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"Sorry, collectibles are terrible investments"


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6 hours ago, Jwillis said:

This New Yorker cartoon seemed to fit this thread 

 ( image )

The cartoon is funny but sad. Regrets. Kids get cash? Like getting cash for a gift. Remember when it meant something to get a handpicked gift. I do not want gifts, as they will be re- gifted, but have dozens of Startbucks and Amazon cards in a drawer. The Starbucks cards go to school admins and the Amazon cards go to fund school projects, but might consider buying strings.

I think we accumulate tools. I do have a bunch of crap. But it all has value for someone.

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In life, there really are very few slam dunk investments.

A hot collectable at the time, may not be so hot many years later, when you come to sell it. Even if it has appreciated, everything else has gone up in price by that time anyway, so can you ever really win?

I have found that the best investments for me have been family and friends. You can't put a price on those, but they are for sure my best investment, and I'd be nowhere without them :)

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5 hours ago, Wood Butcher said:

 

I have found that the best investments for me have been family and friends. You can't put a price on those, but they are for sure my best investment, and I'd be nowhere without them :)

A close second is a good violin teacher plus a local pianist friend that will play Sonatas with me.  I make sure to bring them fruits and veggies from the garden when it is in season.  

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On 4/26/2022 at 9:55 AM, Bishopstrings said:

As I tell my clients...I can buy violins as an investment because it's my job, I can buy them and sell them.

You might find it harder.

Yup! As it's our business, we also have the advantage of understanding when something that is under market value, the ability to enhance value through restoration, relationships with other colleagues who may offer inventory at a reduced price, et., etc. etc. We also have the advantage of being able to market and resell without relying on a another who charges a sales commission. This all allows us to maintain a business, feed our families and invest in their future, and have a little fun.

I do have a bit of a problem applying the linked article to the violin market, however. If referring to collecting in terms of speculation I suppose one could agree with the general premise, but instruments are not just "collectible items". For the professional musician, they are a tool. To the enthusiasts they might be considered an art form. historical objects, etc. So... before sentencing them to eternity in the scrapheap along with beanie babies (though I'm sure, even with these objects, there are those who covet them), I think it wise to define some parameters.

If part of the definition of what an instrument is includes the word "tool", the article is crap when considering them... and then, I think the word "investment" itself should be considered.

Some buy tools as a "collectibles". I invest in them to accomplish work and don't expect the thousands of dollars (scratch that... add at least one zero if not two) I've invested in tools and books over the years to have a "return on investment" based on appreciation, but they are, none the less, one of the best investments I've ever made (even if they are worth "nada" in the end).

Instruments can, and do, offer the same advantage to professional players. In addition, because the violin market is, overall, rather stable, it often allows a return to the owner when sold. After a certain threshold, this is true for most quality instruments. Better than the majority of tools I can think of.

I often wonder if authors of articles like this ever really talk to collectors (not speculators who may never touch the object). Most I know collect (art, violins, books, records, wine, old toys, etc.) because they love the subject or objects.  Some may talk about their "wins", but most do not.  One of the most likable collectors I've worked with asked me "these things don't usually go down too much, do they?" before amassing a rather enviable group of instruments and bows. He simply enjoys them. He's never lost (not even close) when he's resold one, but profit doesn't run him. I'm sure (actually I know), all considered, he feels he made good "investments" in the end.

Carry on folks!

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5 hours ago, Jeffrey Holmes said:

Instruments can, and do, offer the same advantage to professional players. In addition, because the violin market is, overall, rather stable, it often allows a return to the owner when sold. After a certain threshold, this is true for most quality instruments. Better than the majority of tools I can think of.

Yes. Additionally, unlike most "collectibles," while a professional musician is making a living with their violin, they can depreciate the instrument's tax value even as its market value may continue to increase.

I am not sure all professionals know about this (--my daughter's tax accountant apparently didn't).

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7 hours ago, Jeffrey Holmes said:

If part of the definition of what an instrument is includes the word "tool", the article is crap when considering them... and then, I think the word "investment" itself should be considered.

Collectable violins are not valued as "tools." One could easily argue that the most important quality of a violin as a "tool" is its tone quality, but tone quality has essentially nothing to do with the fair market value of a violin.

I think that Fulton's experience of the average annual return of 5.54% is a pretty good benchmark for the high-end of the market. 

