Investing in Antique Violins Part 3 – Liquidity

By Andrew Takla

Unlike many financial markets, I would consider the antique violin market to be somewhat niche and therefore, illiquid. This means it is far easier to buy and sell blue chip stocks on the ASX than trade antique violins which poses some problems – however, I have some measures in place to minimise the effects of low liquidity:

1. I only purchase antique violins that can be sold for a higher profit margin (once restoration costs and cost of consignment are considered) to compensate for the low liquidity.

In the same manner, this is how shareholders require a higher expected rate of return on a stock which has a lower liquidity due to the higher risk.

To provide an idea of what I mean by a “higher profit margin”, I think it is important to make mention of the profit margin which music stores make on factory-made student violins. Whilst I am unable to purchase student violins directly from a music wholesaler, I have been told that violins are typically sold in music stores for a 33% to 50% profit margin.

The wholesale price of the violin is dependent on various factors such as the brand of the violin, the quality of the violin (introductory vs more advanced), the size of the order and the wholesaler.

2. Most of the violins I purchase are 4/4 (full size) violins.

I rarely purchase any other size violins as people who tend to play smaller sized violins usually seek factory-made student violins rather than antique violins. Since the demand for quarter/half/three-quarter sized antique violins is generally far lower than full-sized violins, the market price for those instruments decrease making profit margins far leaner. 

I believe it is also important to highlight that trying to account for low liquidity is very important especially during the COVID-19 pandemic, since there are even less antique violin transactions taking place in an already niche market. Many of my violins are on consignment at a violin shop, currently on display in a cabinet amongst other violins. Unfortunately, the current social distancing measures has resulted in less buyers.

Therefore, I can choose to either continue holding onto these violins and watch the value of them appreciate over time as they continue to age, or I can decide to sell with a lower profit margin with the intention to quickly sell the instrument. However, in either case, establishing a criterion ascertaining to a specific profit margin provides me choice and flexibility in how I go about doing business.

I hope the third part to this three-part series has provided valuable insight into the lessons I have learned collecting antique violins. I had a lot fun writing this up, and I hope you have enjoyed reading it too.


Disclaimer
The authors of this publication are not qualified to provide financial or investment advice and as such the content provided should not be construed in this manner. All information is intended purely for educational purposes and is provided for the personal interest of UNIT members. The opinions expressed within the article do not reflect those of UNIT as an organisation, its partners or its sponsors.