Investment School of Rock
After more than three months, the market is basically flat for 2016. Oil has taken traders on a painful roller-coaster ride. And the only investment that seems to be shining still is gold with its gain of more than 15% this year.
Ask any smart investment adviser and they will all use one important word: diversification.
You don’t put all your eggs in one basket if you want to have some eggs for later.
The problem is that many investment gurus fail to tell you about some of the key options you have for preserving and steadily growing your wealth, protected from the market turmoil. (And there is still some significant turmoil on the horizon for stocks.) It’s more than just stocks and bonds. I’m even looking beyond having some exposure to precious metals.
There is one key asset that is uncorrelated to the stock market and has shown steady growth even during the Great Recession that too few investors have in their portfolios…
Collectibles such as rare coins, stamps, wine, art and comics have shown steady growth in value regardless of what’s happening in the stock market. But they are too often overlooked among investors as too complicated when it comes to using them to protect and growth their wealth. That’s why we’ve launched the Uncommon Fortunes service to provide valuable insight into the different aspects of the collectibles market.
Today, I am chatting with Ted Bauman, editor of The Bauman Letter and a passionate collector with a long-standing interest in off-the-grid investments. Like many collectors, though, he has an area of chief interest — guitars.
Jocelynn: Why did you start collecting guitars?
Ted: Most collectors are either investors or players. I’m a player. In other words, I’m always on the lookout for guitars that I think will allow me to express myself in a particular way. I’ve basically narrowed my needs down to four types: Fender Telecasters, Fender Stratocasters, Gibson semi-hollow bodies and solid-body humbucker guitars. Each has its own use. The “twangy” Telecasters are primarily for classic music like blues, early rock ‘n’ roll and country. The Strats are ideal for funkier things that require a lot of tonal variation, whilst the hollow-bodies and humbucker guitars are for general use.
Only once I’m satisfied with the playability and tone of a guitar do I then start to worry about vintage, provenance, etc.
But investment collectors may look at it the other way around. They may focus on guitars that aren’t in very good condition but come from a specific year, have a rare characteristic such as an odd color or were once owned by someone famous. From there, they would make specific buying decisions within those parameters based on playability.
Jocelynn: How did you pull your collection together? Was there something you were looking for in each item?
Ted: Well, I collected most of my current guitars in South Africa when I lived there, so it was extremely hit-or-miss since the market is so small. There might be only a few dozen of a particular type of guitar in the entire country, so if I saw one for sale, I had to act quickly. That’s how I acquired the cream of my collection, my 1980 Gibson ES-335 — just saw it hanging there one day in a local music store and bought it on the spot (on installments, which they offered to professional players in those days). It is one of the first 200 of this model ever produced, as shown by the serial number and date stamp inside the body. That makes it a collector’s item.
On the other hand, in the early 2000s I started to spend more time visiting the U.S., and I bought my blonde Telecaster on such a trip. This particular guitar isn’t rare now, but it is of remarkably high quality, and I expect it to appreciate in value as the years go by. It’s one of my main playing guitars.
When it comes to Stratocasters, which I used to play exclusively but now use only occasionally, I’ve been through a whole series of them. I would play one until I found a better one, then buy the new one and sell the old one. I’m still doing that — I’m in the market for a Jeff Beck Signature Strat right now. I’m also in the market for a Paul Reed Smith Custom 24 — he was just getting started as a luthier in Annapolis when I was a kid in Maryland, where I used to visit his shop, and now he’s one of the world’s top makers! His band even played at my senior prom. The Custom 24 is considered one of the finest all-around performing guitars in the world, and Paul occasionally releases ones that are made of especially rare woods. I’m waiting for one of those.
Jocelynn: When it comes to nearly any collectible, there’s always a big concern around proper storage. How do you store them all?
Ted: I keep them in my office! I have wall hooks set up for each of them, and they hang there tempting me to stop working and play. I think that’s better for their necks — to hang from the headstock with gravity keeping the neck straight.
I have a dehumidifier in the office to keep the humidity stable, so they don’t warp. Sometimes I leave them in their cases for extended periods, especially if I’m gigging a lot.
Jocelynn: It’s important for a collector to have an exit strategy. What do you do when you want to sell your guitars?
Ted: I’m not a pure investor, so I tend to sell them to fellow musicians. I have occasionally sold them on eBay — actually you can do quite well there since you reach a global market and buyers in foreign lands are often desperate to acquire a specific guitar.
I once sold a Stratocaster to a guy in Latvia for a pretty good price. It was an early 1990s Strat Plus, a model made for only a few years, but considered a very high-quality performing guitar. I doubled my investment on that one. The sale took about a week to complete.
Jocelynn: Do you have any advice if I’m looking to start my own collection?
Ted: Decide what you’re in it for. If you want to make money as an investor, then focus on collectibles, especially older vintage instruments, such as late-1950s Gibson Les Pauls and Fender Teles and Strats. But be aware that it is a buy-and-hold market, so you have to be able to hang on to a guitar for a while until it appreciates.
On the other hand, if you’re a player-collector, like me, play as many versions of a particular guitar as you can before you buy one so you can be sure to get the one you really want. Either way, I strongly recommend working with a good dealer, such as George Gruhn of Nashville. You can tell how good George is by his website … www.guitars.com!
Know Your Options
Protecting your assets can feel like an uphill battle if you don’t know what all your options are. Collectibles are a great avenue for storing and growing your wealth, and you don’t have to be as involved in the collection as Ted to reap the benefits.
That’s why we’re pulling together some of the world’s experts on wealth solutions and preservation at the Total Wealth Symposium later this year. At our annual conference, you can learn about collectibles as well as investing in farmland, offshore asset-protection trusts and even real estate. To learn more and to get on our exclusive list for the Total Wealth Symposium, click here.
Sr. Managing Editor, Sovereign Investor Daily