Are Violins Good Investments?

With the number of millionaires in the world hitting 9.5 million in 2006, up 8.3 percent, interest in alternative investments -- especially in the arts -- has grown as well. (Heck, Portfolio has spilled plenty of ink and font on the subject.)

So the newly-minted elite -- searching for a place in high society -- might be interested in a new study on violin price appreciation by Kathryn Graddy of Brandeis and Philip Margolis of Cozio Pulbishing, an Italian valuator of stringed instruments.

Graddy and Margolis tracked down two data sets: one had 75 repeat sales of the same violins since the mid-1800's and the other had 2,000 sales since 1980 .

They found:

• Real average annual returns since 1850 have been about 3.3 percent.
• Real average annual returns since 1980 have been almost 4 percent.
• "Violins made by Stradivari and Guarneri (del Gesùs) have had higher returns than other instruments, though still less than art." and, within violins, "modern Italian instruments have increased steadily in price relative to Old Italian instruments, with the exception of instruments made by Stradivari or del Gesùs"

Graddy and Margolis speculate that the reason for different returns between different violin categories can be attributed to the types of people buying them. There is a growing consensus among violin experts that the best instruments from the 19th, 20th, and even 21st centuries sound as good as instruments from the 18th and 19th centuries.

Professional musicians, the main purchasers of antique instruments, may be resisting paying high prices for old instruments if they feel they can get the same acoustic results from less expensive newer instruments. The fact that Strads and del Gesùs continue to out-perform instruments by other makers may be explained by the fact that instruments by these makers really comprise a different market, the buyers being dominated by collectors and wealthy amateurs rather than working musicians.

Here's how different violins from different makers have fared since 1980:

And here's how violins have compared to other asset classes:

While the returns might not seem eye-popping, there are two reasons why investors who are looking to put a little Stradivari into their portfolios might still look at violins. First, the volatility in violin prices seems to be less than for other asset classes. Second, since 1980, movements in violin prices have been slightly negatively correlated with stocks and bonds, making them candidates for a diversified portfolio.