 43.2 threshold associated with a recession.

While the manufacturing and services sectors remain constrained, sustained labour market strength could push the Fed closer to raising interest rates later this year.

Last month, Fed Chair Janet Yellen voiced optimism about the economy and anticipation that interest rate hikes are ahead. Yellen said that with a firm labour market in the US and with the Fed's outlook for economic activity and inflation, the case for an interest rate hike has strengthened in recent months.

As for our views on the US interest rate, we believe that the market and the Fed place undue importance on just twenty-five basis points (0.25%). And this in turn leads to a loss of central bank credibility. Asad Dossani, editor at Daily Profit Hunter, explained the issue in his article, Twenty-Five Basis Points.

The Fed's stance on rate hikes has fuelled much volatility in the global markets of late. The question is: How can one avoid capital loss amid such volatility? Asad says Don't Fight Easy Money. And to learn how, you can read recent articles from Apurva Sheth - one highlighting some trading principles from Warren Buffett and another explaining how traders can measure their trading performance.

Global indices closed the week on a volatile note after taking cues from the above developments.

Benchmark indices in the US ended the week on a negative note with the Nasdaq Composite ending the week down by 2.36%.

Asian stock markets ended the week on a mixed note with benchmark indices in Japan and Hong Kong ending the week higher by 0.24% and 3.58%, respectively.

GST Bill Becomes a Law in India

Back home, Indian stock markets finished the week with marginal gains. The BSE Sensex was up 0.92% for the week, while the NSE Nifty was up 0.64%.

On the sectoral indices front, realty and consumer durables stocks witnessed maximum buying interest this week. On the other hand, stocks from the IT sector led the losses.

During the week, President Pranab Mukherjee gave his assent to the Constitution Amendment Bill on Goods and Services Tax (GST). This, along with the bill ratified by more than 50% of the state assemblies, makes GST a law.

With this milestone achieved, all eyes are now set on the formation of the GST council.

The GST council is a very important part of the implementation process. It will be the job of the council, which will be two-thirds represented by the states, to decide on the GST rate. Then three GST Bills (Central GST, Integrated GST, and State GST) stating the actual rates will be sent to Parliament and state assemblies for approval. To know more about GST, please read Vivek Kaul's report - GST & You: What the Media DID NOT TELL YOU About the GST.

As for market participants, the question is this: Will the landmark GST Bill make you go out there and buy stocks in large numbers? One of the editions of The 5 Minute WrapUp titled 'GST Approved: Time to Buy Stocks by the Fistful?' answers this question.

In another news update, Mark Mobius, executive chairman, Templeton Emerging Markets Group at Franklin Templeton Investments, said that India is in a takeoff stage and is growing faster than China. The fund manager, in an interview with the Economic Times, also stated that valuations of Indian markets are not looking expensive amid the low interest rate environment.

Our view is that India still needs to improve in many areas. While it is in a takeoff stage and is the fastest-growing economy, many structural changes are still required. Vivek Kaul, editor of the Vivek Kaul's Diary, has written much on the sorry state of India's economy. He has also just launched the Vivek Kaul Letter, which outlines the Indian economy and its many challenges.

Marginal Gains for Indian Indices Marginal Gains for Indian Indices

The Nifty opened with a huge gap up on Tuesday and a rallied 130 points but ended the week with nominal gains on account of profit booking at higher levels. It seems like the channel line would act as a resistance on an immediate basis and keep prices in check. 8,800 could act as an immediate support while 9,000 could act as a resistance.

COMMODITIES

US Economic Data Fuels Gold Rally

Gold traded on a positive note during the week. It opened up on Monday on expectations that the US Federal Reserve would not raise rates in September. The gains, however, were limited by stronger equity markets during the start of the week. Come midweek, the yellow metal rose to a fresh two-and-a-half-week high. It witnessed buying interest as disappointing US economic data meant that the Fed will keep rates untouched. Gold continued its momentum during the end of the week. It traded on a positive note and ended its Friday’s session in the green.

Gold Witness Gains Gold Trades on a Mixed Note

Volatile Trades for Silver

Silver witnessed volatility during the week. On Monday, it started on a positive note. However, it failed to maintain this momentum and traded on a mixed note during the rest of the week. Prices fell midweek after taking weak cues from overseas markets. Despite the losses, silver maintained to register gains. It traded on a positive note during the end of the week on the back of weak US economic data.

