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Rocking Profits:The Secrets of the Collectible Guitar Market

This year is the 60th anniversary of the Fender Stratocaster.

And this year, one went on sale for a whopping quarter of a million dollars.

That sunburst-finish guitar was the very first production model Stratocaster ever made. And while the “Strat” is the most popular and best-selling electric guitar model of all time, it originally listed for about $250.

That’s a 10,000% appreciation. Not bad!

This particular guitar, made in the Los Angeles suburb of Fullerton in 1954 and sold later that year at a music shop across town in El Monte, was originally bought by an ama-teur who took exceptionally good care of it. It’s in mint condition, with few blemishes. Besides being in its origi-nal “poodle” case, it also comes with the original owner’s manual and even the original guitar strap that is standard with all Fender guitars. Those little extras probably double its market value.

In fact, almost all valuable vintage, collectible guitars come from the homes of amateurs, who are less likely to play them to pieces, modify them or lose their accessories. “This one didn’t go to a famous performer,” said George Gruhn, of Nashville’s Gruhn Guitars, who sold the Strat within days. “It actually went to Joe Blow Public. It wasn’t owned by a celebrity performer, but it was made by a celebrity maker.

It’s like if you had a Picasso painting or a Van Gogh. Who’s the celebrity — the previous owner or the piece of art itself?”

It’s a distinction I’ve heard made many times in my 40-plus years as a profes-sional guitarist. Which matters more — whether the guitar was owned by somebody famous, or its rarity, condition and historical import?

For a committed player like me, the answer is almost always the latter — es-pecially if the instrument is in its original condition. I’ve held in my hands guitars played by Jimi Hendrix, Lowell George of Little Feat, Pete Townsh-end of The Who, and Jeff Beck, widely considered the greatest electric gui-tarist ever. None of them beat the feeling of handling, playing and actually performing with a rare, mint-condition 1950 Fender Esquire — the first mass-produced electric guitar. That particular “axe” was owned by my band-mate in the 1980s, who got it from his brother, who got it from … nobody knew. As far as I know, it’s still in daily use.

And price matters very much indeed in the collectible-vintage guitar market. The $250,000 that George Gruhn got for Stratocaster #0100, in mint condi-

George Gruhn with Fender Stratocaster Serial #0100.

An early Fender “Blackguard” Esquire, lovingly played to bits.

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tion, wasn’t unusual for such an instrument. Over the years, a fair number of amateur-owned vintage Strats have sold for over $100,000. The same goes for Gibson Les Pauls and other classic electrics. These are guitars that sold brand new for under $250.

The Collectible Guitar Market

Welcome to the world of collectible “fretted instruments,” where players, collectors, speculators — and even muse-ums — duke it out over rare vintage instruments. (Besides electric and acoustic guitars, this market includes banjos, mandolins and similar instruments. In what follows, I’m going to focus on the market for vintage guitars, since it’s the one I know best, but the same principles apply.)

Nobody compiles accurate figures for the size of the vintage fretted instrument market, but it probably turns over about $250 million a year. Buyers and sellers come from all corners of the planet.

This market focuses on so-called “Golden Era” instruments made from about 1930 to 1970 (some folks say 1965). Until 1950, this meant acoustic guitars, where C.F. Martin, Gibson and Guild are highly prized. After that, American Gibson and Fender electric guitars from the 1950s and early 1960s are among the most valuable, although vintage Rickenbackers (favored by The Beatles, The Byrds and Tom Petty) and Gretsch (Steven Stills, Neil Young, Chet Atkins) guitars are also popular.

It’s important to recognize that these Golden Era instruments were brand new designs that had never been marketed before. When first introduced, they weren’t copies of existing instruments. Their makers introduced brand-new concepts, and so weren’t competing with the used instruments of the day. Their innovations brought guitar design to perfection, and have yet to be improved upon. And they’ve main-tained their status by virtue of their quality.

To put the Golden Era vintage guitar market into perspective, con-sider that more than two-thirds of all the Martin, Fender and Gibson guitars in existence were made since 1990. They produced quite a few in the ’70s and ’80s, too, so the universe of truly vintage instruments — those made before 1970 — is fairly small. Like stamps, art, wine or whisky, scarcity is a key driver of value in the vintage guitar market.

The market for collectible, vintage guitars has had its ups and downs, but overall, has experienced a lot more ups than downs. From the early ’60s to the mid-’70s, Golden Era guitars produced in previous decades increased in value as much as 25% per year. From the mid-’70s to the mid-’80s, prices just kept pace with inflation. But beginning in 1985, the vintage guitar market took off, and from 2001, it transformed into a boutique investment market, like stamps or wine.

