But under purely financial aspects as well, art is a genuine contender as part of any sophisticated asset planning, hence looks like the right candidate for inclusion in portfolio.

Wolfgang Wilke says, "Investment in works of art helps reduce portfolio risk as trends on the art market generally have a slightly negative correlation with the financial markets."

William Goetzmann at Yale School of Management has subjected the art market to econometric analysis, and found that the art market's beta - its synchronized movement with the stock market - is higher than one. This means that in boom times art moves up more, and in crashes art drops lower.

But the effect is lagged. If the past is any guide, the art market will react with a delay to declining stock markets and economies. In the immediate aftermath of the stock market crash in October 1987, Sotheby's and Christie's achieved record prices. The crisis hit the art world only at the start of the 1990s. Usually, there is a time lag of nine months to two years between the decline of the equity market and the decline of the art market.

Also Bill Muysken feels art is unlikely to reduce risk for investors to any material extent. "The value of artworks tends to be highly correlated with equity market values, as many wealthy investors - if the past is any guide, the art market will react with a delay to declining stock - markets and economies in art tend to draw their wealth from equity markets," he adds.

Nevertheless, art as an investment cannot be overlooked for one unique reason: An ever-increasing demand coupled with an absolutely limited supply. Add to that ability to survive economic downturn, one would start contemplating about investing in it.

I. E. C. Haramis says, "Although putting money into art may not be as straightforward as investing in bonds or equities, the art market is attracting increasing interest. As a result, we are now seeing a lot more new and old investors that are looking to put their money at art."

Wolfgang Wilke feeling the same says, "art is an asset class of its own. It is neither a real asset nor a financial asset. Art combines passion and investment. But under purely financial aspects as well, art is a genuine contender as part of any sophisticated asset planning. Its share in the overall asset mix should be between 5~10O ~"

Valuing art is very different from valuing financial instruments. The difficulty of investing in the art market arises from the art market's inherent inefficiencies. The main trouble with investing in art is that it is almost impossible to identify an intrinsic value. It is about aesthetic judgments. Each art is different and prices for individual works may be unpredictable and difficult to compare.

Valuation is based more on human emotion than on any predictable model. Rival bidders who like the same piece can quickly push the sale price beyond all estimations. Accepted price levels for works of art are established by the interplay between auctioneers and dealers.

Wolfgang Wilke says, "There is no objective" value for works of art. Prices follow overall prosperity (income growth) and evaluation according to aspects of taste. Those items, which become the focus of a change in taste later generate the highest yields. Anticyclical investment is thus the hallmark of the successful investor." In the end, as the beauty lies in the eyes of the beholder, so is the value.

The key for art investing success, like stocks, is predicting which works of art will increase in value. Investors who are not hesitant of high risk can make the biggest gains at the lower end of the market by investing in lesser known and new artists. The problem with this is that there are so many artists in the world and finding the one that will become the next Rembrandt or Picasso can be next to impossible. It is unlike predicting the companies that would be future stars.

Art market can be divided into five categories: Old Masters (1300-1860), Impressionists (1860- 19"10), Modern (1940.1970), Contemporary (1970-1985) and Very Contemporary (1985 onwards).

It is the last category that is more risky. Old Master art tends to hold its value because it embodies the deepest aesthetic and cultural qualities, and acquires tangible investment value as a source of these qualities. In the case of contemporary art, so much of it is based on a fashion and artists tend to rise and fall very quickly. At the same time, top art is unlikely to fetch huge gains. It is much less likely to increase in value than middle or lower-priced works, according to Mei/Moses fine art index. For art value, artist, of course, is the most significant factor, but only a starting point.

To be able to attract a top price, a painting must also be thoroughly typical of the artist i.e., the style which people have come to think of as characteristic of the appreciated enormously in value over time, it is difficult to make a case for artworks' overall earning a positive net rate of return in real terms over the long run. Other basic components of value are authenticity, condition, rarity and technique.