But look at the lower end "trade" market. For example, in 1928 the catalog price of a new top-of-the-line Heinrich Th. Heberlein violin was $250. Today, that violin might sell in a dealer for $10,000. The annual rate of return for that "investment" after 94 years would be 4.00%. 

1 hour ago, crazy jane said:

Additionally, unlike most "collectibles," while a professional musician is making a living with their violin, they can depreciate the instrument's tax value even as its market value may continue to increase.

This is true. Also maintenance can be deducted as a business expense. However, if you depreciate your instrument, you lower your cost basis for tax purposes when it comes time to sell. For example, if you buy a violin for $25k and depreciate it to $0 for tax purposes, you will pay capital gains taxes on the full amount you sell it for (because the taxable cost basis is $0, not $25k).

I am not saying that depreciation isn't a good idea in many cases, but one should be reasonable careful in understanding if the tax deduction for depreciation is greater than the capital gains tax that they will owe when selling it.

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3 hours ago, GeorgeH said:

However, if you depreciate your instrument, you lower your cost basis for tax purposes when it comes time to sell.

This is my understanding too.  I "heard" that if you put your instruments in your living trust, the cost basis becomes the market value on the day that your heirs inherit the instruments.  Do you know if this is true?

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4 hours ago, GeorgeH said:

Collectable violins are not valued as "tools." One could easily argue that the most important quality of a violin as a "tool" is its tone quality, but tone quality has essentially nothing to do with the fair market value of a violin.

Not all of us agree with your opinions as stated above.  :P  :lol:

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9 hours ago, GeorgeH said:

I think that Fulton's experience of the average annual return of 5.54% is a pretty good benchmark for the high-end of the market. 

But look at the lower end "trade" market. For example, in 1928 the catalog price of a new top-of-the-line Heinrich Th. Heberlein violin was $250. Today, that violin might sell in a dealer for $10,000. The annual rate of return for that "investment" after 94 years would be 4.00%.

If you think true inflation is higher than official figures, an annual return of 5.54% is arguably close to zero purchasing power growth, when the violins are turned into other assets, or spent on consumption.

Treating gold as a long-term benchmark inflation hedge, the Heinrich Th. Heberlein would need to have risen ~100% since 1928 to break even (i.e. the end-user, not just a dealer, would need to be able to sell at ~$25,000 to have done better than holding a small gold bar), leaving aside maintenance costs.

When I bought a new violin I expected to lose money "the day I walked off the forecourt". Dealers can make money with years of experience and skill (and sometimes dishonesty). Having seen the antiquarian book trade from the inside, I suspect end users who think they are making money out of collectibles are just looking at the true inflation level.

To be fair, the inflation phenomenon has benefitted wealthy holders of most asset classes in the past couple of decades, but that is just the growing gap between rich and poor generally, rather than violins or real estate being a particularly good investment.

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2 hours ago, Jeffrey Holmes said:

I respectfully disagree. The fact that an instrument is collectible, rare, or expensive does not disqualify it as a tool... 

George's statement is a bit ambiguous. Doesn't he mean that the value placed on a collectible violin is not determined by its usefulness as a tool?  Most collectable (and incredibly valuable) items are of no tool use at all. Violins are different in that "usefulness" is a factor in their value but not the main determining one. How much more useful is a Strad than a Burgess or a Holmes?

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8 minutes ago, matesic said:

 How much more useful is a Strad than a Burgess or a Holmes?

With the greatest respect to David and Jeffrey, a Strad opens more doors. We need to consider that it has function aside from its ability to produce sound.

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1 hour ago, Jeffrey Holmes said:

I respectfully disagree. The fact that instrument is collectible, rare, or expensive does not disqualify it as a tool... 

Of course they can be used as tools. Violins are certainly tools. But violins are not priced as "tools." Their fair market value is determined by:

- Maker or workshop
- Condition
- Appearance
- Model
- Size and specifications
- Geographic origin
- Age
- Provenance

A old German trade violin is never going to be worth more than an old Italian violin no matter how much better the German violin might be as a tool for making music.

Dealers make money buying violins at wholesale and selling at retail. When a dealer buys a violin at wholesale, they know approximately what it will fetch at retail, often without even hearing what it sounds like. Dealing is different from investing. Investing is where one hopes an asset increases in market value over the long term, and they can ultimately sell it at that increased value.