Why did values rise in the mid-’80s? Two main reasons: First, that’s when baby boomers had enough disposable income to bid up prices for the guitar models their childhood heroes played, models that were as old as they were. Second, the vintage guitar market represented a cool investment opportunity in the era of Reagan tax cuts, easy money in real estate, stock markets that bubbled and frothed, and low-interest home equity lines of credit that never seemed to dry up.

As a result, a market long dominated by actual players and aficionados quickly went mainstream. From 2000 to 2008, this market turned into a frenzy. Things got completely out of hand then. “The people buying guitars were no longer musicians. They were doctors and lawyers and brokers. The guitars got too expensive for real players to buy,” recalls Kevin Borden, a long-time dealer who also writes about the market. “It got insane. There were certain areas of the market that were, quite frankly, 100% overvalued.”

Late 50s Les Paul “Gold Top.”

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You can see the valuation jump in the chart above.

Then, along with the rest of the economy, in late 2008 the vintage guitar market underwent a “correction.” The impact was uneven. While marginal instruments of doubtful “vintage” status crashed hard, true classics dropped back to more reasonable, but still valuable, levels.

Today, values of the most sought-after collectible guitars are again on the rise. Some of this is due to the activity of high-end collectors and investors who have access to low-cost investment funds and who are looking for yield in new niche markets. But it also reflects the ongoing attraction of rare collectibles with a finite supply. And of course, many of those who bought into the vintage market at its peak have since fallen on hard times, and are being forced to liquidate.

In this evolving market, expertise is the key to successful investing. As George Gruhn told me: “While I’m not inclined toward irrational optimism, it should be noted that from the mid-1960s to the present, well-informed investments in vintage guitars have done far better than the rate of inflation and in fact have performed better than money in the bank or most stocks, bonds or other investment opportunities. As with any other investment, however, guitar investment requires knowledge and attention to detail to prosper. A novice investor needs either to study the instruments and the market enough to become an expert or else deal only with reputable dealers who will provide written certificates of authenticity — otherwise a fool and his money will soon be parted.”

My view is that now is the time to get into the market for vintage collectibles. Despite the rapid appreciation in 2006 to 2008 (measured by an index of 42 rare guitars, as seen in the graph above), after which values dropped by about 25% to 30%, they are rising again. With so many investors looking in any and all nooks and crannies for yield, the prices of most vintage instruments have nowhere to go but up. And you can profit from it … as long as you’re smart about it and get the right advice from people like George Gruhn.

Why are They so Good?

When it comes to price, scarcity has as much to do with the state of the vintage-guitar market as anything else. Old guitars are like land — they aren’t making any more of them. But there’s more to it than that: Older guitars are un-questionably better musical instruments than most new ones.

One reason is changes in the materials used to build them, especially wood. Wood is the cornerstone of the tone and resonance of a good guitar. Before the 1970s, Brazilian rosewood and Adirondack spruce were readily available,

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whereas today the best quality wood is prohibitively expensive. Gibson Guitars got into trouble a few years ago for importing ebony, in violation of the Lacey Act, which bans the import of endangered wood products.

Similarly, modern mass-market manufacturers can’t afford the time required for air seasoning of wood. The Golden Era makers were able to get old-growth lumber that had been air-dried for at least a decade, but today almost all wood is second growth (trees regrown after the original forest has been cut down) and not well-seasoned. For this reason, virtually all manufacturers use kiln-dried wood, which isn’t as stable — it’s prone to crack in changing humidity — and doesn’t sound the same as well-seasoned air-dried wood.

In addition, few makers today use hide glue, and the lacquer finish formulas available today are quite different from those in use from the 1920s through the 1960s. All those little things make a difference to the tone of an instrument.

A second factor defining the “vintage” guitar is corporatization of the musical instrument industry in the 1960s, in response to the popularity of rock music. Quality suffered severely when guitar companies were taken over by big hold-ing companies that knew nothing about the product or the market. CBS acquired Fender at the beginning of 1965, Avnet acquired Guild in 1966, and Norlin bought CMI, the owner of Gibson, in 1969. Martin was the only major guitar company that remained independent during the 1970s, but wasn’t well-run during that period.

Finally, handcrafts of all types were ebbing low by 1970. The old apprentice system had died out, and there were very few opportunities for newcomers to learn the handcrafting skills applicable to the luthier (literally, “lute-maker”) profession. It was virtually impossible even to buy quality hand tools for woodworking, engraving and other essential crafts. So guitar-making transformed into an assembly-line mass-production activity in which very few of the partici-pants could actually build an entire guitar by themselves.