Crude Oil Spikes on API Data

Crude oil witnessed buying interest during the week. It opened its session on a positive note and went on to extend its uptrend on the back of progressive cues. Prices spiked after the release of inventory data from the American Petroleum Institute (API). The data showed a 12-million-barrel drop in the US crude oil supplies for the week of August 28. This was recorded as the largest drawdown in crude inventories since the 12.4-million-barrel drop reported in March 2013. Along with this, a firm trend in Asian markets coupled with a weaker dollar meant gains for crude oil. Slight losses were seen during the end of the week on profit-booking. However, crude oil ended its session with weekly gains.

Positive Trades for Crude Oil Positive Trades for Crude Oil

Natural Gas Ends Higher

Natural gas witnessed volatile trades during the week. It opened its session on a negative note on Monday. Losses were also seen midweek as the commodity extended its downtrend. However, some respite came after the US Energy Information Administration (EIA) data showed lesser than expected supplies of the commodity. The US EIA stated that supplies of natural gas rose 36 billion cubic feet (bcf) for the week ended 2 September. This was below the average rise of 41 bcf expected by analysts. During the end of the week, natural gas witnessed gains and ended its session on a positive note.

CURRENCIES

Dollar Pulled down by Disappointing US Data

The dollar traded on a negative note during the week. It started its session lower than the previous week’s closing and witnessed mixed trades during the start of the week. Losses were seen on the back of disappointing US jobs growth figures for August. Midweek, the dollar continued to trade in the red. Data showing that the services sector in the US stood near a six-and-a-half-year low weighed on the dollar. During the end of the week, the dollar witnessed choppy trades. It finally finished with weekly losses.

USD Witness Volatility USD Witness Volatility

Euro Registers Gains as ECB Holds Steady

The euro witnessed volatility during the week. While it opened its session on a negative note, it managed to close the week with gains. Losses during the start of the week were seen amid weak global cues. However, the currency rose after the ECB stood pat in its monetary policy meeting. It maintained its upward trend against major currencies on Friday and ended its session in the green.

British Manufacturing Data Weighs on Sterling

The sterling witnessed choppy trades during the week. While it opened lower, the currency witnessed marginal gains during the start of the week. The pound witnessed most of the losses after data showed British manufacturing output fell at the fastest pace in a year in July. Manufacturing output fell 0.9% on the month, higher than the 0.4% decline forecasted by economists. During the end of the week, sterling traded on a mixed note and ended its session in the green.

Yen Rises After BoJ Deputy Governor's Comments

The yen witnessed gains during the week. Losses were seen on Tuesday amid weak global cues. However, the currency witnessed buying interest as a safe haven asset during the end of the week. Market participants increased their exposure to the currency after a Bank of Japan (BoJ) deputy governor gave few fresh clues on the central banks' monetary stimulus this month. BoJ Deputy Governor Hiroshi Nakaso said the central bank would pursue its massive stimulus program by striking the right balance between its powerful policy effects and potential adverse effects on financial intermediation. This helped the yen register gains and end the session on a positive note.

Commodities 2nd Sep 9th Sep % Change Gold/10 gms 30,920 31,217 0.96% Silver/kg 46,015 46,194 0.39% Crude Oil/barrel 2,975 3,080 3.53% Natural Gas/mmBtu 187.20 188.30 0.59% Currencies 2nd Sep 9th Sep % Change INR / USD 67.08 66.86 0.33% INR / EUR 75.10 75.38 -0.37% INR / GBP 88.93 89.04 -0.12% INR / JPY 64.83 65.15 -0.49%

When I began collecting art more than 30 years ago, I was passionate about the idea of owning art, and I had a basic understanding of the art I wanted to buy. But I had no clue at all about how to develop a financially valuable collection.

Back then, I bought from galleries, paying retail prices for ordinary (and, in some cases, inferior) pieces. After several years of that, I tried my hand at auctions, which I found exciting and educational. It taught me a fair amount about how art is valued and sold and how mark-ups and commissions work.

When I retired for the first time in 1989, I bought a half-interest in a fine art gallery in Boca Raton, Florida. In my role as co-owner, I learned the day-to-day business of buying and selling art. I got to understand the important and often misunderstood role of private dealers, how art is promoted, and how the business of art eventually affects the kind and quality of work that the artist produces.

