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Let's admit it: we always look for ways to beat the market's average return. Right? Well, I found a violin that had just done so.
Had you invested in world-renowned Stradivarius violins in 2010, the average annual price appreciation between 2010 and 2022 was 9.7%.
Other violin brands, such as Joannes Pressenda and Lorenzo Storioni violins, have had 10.7% and 13.4% annualized returns in the same period, respectively. Compare that to the inflation-adjusted yearly return of 9.76% by the S&P 500 index, including all dividends reinvested in the same period, and sit down with the terrible realization that investing in a music instrument could have been your answer to beating the market.
Putting that initial reaction aside, if the ultimate goal of investing is to grow our wealth, even if we don't want to invest in violins, in today's post, I discuss three critical investment lessons we can learn from Stradivarius violins.
I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
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Such market-beating performance by violins comes from a few criteria they share with good investments. They can teach us critical investment lessons by looking into how Stradivarius violins's price appreciated.
Investment Lesson One
The first of such lessons is the value of scarcity in investing. Antonio Stradivari, a Luthier, or simply a violin maker who lived in the late 17th - early 18th century in Cremona, Italy, made roughly 1,100 violins. His sons continued the business with more violins. However, today, only about 650 remain. Those original violins are highly desirable instruments that can be priced as high as $16 million in global auctions. They are inherently scarce, loved by violinists and collectors worldwide, and no more will ever be made.
Scarcity is loved by investors. Investing in gold or commodities such as Silver, Copper, and even Oil pays off because of their limited supply. That's also why stock market investors hate when a company they invested in issues new shares. It dilutes current investors by making more shares available in the market and each share becomes less valuable. In contrast, when companies buy back shares, in most cases, investors applaud. Buying back shares makes each individual share more scarce and valuable. Scarce things tend to grow in value.
Investment Lesson Two
The value of a well-reputed brand is another lesson we can learn from a highly sought-after violin. A good brand is an accumulation of quality and market perception. Some studies have shown that not only did Antonio Stradivari build a limited number of high-quality instruments, but he also had his proprietary method of wood processing, resulting in pristine sound. The violins by Stradivari are known for their unique sound quality, differentiating them from many other brands that have come to market since the 17th century.
A strong brand, such as the Stradivarius trademark and name, is considered a moat in investing. It refers to a company's ability to protect its products, services, and price level against its competitors. Establishing a brand representing prestige, status, and quality takes years, making it almost impossible for competitors to compete in price. In that context, Stradivarius violins are similar to Apple Inc. Both brands are known for quality, well-protected intellectual property, and luxury image. Investing in either is an excellent high-returning decision.
Investment Lesson Three
The lessons we can learn about investments from Stradivarius violins don't stop at scarcity and brand moat. The most valuable Stradivarius violins are those built by Antonio Stradivari in his lifetime, at least three centuries ago. Today's investors in those violins have enjoyed excellent returns in the early 21st century. Time and the power of compounding over time are as important in investing as moats and scarcity. A good investor understands it takes time for the price appreciation to compound and result in a market-beating performance
Bonus Investment Lesson
Many stock market investors may not believe investing in collectibles like vilions is appropriate. Warren Buffett, the legendary investing mentor to a few generations of investors, focused on income-producing assets such as companies' securities. He would likely not consider violins an asset in his investment portfolio. I agree. I also don't have $16M in free cash to invest in a violin. The aim of this show isn't to persuade you to invest in violins, either. However, we can still learn a lesson or two from them, even if we agree with Warren. And that's the most crucial lesson Stradivarius violins can teach us. Investment lessons are all around us. All aspects of day-to-day life can teach us about investing. We can look into other aspects of life and draw parallels between them and investing. Those life lessons are even more memorable and long-lasting.
So we talked about three + a bonus investment lessons Stradivarius violins can teach us. It reminded me of another post I recently published about looking into the top 10 holdings of the portfolio of super investors such as Buffett, Howard Marks, Bill Achman, and Michael Burry. If you missed that one, watching and listening to it after this episode is good. Link in the show notes.
I'll see you next time!