Fiddling with investments
In 2011, the “Lady Blunt” Stradivarius sold for $16-million (U.S.) A Guarneri del Gesu went for $10-million in 2009.
While investors with a heavy stock portfolio may have spent the past six years on a rollercoaster, investors in the rare-instrument market have been enjoying unprecedented good fortune. Prices have risen well ahead of inflation since the 1980s and accelerated even more since the turn of the century.
Good returns aren’t just for the top of the market and you needn’t be super rich to have some skin in the game.
Ric Heinl, a fourth-generation fine instrument dealer based in Toronto, says, “With the right guidance, if you buy a $10,000 instrument today, in 20 years you will double your money or, at the very least, find the rate of return to be quite to your satisfaction.”
A 2013 study by Brandeis University economists Kathryn Graddy and Philip Margolis found that from 2007 through 2012, rare violins outperformed fine art and the S&P 500 index.
One big advantage of the fine instrument market is its weak correlation to the stock market. Because prices remain unaffected by the bear-bull cycle or even global meltdowns, instruments make an ideal asset with which to balance a portfolio.
The insular nature of the market is partially because the supply is finite – it’s not like Stradivarius and company can resurrect themselves and make more fiddles – and because buyers tend to invest long-term.
A disadvantage is that instrument ownership can be difficult to get into – New York public radio station WQXR’s music business writer Brian Wise estimates only 10-20 per cent of instruments are sold on the open market.
It can also be difficult to get out of. “Unlike stocks, art is not fluid,” Mr. Heinl says. “When you decide to sell, it might take two days, but it might also take two years.”
There are also brokerage fees to buy or sell, and insurance (about half a cent on the dollar) as well as storage, appraisal and maintenance fees to consider. Commission is somewhere around 10-15 per cent of the instrument value, plus expenses. Auction house commissions can reach 35 per cent.
Most of the rare-instrument chatter is about violins, but there are also very fine violas and cellos available that achieve similar returns. Another alternative, especially if you don’t have a large starting pool, is bows.
“Bows are just as fine an investment as instruments,” Mr. Heinl says. “Each one has a different voice or personality. Top ones go for about $400,000, but bows that cost $2,000 a few years ago are now trading for $8,000.”
It is possible to go in together with a group and buy shares in an instrument, but Mr. Heinl says the arrangement is “fraught with peril and rarely works.” An alternative may be to hold a mortgage for a player (or parents) who can afford payments, but can’t convince a bank that a piece of wood is worth the investment.
The major downside to this active market is that working musicians can no longer afford to buy the instruments they need. If you are thinking of buying an instrument and you don’t play yourself, it is expected that you will loan it out to an appropriate player. “Instrument buying generally starts with a philanthropic notion,” Mr. Heinl says. “Quite often, if you loan an instrument to an institution, like the Canada Council or a university, they will pick up the tab for the insurance, which is nice. The days of hiding instruments away are gone.”
These intangible rewards – watching something you purchased help artists reach the next step in their career – are a big part of why investors choose instruments over stocks. “I’ve been deeply moved to hear these historically significant instruments come alive in the hands of such talented musicians,” said a long-time anonymous donor to the Canada Council for the Arts musical instrument bank. “It gives me great pleasure to know that the instruments are helping musicians to reach their true potential and thrilling audiences in concert halls around the world.”
DOs and DON’Ts
According to Toronto-based fine instrument dealer Ric Heinl, here are some dos and don’ts to consider when getting into the market.
– Buy the cleanest, healthiest instrument you can afford. A fine specimen of an instrument will increase in value more quickly than one in poor repair from a fashionable maker.
– Consider modern instruments. A 1900 Stefano Scarampella, for example, sold for $12,000 in the early 1980s. Now, you wouldn’t get one for much less than $150,000.
– Get in touch with reputable dealers. Ask around. Meet them and have a long chat about what your goals are, financially and artistically. If you feel pressured, leave.
– Google elite violin makers and buy something online that seems like a good deal. If you pay $10,000 for an instrument and find out it’s only worth $1,000 when it is appraised for insurance, you’re out of luck.
– Don’t get your heart set on a maker that is out of your price range. A Gagliano that should be worth $100,000 but is selling for $10,000 because it has been poorly repaired will freeze your money. It’s a high price to pay for bragging rights.
– Buy an instrument if you are going to keep it under glass. Instruments need to be played. Otherwise, all you have is nicely carved box.
First published in The Globe & Mail