I soon realized that, to be successful as an art dealer, you need to work just as hard as you would in any other industry - work that I didn't care to do. So, I got out of the business and went back to collecting. I acquired mostly secondary works of 20th century European masters. I also collected Nicaraguan art, which I got interested in when I bought a second home in Nicaragua and started to spend some time there.

About seven years ago, I opened my own gallery, Ford Fine Art, and hired Suzanne Snider to run it as my partner. I began buying and selling works from Latin American modern masters, including Diego Rivera, Francisco Zuniga, Rufino Tamayo, Wifredo Lam, and Francisco Toledo. Narrowing my focus in this way allowed me to develop a 'feel' for the factors that make Latin American art unique and valuable.

Then, about three years ago, I decided to narrow my focus even more by concentrating on Central American modern masters. Suzanne and I are currently producing the first-ever major book on these great, but largely overlooked, artists. We hope this will spark interest in them and help boost their market value - which, in turn, will increase the value of my collection.

It's been, for me, a long learning curve. But it has also been a richly rewarding experience every step of the way.

In my first essay, I told you about some of the intellectual and emotional benefits of collecting. In another essay, I explained how a love of art can dovetail nicely with the desire to profit from it.

Today, I will share the important lessons I have learned about building a first-class art collection. If done correctly, it could serve as a secondary investment portfolio to fund your retirement, protect you from inflation, insure you against economic or political instability, and provide a lasting legacy for your heirs or a charity of your choice.

(These are, by the way, universal lessons that apply to any sort of investment-grade collectible. They will help you whether your interest is in art, antique furniture, classic cars, or surfboards.)

My education in buying the right kind of art - art that makes sense as an investment - began when I met a kind, elderly gentleman in a patched sweater. Here's how it happened…

Meeting Mr. Lewin

It was 1985. I was attending an investment conference in Palm Springs, California. Strolling through town, I wandered into an art gallery. The owner, a gray-haired man who looked like Albert Einstein, greeted me.

'How do you do?' he said with an elegant Germanic/Yiddish accent. 'My name is Bernard Lewin. This is my gallery. How can I help you?'

'I looked in your window,' I said. 'Your paintings are beautiful. I think I'd like to buy something.'

He stood there for a moment, hand on his chin. Then he looked up and said, 'The most important thing - don't buy anything today. Look. Study. Take your time. Think. Then come back tomorrow.'

Take my time? Come back later? I had never heard a salesperson utter those words. I thought, 'This is someone I can trust.'

The following day, I showed up at the gallery at around 4 o'clock in the afternoon and stayed until Mr. Lewin closed at 6. While he tended to other browsers, I wandered around, examining the pieces I liked best. I looked at them from different angles and tried to figure out what it was about each one that held my attention. When Mr. Lewin wasn't busy, I asked him naive questions, and he responded with wise answers.

I did the same thing the next day and the next day and the next. By my fourth visit, I had identified a dozen pieces I wanted to own. It was then that Mr. Lewin told me their prices. As it turned out, I was looking at important works by great Mexican masters.

I couldn't remotely afford to buy all of them. I'd be lucky to buy a few. With Mr. Lewin's help, I made what turned out to be very good decisions.

Lesson #1: Don't Buy on Impulse

In retrospect, I realize that, in telling me to wait, Mr. Lewin was giving me my first big lesson in collecting fine art - the first lesson that I now pass on to you: Don't buy on impulse.

First impressions can be deceiving. You can't know whether a particular piece will 'hold up' (sustain your interest) unless you've looked at it at least several times and have thought about it in between.

Mr. Lewin's advice, which I barely understood at the time, proved to be invaluable over the years. And in time, I learned a lot more on my own - much of it through trial and error.

Lesson #2: Not All Art Is Created Equal

Sid, my surrogate Jewish uncle and personal accountant for many years, tried to discourage my interest in art. 'Why are you spending so much money on these paintings?' he once asked. 'Art is art. Just pictures you hang on the wall. Why spend thousands when you can spend hundreds or even less?'

Sid was right about many things. But he was wrong about art. Art is not - as Sid had said - just pictures that you hang on a wall. Some art is very good, some art is not so good, and some art is downright terrible.

