Investing in Stringed Instruments by Edward Webb
Edward Webb a freelance journalist who has written articles on violins for The Independent, and The Financial Times explores the issues around buying stringed instruments.
A first class stringed instrument, in the hands of a virtuoso, can fill the largest concert hall with every variety of sound that the player desires of it, from a subtle pianissimo to a raging sforzando. For three hundred years or so, makers of violins, violas and cellos have tried to reproduce the sound of the old Italian master makers. Some have come close, but the tone of Stradivarius, Guarnerius, and the like, remains elusive. As well as superlative levels of craftsmanship, age itself may contribute to the unique sound of these instruments. So it is no surprise that prices have been driven up to stratospheric levels. It seems that every man or woman on the street knows of Stradivarius. But when told that his instruments can regularly sell for $1m and upwards, they usually gasp. Worldwide demand is high and, like old master paintings, supply is limited.
Unlike old master paintings though, musical instruments are tools of the trade as well as works of art. The best violins, violas and cellos may be beautiful objects but are desired ultimately for their sound. This means that the market is free from the whims of the art market, in which prices of works by particular artists can fluctuate according to how fashionable that artist is. The design of a violin was perfected over 300 years ago, so there is no chance of Stradivarius going out of fashion. But just like owning a painting, owning a violin can provide both artistic and financial satisfaction.
Prices of stringed instruments have risen in the last few decades much faster than the average musician’s salary. Even high earning up-and-coming stars find it difficult to find the money for the instrument which suits their playing. This has meant that many instruments are not owned by their player, but by an individual benefactor, a company or a syndicate. Thus it has become even more important to look at the financial aspects of owning an instrument.
Stringed instruments have tended to increase in value steadily over the last 40 years. Their values have not followed the hectic rises and falls in technology stocks, but have outperformed the FTSE-100 index and the S&P500. This, of course, does not mean that they will continue to increase in value. No one can predict the future of stringed instrument prices. But the historical data paints a picture of an investment with a very favourable return with relatively low risk.
A study of prices of instruments by fifteen old Italian makers, based on the FuchsTaxe, a widely used guide to prices, has concluded that an investment in violins from 1960 to 2003 would have outperformed the Dow Jones Industrial Average, the S&P500, and the gold price (this study did not include instruments by Stradivarius and Guarnerius as the authors do not have the same access to that end of the market). The FuchsTaxe, produced and updated every few years in Germany, provides a reliable indication of changes to string instrument prices.
COMPARISON OF RATES OF RETURN
Date 1960-1970 1970-1980 1980-1990 1990-2000 2000-2003 1960-2003
Violins 14.13% 10.79%1 2.35% 5.53% 0.58% 10.02%
DJIA0. 65% 2.42% 12.75% 6.98% 4.74% 6.33%
S&P5002. 48% 4.62% 12.10% 15.05% 3.93% 6.83%
Gold. 11% 33.85% 5.99% 1.99% 1.85% 5.47%
This study also shows that in the long term, violins have outperformed shares and gold, but do not follow large fluctuations in share and gold prices.
A study of prices paid for individual instruments shows much larger rates of return. This is based on prices of particular instruments, identified and verified by Beares. A pre-1700 Stradivarius sold for £9750 in 1966, £280,000 in 1985, and £618,000 in 1988, showing an average annual rate of return of 19.77%. A golden period Stradivarius sold for $55,000 in 1955, and $6,000,000 in 2001, showing a return of 10.74%. And another golden period Stradivarius sold for £14,250 in 1967, £541,500 in 1988 and £2163164 in 1999, showing a return of £16.99%. A Stradivari violin bought for $270,000 in the late 1970’s sold for $5m in 2000. A Guarneri cello bought in 1970 for $45,000 sold for $2m in 2004.
It is important to understand that these rates of return have been fuelled by an increase in demand that has come from more players from countries such as Japan and Korea demanding the best instruments. This demand may not increase in future, and depends on the state of the world economy. But there are signs now of demand from China, with orchestras there looking for high quality instruments in the West.
The market for stringed instruments is truly global, and will remain so. The market is expanding, and the stock of instruments is diminishing. Also there are no investment funds speculating on violins, violas and cellos. The banks tend not to lend large sums of money for instrument purchases, so there are very few forced sales as loans are called in. These factors explain the consistent rises in instrument prices.
But buying a violin is not as easy as buying shares or art. The market for stringed instruments is not as liquid as the equity market, where a simple phone call will secure a purchase or sale. And buyers must be certain that the instrument they are interested in is genuine and in first class condition
With prices at such high levels, almost everyone who is buying a good violin, viola or cello is making an important financial decision with long-term consequences. A rank and file orchestral player may spend as much as the price of an apartment on a violin. This means that sound cannot be the only criteria for deciding which instrument to buy. An instrument of dubious authenticity or in poor condition may sound wonderful for its price, but as a long term financial commitment it may not prove to increase in value as much as a very fine example costing more.
The pure financial aspect becomes more important for non-musicians or institutions who have to consider the investment potential of an instrument. The decision becomes more focussed on potential future value and ease of selling, making it more important to buy an instrument with reliable guarantees. Of course most individuals and institutions will enjoy non-financial returns from their investment. Even if it is owned as an investment, one of the best places to store a stringed instrument is in the hands of a player who nurtures it and continues to make sure that it produces the best sound it can. So, non-financial returns can come from listening to the player delight thousands with a sound that he or she could not make with a lesser instrument. Buying a violin, viola or cello and lending it to a young virtuoso can be a great way of sponsoring the arts, because there are potential financial gains from owning a physical object, rather than potential losses from sinking money into, for example, an art exhibition or theatre production. As well as the financial gains, the owner of the instrument may hear it played to its full potential at private concerts given by the player.
One of the best ways to put money into a stringed instrument is to join a syndicate which buys one for a promising young player, using a structure very similar to racehorse investment schemes. Nigel Kennedy was able to play on his first Stradivarius thanks to a scheme like this. Violins, unlike racehorses, last hundreds of years, and musicians usually take great care of them. For some, the excitement of hearing a star player’s debut can easily rival backing a winner at the races.
The musician usually contributes a proportion of the cost, and the other investors are free to sell their share at any time. The player looks after insurance and maintenance and also has the right to buy a proportion every year, at an agreed market value. Instruments usually sound their best and are more saleable when they are played and nurtured by a first class musician.
Krysia Osostowicz, violinist with the Dante Quartet, and soloist, felt eight years ago that her current violin was no longer able to produce the sounds that she demanded of it. She found a violin made by Francisco Goffriller, fell in love with it, but had to find help to meet half of the price. She managed to find nine other people to invest in it, including her husband, some old school friends, a retired surgeon, and a QC. In the end she was approached by friends of people she had contacted who were keen to support a musician. She provides a newsletter every year for the investors, and pays a yearly administration fee for the trust which owns the instrument.
“I spent 15 years” she says “trying to coax the sound out of my previous violin. I found the Goffriller and suddenly found that I could be heard. It’s made a huge difference to my playing. It’s like having a new voice.”
What better reason is there for making an investment in a first class instrument?