Buying tools to use to make money in a business is not "investing" in tools; but it is investing in a business. These are different. A person using a car to deliver pizzas does not increase the value of the car. A person playing a violin in an orchestra does not cause the fair market value of the violin to increase.

The monetary appreciation over time of violins as "collectables" in the aggregate is low compared to other financial investments. There are individual exceptions, of course, but in general, the numbers seem to support this. 

 

 

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George... Working so I'll fill this in later, but when considering a "tool" for a career in entertainment, some of the factors you listed determining "fair market value" do have bearing... and owning or using a famous old instrument may certainly be an investment and advantage in a players "business".

Again: The question of return on investment, as I've mentioned, is less of a factor for a pure collector than a speculator.

My personal judgement is still that pertaining to violins and related objects, ignoring speculators, the article is crap. The scope is too narrow.

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27 minutes ago, martin swan said:

With the greatest respect to David and Jeffrey, a Strad opens more doors. We need to consider that it has function aside from its ability to produce sound.

I'm not sure what you mean. "Opens more doors" metaphorically I presume! I think we need to agree on a definition of "tool".

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24 minutes ago, matesic said:

I'm not sure what you mean. "Opens more doors" metaphorically I presume! I think we need to agree on a definition of "tool".

When is "open more doors" not metaphorical?  We are never talking about literal doors but about career opportunities when we say "that'll open doors for you."

It's easy for me to imagine being schmoozed by a wealthy donor with a Strad.  Having a Strad must be a nice conversation opener with any great (or mediocre) violinist.  And so many concert bookers are musicians themselves.

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As a proud representative of "mediocre" players (which is a step up from er, well, 'pre-mediocre'!  :wub:)...I  am easy diverted when a Strad shows up....

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2 hours ago, Jeffrey Holmes said:

George... Working so I'll fill this in later, but when considering a "tool" for a career in entertainment, some of the factors you listed determining "fair market value" do have bearing... and owning or using a famous old instrument may certainly be an investment and advantage in a players "business".

Again: The question of return on investment, as I've mentioned, is less of a factor for a pure collector than a speculator.

My personal judgement is still that pertaining to violins and related objects, ignoring speculators, the article is crap. The scope is too narrow.

Let me go back to the part I quoted from the article:

"Collectibles have a fundamental flaw: they don’t generate cashflow. In fact, after maintenance, storage, deterioration, and transaction costs, their cashflow is usually negative. That means that in the long run, they'll consistently under-perform conventional assets like stocks and bonds."

Replace the word "collectables" with "violins," and the statement is absolutely valid.

I would posit that only a tiny number of privately-owned violins are actually used as tools to generate positive cash flow for their owners in an entertainment business. By themselves, violins generate no passive income, and therefore usually have a negative cashflow. 

Sure, owning (or borrowing) a fine old instrument to use as a tool can be good for a performer's or player's business, but except in extremely rare cases, such provenance is not going to increase the inherent fair market value of a violin over a similar violin owned by a private individual which is not being used as a business tool.

Generating cashflow by using a violin as a tool in a business is not the same as buying in a violin for private use and hoping that it appreciates in value over time. Given that private buyer will mostly likely have to A) sell it to a dealer at wholesale price, or B ) sell it in an auction with a 20-40% discount from the hammer price, or C) sell it on consignment at a 25-40% discount to the retail price, the transaction costs to sell a violin are very high which take a big bite from whatever appreciation has occurred. 

So, it comes down to numbers. Take a look at some data from Amati Auctions published this year:

"The price of stringed musical instruments has been gently, but steadily rising. A study undertaken by Margolis and Graddy in Economic Inquiry Volume 49 summarised that “Overall real returns for the dataset on repeat sales for the period 1850-2008 have been approximately 3.5%. Real returns to the overall portfolio of individual sales since 1980 have been about 3.3%”. This is based on a dataset of 337 repeat sales of the same violins from the mid-19th century, and over 2500 observations on sales of individual violins at auction since 1980.

An average investment may bring you a return of 3.3%, but – as in most investments – if you choose wisely and take the time to research the market, your chosen maker and the condition of the violin, you can achieve returns much closer to 7% and above."

The average annual return of the S&P has been 10.5% since 1957. And if you "choose wisely and take the time to research the market" you might do even better. :)

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2 hours ago, Stephen Fine said:

When is "open more doors" not metaphorical?  We are never talking about literal doors but about career opportunities when we say "that'll open doors for you."