Likewise, from an investment perspective, some art is very valuable, some art is less so, and some art is worthless.

To become a financially successful collector, it might help to think of art in terms of four broad categories: decorator art, commercial art, amateur art, and investment-grade art. (Note: These are my own categories. They are not used across the industry.)

Decorator Art is art (paintings, drawings, photographs, sculpture, prints, and so on) that is created strictly as decoration. The images and colours are often 'made to match' (i.e., chosen to blend with or complement the overall interior design of a particular space). This is the kind of art you see in chain restaurants and budget hotels.

Commercial Art is art that is created for a mass market. In other words, it is made to sell well and quickly in the kind of galleries you find in upscale shopping malls, resorts, and cruise ships.

Commercial art is a step above decorative art in the sense that it is meant to appeal to a slightly more sophisticated buyer. But the quality varies widely, from pretty good to very bad. And even the best pieces have modest to no investment potential because of the way they are made and sold. The most popular images are replicated by the hundreds or even thousands, and have little value for serious collectors and museums.

Amateur Art is art produced by artists who don't make a substantial living from their work.

In terms of quantity, amateur art is by far the largest category. You can find it in attics, basements, yard sales, and flea markets - and also in lots of small galleries and antique shops. This makes it a perfectly sensible and rewarding way to develop an art collection on a budget. You can derive all the benefits in terms of education and enjoyment.

The quality of amateur art ranges from very good to very bad. Good pieces that are old (100 years or more) can be sold as antiques. And as antiques, they will have lasting value. But if it is not antique, amateur art is not good for investment because it is, by definition, produced by 'unknowns.' As a result, it is unlikely to appreciate much (if at all) over the long run.

Investment-Grade Art is art that is likely to appreciate in value.

What Makes a Piece 'Investment-Grade'?

For most people, art is all about beauty. But if you think about the history of art, you will recognize that a piece that sells for tens of millions of dollars today isn't valuable because it's more beautiful than similar works.

It's valuable because, for whatever reason, the artist who produced it made his way into the art magazines, then the better galleries, then the smaller museums, then the bigger museums, and then finally into books on art history.

So, if you think about future historical value - rather than aesthetics - when you buy art, you will have a much better chance of developing a valuable collection. And predicting what will be historically valuable in the future is much easier than predicting what will be considered beautiful in the future.

You do it by asking yourself the following sort of questions when you consider making a purchase:

How respectable are the critics who support this artist? What art-world big shots are buying his work? What museums are buying his work? What media/images/techniques of his are most sought after? The point is, if you buy pieces by artists who have been highly praised by serious critics (artists whose work is owned by and displayed by major museums), you can be fairly confident there will always be a market for it.

Now, when I happened into Mr. Lewin's gallery years ago, I did not have this perspective. Nor had I spent much time wondering why some art becomes more valuable over time…

I was lucky that my interest in collecting art was stimulated by a gallery owner who happened to be selling investment-grade art. Had I walked into a different gallery, I might have ended up as a different kind of investor than the successful one I've become.

Lesson #3: Buy Only Investment-Grade Art

The first pieces I bought from Mr. Lewin have appreciated considerably over the years. I haven't done the math, but my guess is that I've realized an annualized return of more than 8%. Considering the fact that I knew so little about collecting at the time, I'm very happy with that.

So, the third lesson I have for you is: If you want to build a financially valuable art collection, you must limit yourself to investment-grade art.

Now, you may think that you don't have the money for that. In fact, you probably do. One of the first pieces I bought from Mr. Lewin was a pencil sketch by Rufino Tamayo, the great Mexican master. It cost me $750 (Rs 49,500) - equivalent to about $1,000 (Rs 66,000) today. Soldier Source: Rufino Tamayo, Soldier

You couldn't buy that drawing today for $1,000. (It is worth more than 10 times that.) But for $1,000, you can find plenty of good pencil drawings by other artists whose works are in museums. And you can buy their pastels, gouaches, and other media for a bit more.

Lesson #4: Buy Unique Pieces by Established Artists

After helping me narrow down my choices to four investment-grade works that I could afford, Mr. Lewin surprised me by telling me that he'd be happy to buy them back in the future. (Again, something I'd never heard a salesman say.)

