The Art and Science of Business Investing

Investing in shares of operating companies, those firms that create and/or market products or services, can be a ingenious avenue to leverage off of all kinds of other investments. You can also buy shares in an investment company, which is a firm that invests its money in the shares and bonds. The original funds are raised issuing shares to the public. Profit to the investment company comes only from the interest, dividends, and capital gains on its investments.

The close-end company is similar to an operating company. It has a number of authorized shares that it can issue. Additional sources of funds come from retained earnings, bond issues, or by issuing more shares to the public. The shares of a listed closed-end investment company are traded just as are shares of operating companies: on a stock exchange.

Open-end companies, more commonly referred to as mutual funds, can buy and sell their shares directly with you or through brokers. There is no trading market. There are load funds, that is, those that charge a selling fee and no loads. The prices of their shares depend on the market value of the securities held by the fund. For example, if the value of the fund’s securities is $15 million and there are three million outstanding shares, then the price you pay is $5 as share. Insurance companies offer variable annuities that have characteristics similar to mutual funds.

Investment companies range from the popular money-market mutual funds to specialized option funds. An investment company affords you two obvious advantages. No special time or skill is required to manage your investments. A professional management team handles almost everything. Equally important, the investment company offers you diversification.

While an individual with a small amount of money will not be able to invest in a variety of areas, the company can and will do this. The management group of an investment company operates to achieve broad objectives. Some will stress growth; others, income. Therefore, it is easy for you to match your investment objectives with those of the investment company.

Taking a Ownership Position in a Small Business

Perhaps you have an ownership position in a small business in several ways. (1) The business may be owned outright as a sole proprietorship. (2) Two or more people may each own a portion as partners. (3) The business may be incorporated, with the stock held by one or more people.

In case of a general partnership or sole proprietorship, be forewarned that should the business go bankrupt, the owners and general partners are personally liable for the unpaid debts of the business. For this reason, incorporation may be advisable. On the other hand, there are legal fees, reporting requirements, and tax differences for an incorporated business. Moreover, the desirability of incorporation will vary according to the type of company and the goals and risks the investors wish to assume.

An “S” corporation may provide a solution in that it has the limited liability advantage of a regular corporation, while its income (or loss) is passed through to its shareholders, hence avoiding the corporate-level federal tax. Not all states recognize “S” corporations, and federal tax rules governing them are complex.

If your investment in part or complex ownership of a company obligates you to manage the business, then your expected return (salary and/or share of profit) should reflect this time investment. Because of the numerous obstacles that must be overcome to successfully start and run a business, the risk to your investment is very high and that investment will require high maintenance. Do not consider buying into a business until you have educated yourself thoroughly about the business and the business world.


Things to Remember While Investing in Art

The Indian art market is divided into two segments – Modern and Contemporary. Modern segment comprises of masters like M F Husain, S H Raza, F N Souza, VS Gaitonde, Amrita Sher Gill and more. Contemporary segment is comparatively young, around last 30 years. Alternately, Painters who were born after 1930.

1. Do your own research.

One of the first things to do before buying art is to empower yourself by reading up on art, visiting local art galleries, meeting artists/ collectors and other people who are actively involved in this field. Talk to artists, consultants and curators to get insights about the functioning of the art market and to also network with like-minded people intending to buy art also known as “Collectors”.

There are international auction houses like Sotheby’s and Christie’s which focus on Indian art. Also there are domestic auction houses like Pundoles, Asta guru and Saffron Art. You can contact dealers and galleries. You can also approach an art advisor. You can end up paying a consultant 2-5% fee for expensive works. The service for smaller works may cost 5-15% of the value of the artwork. Fees also depends upon rarity of art work.

Ensure that the dealers and galleries sell genuine/ authentic works. Art market is full with fake artworks, so make sure you do proper research before buying the art. Check few important documents while purchasing art like authenticity guarantee, a provenance certificate, that is the previous owners of the artwork, condition report, publications (if any). Nowadays, many auction houses like Saffronart do not provide authenticity certificate. While buying from the auction houses make sure you understand buyer’s premium and the total cost incurred by (delivery charge, taxes, etc). Usually when you are buying through a dealer, only the seller has to give commission to the dealer and not the buyer. This can also be happen when you buy from a gallery. Again this depends on dealer, gallery and artwork involved.

2. Quality, not quantity.

Invest in fewer pieces that are higher quality. Not all pieces done by a renowned artist are masterpieces. You must take help from experts to recognise a masterpiece. For instance, an oil on canvas is perhaps the most expensive form of painting. Then is an acrylic on canvas, followed by an acrylic on paper. Then would follow watercolor on paper and charcoal on paper.

3. Buy art that you like and understand. Allocate a budget.

Buy art that you like. It is something you may keep for a lifetime, as you don’t know whether you will be able to sell it or not. Unlike other forms of investment such as stocks, it is worth remembering that art has an aesthetic quality that can, and some say should, be appreciated outside of its monetary value. Art is a long term investment. Also, prices of a renowned artist’s works do not necessarily shoot up when he dies. Art should not form more than 5% of your total investments.

4. Maintaining the artwork

Once you buy the art, you also need to incur the maintenance cost like insurance, storage cost. Also you need to take care of the artwork, like art should be stored in an environment that does not get direct sunlight.

5. Investing in emerging artists

Experts say you can look at investing in emerging artists whose works are available from Rs 1 lakh onwards. Though they may be a good option, it is difficult to predict who will make it big in the future. For this, you need to take advice from experts in the field.

6. Prints, limited editions

If you have limited budget, you can also invest in limited edition prints like serigraphy, lithography.

7. Evaluating an artwork.

In west countries, art has a much bigger market. These countries have institutes that value art. In India, we do not have certified institutes that value art. But the artwork can be valued by auction houses and galleries. Of late, even insurance companies are vaulting artworks.