It's easy for me to imagine being schmoozed by a wealthy donor with a Strad.  Having a Strad must be a nice conversation opener with any great (or mediocre) violinist.  And so many concert bookers are musicians themselves.

When it's a skeleton key or a crowbar. I think "tool" here means "means of making beautiful music", maybe also "advancing one's career in music", but investing in a top instrument is not a viable option for many musicians with a career that needs advancing.

Speaking as a very mediocre violinist I'm trying to imagine being schmoozed by a wealthy donor with a Strad - what could he or she possibly want in return? To misquote Jim Steinman and Meatloaf, I'd do anything for a Strad but I won't do that. 

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3 hours ago, Jeffrey Holmes said:

My personal judgement is still that pertaining to violins and related objects, the article is crap. The scope is too narrow.

Yup.  As I pointed out earlier, the article is written to promote a certain point of view, rather than to simply inform the reader.  That makes it intentionally deceptive, which, IMHO, is worse than mere crap.  :rolleyes:

46 minutes ago, matesic said:

Speaking as a very mediocre violinist I'm trying to imagine being schmoozed by a wealthy donor with a Strad - what could he or she possibly want in return? To misquote Jim Steinman, I'd do anything for a Strad but I won't do that. 

Next time this happens, after you turn it down, send them here to PM some of the rest of us.  :ph34r:  :lol:

1 hour ago, GeorgeH said:

By themselves, violins generate no passive income, and therefore usually have a negative cashflow. 

This is true of a great many investments which require expert knowledge to exploit, without which, you'll go broke.  IMHO, where you are getting into trouble is that you've posted an article aimed at clueless consumers on a forum frequented by experts who see opportunities neglected by the author.  ^_^

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57 minutes ago, Violadamore said:

This is true of a great many investments which require expert knowledge to exploit, without which, you'll go broke.  IMHO, where you are getting into trouble is that you've posted an article aimed at clueless consumers on a forum frequented by experts who see opportunities neglected by the author.  ^_^

I have posted actual data supporting the thesis expressed in this article as it applies to violins.

And while I agree that there are a great many "investments which require expert knowledge to exploit," many of them in the aggregate underperform as investment opportunities. Even in stock trading, most highly-trained expert investors fail to outperform the indices.

If you think violins are a good investment because of appreciation over time, I'd love to see your numbers that prove it. 

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2 hours ago, matesic said:

Speaking as a very mediocre violinist I'm trying to imagine being schmoozed by a wealthy donor with a Strad - what could he or she possibly want in return? To misquote Jim Steinman and Meatloaf, I'd do anything for a Strad but I won't do that. 

They don't necessarily want anything improper. In addition to the prestige which goes with being a named benefactor, they probably want the violinist to raise the money for maintenance and insurance of the owner's investment. Whether that relationship, and the use of antique Italian violins to open doors, is fair, or healthy for the music world is a matter of perspective. No doubt the benefactors, the young violinists with Strads on loan, and the dealers who promote these "charitable" exchanges, have consulted their consciences.

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After about 30 years of doing it professionally as “Gerichtlich beeidete Sachverständiger” (court expert) I gave my badge in, since I decided that, taken literally, what a violin is worth, or what it costs (two different things!) is impossible to determine. The best that one can do is to find a similar one, and ask what that cost, but that is unreliable, since that could also have been much too much/little, so all comparisons or Taxen etc. are outrageously subjective, and essentially useless. One is just going to finish up having to argue with some random nasty unpleasant person(s). Thus one can read such articles whilst waiting at the dentist to pass the time, but I can’t think of any other use

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I wonder why people automatically think that David Fulton is a canny investor, that this was even his motovation for collecting, and that his return represents the best you can do 

If this were the case, the violin trade wouldn’t exist.

The delineation between a collector investing and a dealer investing is a false one. It’s all to do with how wisely you invest. The violin trade involves very high commissions, and if you are paying these at purchase and at resale you aren’t investing purely for profit. Obviously violin dealers make a good living from buying and selling, and then there are all sorts of semi-dealers/collectors who use their skills to make money. Pure collectors are often not concerned with profit, and they see benefit in the stability of the fine violin market, not its profitability.

This article has nothing to tell us about investing in violins.

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