He explained that I was buying pieces that had a very high chance of appreciating nicely over the years. He had no doubt that I could sell any of them back to him for a profit… and that he, in turn, could eventually sell them for even more.

'You see,' he said, 'you are buying original pieces by established masters.'

He picked up the framed Rufino Tamayo sketch. An outline of the backside of a soldier. Pencil on rough paper. Hardly a masterpiece, but still one of a kind.

'For the same price,' he said, pointing to a print leaning against the wall, 'you could buy that limited edition print of one of Tamayo's paintings. But,' he said, holding the sketch up to the light, 'there is one - and only one - of these. And there are 199 additional versions of the print. Which do you think will be worth more in the future?'

Lesson #5: Buy the Best Pieces You Can Afford… Then Trade Up

Another one of my initial purchases from Mr. Lewin was a beautiful watercolour by Jose Clemente Orozco. I paid $35,000 (Rs 2,310,000) for it.

It wasn't the best Orozco Mr. Lewin had in his gallery, but it was better than some others, and it was the best I could afford. Today, that painting is worth at least $125,000 (Rs 8,250,000). That's a 257% year-to-date ROI.

Fact is, better-quality pieces tend to appreciate more and faster than inferior ones. So, had I bought a lesser Orozco, I suspect I might have not gotten that same return. And that brings me to the second part of this lesson…

As you develop your collection, gradually sell off the mediocre pieces and use the proceeds to buy better ones that are likely to give you a higher ROI. (This, by the way, is the same strategy I use with my real estate properties.)

There are three types of investors I hope you will never become:

The 'Boca Raton' Investor The Boca Raton Investor buys art that looks - in his judgment - impressive. He buys large-edition lithographs by Marc Chagall and Salvador Dali, giclee prints by Peter Max and Thomas McKnight, and original paintings by Thomas Kinkade, Romero Britto, and Itzchak Tarkay.

[Giclee prints are high quality, high resolution reproductions in which digital images are printed onto various surfaces using quality inks.]

He spends good money - often tens of thousands of dollars - on artwork signed by these name-brand artists. He believes it is worth the money he spends on it and hopes someday it will be worth more. He also believes that owning it will show the world that he is a man of means and a man worthy of respect.

But the sort of art he buys will not become more valuable with time. And the status he seeks will be achieved only in the eyes of people who are just as foolish as he is.

Actually, I have no argument with people who buy art this way - just as I have no argument with the immense and garish homes they build or their Gucci shoes and bags. They made their money. They are entitled to show it off.

My objection is with the art dealers who make them think they are making good financial decisions when they buy this crap. I've been in dozens of big fancy homes in Boca Raton. And I can tell you…there is a direct relationship between how high the ceiling is and how bad the art is.

The 'Art Basel' Investor Like the Boca Raton Investor, the Art Basel Investor is looking to make a statement. But rather than saying, 'Look how rich I am,' he says, 'Look how hip I am.'

Art Basel is a popular international art festival that takes place every year in multiple cities, including Miami, Hong Kong, and Basel, Switzerland. It's considered the hippest-of-the-hip modern and contemporary art events - the place to be if you want to be someone in the art world.

Miami's Art Basel 2013 offered over $3 billion (Rs 20,000 crore approx.) worth of art. It had 72,500 visitors and more than $100 million in sales, up from $80 million in 2012. A work by Jeff Koons sold for $8 million (Rs 53.26 crore). An 8×8 glass shadowbox with rows of preserved insects and spiders sold for $3 million (Rs 20 crore).

I attend Art Basel Miami every year. And every year, it's bigger and slicker. Tens of thousands of investors, collectors, and wannabes stroll through the cavernous halls of the Miami Beach Convention Center, checking out the latest and greatest.

Here's a report of how India was represented at Art Basel.

I would classify 80% of the art sold at Art Basel as 'commercial' and 50% of the non-commercial art as 'speculative.' In other words, I'd rate only 10% of it as 'investment-grade.'

This will offend people who see Art Basel as the ultimate art event. It is certainly big and popular. But it is fundamentally a commercial enterprise catering to the business of art. And the great majority of the artists represented are contemporary artists who do not hang in major museums. What that means is that if you don't know what you are doing, you are very likely to end up buying art that will never create wealth for you.