The unique investment as it is, art market has some unique risks. Successful investment in art requires not only extensive know-how about the artistic quality and authenticity but also the peculiar nuacences of the art market. As each work of art is different and the markets are everything but transparent, evaluating quality and price requires knowledge of the market inside out. There are potentially large differences in expertise between buyers and sellers. And the art markets are often cloaked by veil of secrecy.

Investment horizons typically run for years or even decades, and the market is generally illiquid, which significantly limits an investors' ability to convert a holding to cash. Transaction costs (auction fees, appraisal fees, insurance, handling costs etc.) are by far larger than in other markets. Though there has been increase in availability of and access to data from art-research firms, websites dedicated to prices of art, indices of the art market and art auctions, it is far from adequate.

The main trouble with investing in art is that it is almost impossible to identify an intrinsic value. When evaluating individual purchases, there are few risks that may not arise when investing in securities. For example, there is no official registration office or certification authority that can authenticate the ownership of individual artworks. Other transaction risks include absence of clear title, forgery, mislabeling, and auction fraud. These risks have made art market a place for insiders.

On a physical level, art typically requires a specially controlled environment where temperature, humidity and light are continuously monitored.

Further, thin and opaque markets make it easy for the insiders to artificially inflate the prices. For instance, price-fixing collusion by the two major auction houses in 2000, Sotheby's and Christie's, defrauded art investors by millions of dollars.

The method is similar to stock market manipulations by the major stockbrokers.

However, in the art world, there is not even pretense of accounting and the market is entirely unregulated.

I. E. C. Haramis says, "The art world is far less regulated than securities and real estate, so there is often no resource in the event of misrepresentation. The investor is very much on his own to perform appropriate due diligence."

During the asset inflation of the 1980s, large corporations in Japan and the US invested large sums in abstract art and landscapes. When the bubble burst, corporations" holdings became mere wallpapers as the distorted market took a dive. Art market itself is not volatile. Investors, seeking financial gain only, create volatility in the market. Art is a good investment, but only in the long run. Its gain has been slow, but steady. It is a good investment only because people of taste recognize their historical significance and their rarity. These are values that no other investment options offer.

If greedy investors, for whom these values do not matter, start playing in the marketplace, the short-term economic value may become disproportionately emphasized over their long-term aesthetic and historical values.

Art is certainly a growing asset class, to use financial language. Wolfgang Wilke says, The zeitgeist and the search for alternatives to the classic forms of investment will ensure that art as an asset class will enjoy an unimagined upswing."

The number of art advisory firms promising to help new art market entrants is growing. Many financial institutions are building up large databases covering various segments of the art market. A few firms are even turning to art experts to build art portfolios for their wealthy clients. But it is never going to be just about the numbers.

Art speaks a language-subjective and unique. Most people who have made money over the years, haven't bought art as an investment. Nearly everyone, from art experts to gallery owners to financial advisers, emphasize that investment should never be the sole-or even the primary-reason to buy art.

I. E. C. Haramis feels, "Collecting art can be one of the most enjoyable ways to spend money. An engaging work can provide its owner with a lifetime of visual pleasure-and then fetch cash! But investment in art should not be solely financially motivated! Buy what you love, because even though it might go through a transitory devaluation, the intrinsic value of the work will always be there!"

Virginia Wilson says, "The art market has been in existence for a long time because of its returns - capital gain, pleasure and social status." Considering that art touches a personal chord, it can never be a staple part of institutional investment portfolio. Bill Muysken feels there will always be a place for artworks in the investment portfolios of wealthy private individuals who gain enjoyment from investing in art that goes beyond its attraction from a pure investment standpoint, but not in institutional investment portfolios.

And in final analysis, art markets are a lagging indicator of economic growth and are fallout of general wealth creation. Further, just as Bill Muskyn concurs, art has a role in society that goes well beyond its investment value.

Among other things, many owners view the artworks as a symbol of their social status. That function has existed for thousands of years, and will most likely continue to exist in the future, regardless of the merits of art as an investment, and it is this image associated with it as a connoisseur that creates an ever increasing wannabes willing to pay through their nose to differentiate themselves.