Stocking up on art? Think about 'Pink Sheet' paintings.

Investors know that, over time, nothing beats stocks for financial return.:

However, fine art might come close. According to an art-price index devised by a couple of professors, pieces sold at the major auction houses in New York over the past 50 years had a compound annual growth rate of l0 percent, which is better than bonds and half a point less than the Standard & Poor's 500 index.

Perhaps most surprisingly, according to the index, low-priced art appreciated at a faster clip than high-priced art. That contradicts a vintage belief among the art set.

"The old adage is to buy the best because it performs the best, said Michael Moses, a professor of New York University's Stern Business School and co-author of the index.

Moses, who is to discuss his research May 20 at the San Marino Gallery in San Marino, explained that low-priced art is much like a young, low-priced stock with lots of promise. The stock of Microsoft Corp., for example, rose spectacularly in the company's early years, but now that the company is mature the stock struggles to keep up with the S&P 500. The same is roughly true with most art: Once a piece or a genre runs up in price, it typically doesn't rise spectacularly thereafter.

Even extreme top-end pieces--the ones that get headlines--don't do as well as many imagine. Moses said that one Claude Monet painting that sold for $22.5 million in 1999 sold three years later for almost $4 million less. And even Pablo Picasso's Boy with a Pipe, which sold for an eye-popping $104 million in 2004, appreciated in price only 16 percent a year from its 1950 sale of $30,000.

Of course, the trick for investors is not to buy any velvet painting, but low-priced art that is considered high in quality with a promising future: That's why Moses and fellow professor Jianping Mei track art sold only at Christie's and Sotheby's.

To devise their art index, called the Mei Moses Index, each year they divide the pieces auctioned off into three price groups: the highest third, middle third and lowest third. The lowest third include pieces that average roughly $25,000. They track prices for the identical pieces as they return and are sold in subsequent years.

Over time, the low-priced pieces appreciated at a clip that s 2 percentage points greater year than the high-priced pieces, Moses said.

Of course, free art doesn't appreciate evenly year after year, just as stocks. Art tends to outperform stocks during war or times or strife, much like gold, but underperforms during bull markets, such as the late 1990s tech bubble. At the end of 2005; the S&P basically was where it had been five years earlier, but art increased 7.7 percent in that spari.

Moses is a believer that fine art can be a good way to diversify an investment portfolio. And even though there are financial hurdles to investing in art, he counters most objections.

For example, Moses agrees that art is more illiquid than stocks, but he pointed out that art is not illiquid because auctions are held regularly. In fact, art can be more liquid than a house.

Art owners often pay greater insurance, but Moses pointed out that many mutual funds have management fees.

And, of course, Critics point out that art pays no dividends. But Moses said that the S&P index includes stock dividends: In other words; over 50 years the art appreciated at close to the S&P even including dividends.

Of Course, art lovers get the "dividend" of enjoying their art investment every day.