Investing in trendy art is like investing in penny stocks. It can be done profitably… but only by sophisticated insiders. For the rest of us, the chance of building a valuable portfolio with it is one in 1,000.

You can, of course, improve your chances by investing in contemporary artists supported by the big international galleries. (Having a good sponsor/handler is, and always has been, a route to success in the art world.) Even so, only a fraction of today's promoted artists will hang in the major museums 20 years from now.

The 'Buy What I Like' Investor If you do an Internet search for 'art investing,' you will find many articles and essays by dealers that eschew buying art as an investment. Instead, they say, you should 'buy what you like.'

This is not good advice… for several reasons.

First, it is illogical. It presumes that there is a difference between an art object that you like and one that has investment potential.

Second, it is harmful to the novice collector. It presumes that the art you are likely to 'like' as a novice investor will continue to please you after you've been at the game for some time. And that is not, usually, what happens. Novice collectors like art that they see as 'beautiful.' But what is beautiful to the inexperienced eye often looks derisive and obvious to the experienced eye.

You might, for example, absolutely love the $5,000 Peter Max you bought when you were on that Caribbean cruise. But 10 years later, you may be embarrassed to have that thing on your wall.

Peter Max, Liberty Head

Peter Max, Liberty Head And then when you discover that you can get-at best-only $2,000 for it (after 10 years), you'll feel doubly duped.

Third, the statement itself is disingenuous. Dealers usually throw it in as a sort of disclaimer after pitching you on a particular commercial-grade artist or work of art. It translates to: 'If this doesn't appreciate as I've led you to believe, don't complain. At least you like it.'

So why are all those 'experts' telling you to buy what you like?

Here's the thing about buying what you like: Tastes mature. The more exposure you have to art, the more sophisticated your tastes will become. Your goal as an art collector is to buy pieces that you like now and you will likely still like in 10-20 years. And guess what? Most investment-grade art has that durability.

So far in this series, I've tried to give you an overall picture of investing in art. I talked about my reasons for doing it and why art is such a great long-term investment. I also shared some important advice I was lucky enough to learn early on.

Now, I want to get into the details of how to begin your collection. And, as I said before, nearly everything I say here can be applied to other forms of collecting, as well: coins, stamps, antiques, and so on.

I was in grammar school when I first began looking - with interest - at art. At the time, I liked painted clowns on black velvet better than I liked Rembrandt. I like Rembrandt better now, but I don't think it's because I've taken a few art classes and read a few dozen art history books. I think it's because I have spent so much time looking at art. (And when I say “looking,” I mean more than glancing. I mean looking hard. I mean looking and thinking about what you're seeing.)

The pleasure I found in those clown paintings was real and valid. But it was a simple pleasure - sort of like the pleasure I got from drinking sweet wines when I first began to drink wine.

Unknown artist Unknown artist

Unknown artist Rembrandt Self-Portrait, 1669

As time passed, those clown paintings seemed less interesting to me. I didn't want them to. It simply happened. It happened because I was seeing so many other paintings.

There seems to be a natural evolutionary process that takes place when you expose yourself to any of life's aesthetic pleasures - art, music, dance, literature, food, or wine. In the early stages, you like the simple and obvious. Later, you prefer the subtle and complex. And though I don't believe you should pay any attention to what art experts say, I think you'll eventually find much of what you like will be what they consider the 'good' stuff.

The British Journal of Aesthetics published an interesting study recently that supports this idea. The researchers asked participants to review and rate the landscapes of two artists: the English Pre-Raphaelite painter John Everett Millais (considered 'good') and the contemporary painter Thomas Kinkade (considered 'bad').

They found the more participants were exposed to Millais, the more they liked it. And the more participants were exposed to Kinkade, the less they liked it.

Unknown artist John Everett Millais, Lingering Autumn

Unknown artist Thomas Kinkade, Cobblestone Bridge

I'm not saying there is anything wrong with liking Kinkade. I'm just saying, after you've studied a thousand landscape paintings, it is unlikely his work will satisfy you.

Step 1: Developing Your Eye If you want to become a serious art investor, you have to look at works of art in a serious way. And you have to do it at least 1,000 times. In fact, you probably have to look at as many as 5,000 pieces.

I base these numbers on the 1,000/5,000 theory I devised years ago. The theory can be applied to many things. For example, you need to put in 1,000 hours to develop competence in any complex skill. And to become a master of that skill, it takes 5,000 hours. (I wrote about this several times - long before Malcolm Gladwell wrote Outliers.)

When it comes to investing in art, the point is: It takes time to figure out your personal tastes. (Keep in mind we're talking about investment-grade art here. Of course, you can look at whatever type of art you want. But if you're looking to buy, you should spend those hours looking at the right stuff.)

The Finer Side of Art Appreciation When you're new at it, looking at art can be confusing. What should you be looking for? What, if anything, should you be thinking about?

I recommend simply looking at a work with conscious attention. Let the image sink in. Be aware of how it makes you feel. Does it stimulate any random ideas or memories?

You're not looking for anything specific. You're simply paying attention to your experience. That's all you have to do. Start with that and keep at it. The pleasure you get will increase and deepen as you look at more and more pieces.

Some of the first pieces I collected were by the CoBrA artists. (CoBrA is an acronym for Copenhagen, Brussels, and Amsterdam - the cities the artists were from.) CoBrA art was a good choice for a novice collector because it was easy to become an expert in it fairly quickly. The movement lasted only a short time (1948-1952). It included only 10 or 12 artists, and each of them was recognizably different. Not a lot to learn.

I focused on the major CoBrA artists: Karel Appel, Corneille Guillaume Beverloo, and Asger Jorn. I liked their paintings. And because they all have pieces that hang in major museums, I knew their work would always have value. I bought sketches at first because they were cheap. Then I sold some of them at a profit and kept 'trading up.' Eventually, I acquired a very nice CoBrA collection that has appreciated over 300%.

You can do something similar. Develop your eye by looking at many works of art. Look everywhere. On museum walls, of course. But also in sculpture gardens and galleries. In books. In government buildings and private homes. Outside, in parks and on billboards. If you see something interesting, don't be afraid to check it out. Even if it means you have to ask permission to approach it.

When you get an idea of what you like, limit your interest to one genre… then to two or three well-known artists within that genre. Study the price history of those artists. Find out what their work has fetched at auction in the past. Find out what it is selling for currently.

And then… you will be ready to think about buying.

How to Get the Most Out of a Visit to an Art Museum Some people feel compelled to 'see' everything in an art museum. They will spend three or four hours rushing through the galleries, barely glancing at the paintings on the wall. That's not the way to do it.

Don't even try to cover the entire museum.

As much as I enjoy art, it takes energy to appreciate it. So, when I visit a museum, no matter how big it is, I plan to spend no more than 90 minutes there. That means deciding beforehand what I am going to look at.

You can do that by looking through the museum brochure or speaking to someone at the information desk. You don't have to see the current exhibition or the best-known pieces. Pick something you think you will like.

Don't spend more time reading the labels than looking at the art.

Spend a moment taking in all the paintings within eyeshot. Then, go only to those that attract you. Spend as much time as you want looking at each one. Think about whether you like it. Or whether you have mixed feelings. Feel the feelings. Think the thoughts. But don't try to make too much of them.

Look at the label only after you feel like you have “taken in” the piece. If you are surprised or intrigued by what you learn (about the artist, when the piece was created, the medium), go back and look at it again.

Make your own judgments before reading the critical commentary.

As with anything (stocks, fashion, real estate), it's easy to be swayed by 'the experts.' Your gut tells you something is beautiful. But then, you read a critic's review, and suddenly, you think you must have misjudged it.

Art criticism can be biased, convoluted, and silly. Reading it can feel like stepping into a cocktail party of overeducated, pretentious snobs.

The sad truth is the people who write that stuff are often highly regarded, and their words carry tremendous weight in the industry. If, for example, an art critic for The New York Times recognizes a schizophrenic porn star as 'the next Koons,' you might think he's full of hogwash. But rest assured, collectors will immediately start flocking to the 'artist's' shows and driving up the value of his work.

The more you learn about art, the more you will learn how to decipher the strange, coded language of the experts. You'll be able to read between the lines and understand whether they are alerting you to a great investment opportunity or simply spouting gibberish.

Until then, treat all critics with a healthy dose of skepticism. Learn from them what you can… but don't take everything they say as gospel.

Finally, as former Met Director Thomas Hoving said in an interview in Attache… magazine:

'Don't feel you have to get it. Modern and contemporary art, in particular, isn't supposed to be an intelligence test. A Morris Louis is beautiful colours coming together. It doesn't mean anything. It's not supposed to.'

Remember, art is not science. Everyone's experience of a piece is different. It either interests you, or it doesn't. You either like it, or you don't. If you like it, good. Seek out other pieces by the same artist. If you don't like it, move on to something else.

Step 2: Buying There's no need to start your collection by spending a lot of money. In fact, you shouldn't. Doing so at this stage of the game - before you really know what you're doing - can lead to costly mistakes.

But with a modest investment, you can buy pencil sketches by known and collected artists. Artists such as Picasso or Matisse will be outrageously priced, but lesser-known artists such as Andre Derain and Raoul Dufy will be well within reach.

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These artists hang in every major museum in the world, and their drawings tend to appreciate in value along with their other works. For pencil sketches by these artists, you can expect to pay $1,500 and upward.

Or you can buy oil paintings, watercolours, and gouaches by up-and-coming, second-tier investment-grade artists. Prices for these should range from $2,500-7,500 (Rs 1,70,000 - 5,10,000). Buying up-and-comers is trickier from an investment point of view, but it is a very good and enjoyable way to document the history of your developing aesthetic tastes.

Gouache-pronounced GOO-wash or GWASH-is a painting technique using opaque watercolors. The pigments are bound by liquid glue and dry to a matte finish.

Or you can buy both. Doing this will keep your risk relatively low. If and when you do make the occasional mistake (like buying a fake sketch or overpaying for a second-tier watercolor), it won't break you.

Where to Buy Small, local galleries aren't bad places to go when starting your collection. You can find oils, pastels, and drawings for a few hundred dollars. Buying pieces like that is a good way to train your eye.

But beware: Galleries sell to you at retail. Which means they charge you 50-100% more than what they paid. As an investor, you can't afford to pay that kind of premium. Sometimes, galleries buy cheap and don't insist on such big margins. If you know what you should be paying (by educating yourself), you can negotiate.

The major auction houses charge a premium, as well. It can be as much as 25% to the seller and another 25% to the buyer. That's not a trifling amount…but it can work for you if you buy the piece at a price considerably under its retail value. This happens all the time at auctions. Again, if you have done your homework and know how much a piece should sell for - and you don't bid above that - you can do well.

Smaller auction houses have smaller premiums and can be great places for making discoveries.

One of the best sources I've found for bargains is private sales. I recently bought a few pieces from a private collector who ran into financial difficulty and had to raise money quickly. By buying privately, you can sometimes get paintings at rock-bottom prices without paying a commission.

A side note: It is remarkable how many collectors ignore antique shops and estate sales. This is an environment outside the gallery scene and auction houses that can be loaded with bargains and sleepers. That grimy oil landscape (which can be cleaned) could be a hidden gem. I came across many items in my collection this way.

When buying investment-grade art, be cautious. There are a lot of forgeries on the market, especially of popular artists like Salvador Dalí and Wifredo Lam. You can't protect yourself from this by buying only pieces that have good sales records. Buy from reputable dealers and auctioneers. Ask for complete provenance. And you can always have the work looked at by an expert if you have any doubts.

The provenance of a work is its record of ownership, often used to verify a work's quality or authenticity.

Many new art collectors turn to eBay, thinking they will find “undiscovered originals” there. But eBay is notorious for peddling fraudulent art. If you find a Picasso priced at $300, you can be guaranteed it's a fake. (If it's too good to be true, IT'S NEVER TRUE!) A better place for browsing original art online is SaatchiArt.com.

Several Indian Art websites and online galleries sell paintings by Indian artists: Fizdi.com, IndiaArt, Mojarto, and Gallerist to name just a few. You can use these to research artists you like and then go see their work at local exhibitions or galleries.

Conclusion As with anything, the more experience you have, the better you will do. And you can gain a great deal of that experience for free - while having fun. When you visit a city, explore the local museums and galleries. Learn about the local art scene and the up-and-coming artists.

Subscribe to a magazine such as the Art News Magazine of India. These publications will educate you on the many sides of the art world. You may not understand everything at first. (The articles about modern art can be particularly daunting.) But in time, it will all start to come together and make sense.

Armed with knowledge and experience, you'll then be prepared to create a smart, profitable collection.