For all these reasons — and some that are ineffable except to the serious musician — Golden Age guitars are far superior to most instruments sold to today’s consumers. A guitarist like me who has been playing for many years im-mediately feels and hears the differences — superior tone, better sustain (the length a note last after being struck), and more complex and pleasing harmonics, the interplay of tones and over- and under-tones that give an instrument its unique timbre.

Market Segmentation

Like the market for classic sports cars, there’s a basic division in the market for collectible instruments: users, collectors and speculators.

Players

This segment is made up of those who intend above all to use and enjoy the instrument. They value condition and playability above all. Details of origin and originality are secondary.

George Gruhn told me a story about guitar “god” Eric Clapton, a regular customer at his shop in Nashville. Clapton came into the store while on tour earlier this year and tried out several acoustic guitars. Gruhn explained their prov-enance and characteristics in great detail to the great musician. Ultimately, Clapton whittled down his choice to two, and in the end bought a classic Martin. When it came time to check out, however, Clapton asked to be reminded which guitar he had bought, since all he could remember was that it was “the best sounding and feeling one.” All of Gruhn’s detailed knowledge of the guitar’s background was of no real consequence to Clapton, much to the former’s chagrin.

That’s the mark of the true player. But not every player can afford the prices Eric Clapton can.

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Collectors

Collectors seek to own a variety of instruments in the same way that some folks gather rare stamps or coins. They may or may not be serious players, but they do have an appreciation for the intrinsic value of an instrument — its history, its condition and what it represents in development of the art of the luthier. Collectors usually seek to own at least one of some of the most notable guitars, like a 1957 Les Paul Standard. Collectors generally aim to keep an instrument. They can and do bid up prices, but there is much less turnover in the collector’s market, since the goal is to possess, not to profit per se.

Speculators

Speculators wish to own rare instruments as a store of value and as an investment, and aren’t always concerned about playability or vintage. For this reason, they tend to concentrate on the auction-based “memorabilia” market, where all that really matters is who once owned a given instrument. But some also dip into the vintage market as well — a strategy that some savvy investors are starting to discover.

Celebrity-owned instruments bring in far higher prices than most vintage instruments. For example, Eric Clapton’s Strat, known as “Brownie,” fetched $450,000 at auction in 1999. “Blackie,” a Strat he played at the height of his cre-ative career in the early ’70s, sold for $959,500 at auction in 2004, despite being made from spare parts he bought while on tour in the U.S. More recently, the Stratocaster Bob Dylan played at the infamous 1965 Newport Folk Fes-

tival sold for a record $965,000.

None of these guitars is remarkable for its intrinsic qualities or playability. But that’s not why people buy them. After all, the gui-tar — or what’s left of it — that the legendary Jimi Hendrix actu-ally burned on stage at the Monterey Pop Festival in 1967 sold for almost half a million dollars at auction in the U.K. a few years ago. Speculators buy them because they are unique and famous, a combination that can produce spectacular gains.

Of course, there are far fewer celebrity-owned instruments out there than vintage guitars. That, and the fact that such guitars sell very rarely, means that participating in this market is similar to the market for memorabilia from sports, politics and other fields. It’s all about auctions at Sotheby’s.

The “Vintage” Guitar Market — A Beginner’s Guide

When I lived in South Africa, my guitarist buddies used to scour the classifieds for unspecified “guitars for sale.” Any-one whose advert simply said “guitar,” rather than specify the make and model, probably didn’t know what they had. They were particularly interested in ads with phone numbers from rural towns or farm districts. They were hoping to find the legendary “attic guitar” — the forgotten relic sitting in its case, left there decades before, now being sold by a son, daughter or even grandchild sorting through the old boy’s (or rarely, girl’s) stuff. I knew guys who had picked up vintage instruments that way for less than a hundred dollars — guitars that are now worth tens of thousands.

That approach still works sometimes, although it’s pretty rare, since most attics have been scoured already. The ques-tion then and now is this: How would you know whether a given instrument is truly worth collecting? Let me share a few basic principles to follow when collecting and investing in vintage guitars, i.e. those with intrinsic value as instru-ments, regardless of provenance.

• First, stick to the collectible brands. For electrics, that means Fender, Gibson, Gretsches and Rickenbackers. For

Jimi torches his Strat at the

Monterey Pop Festival in 1967.

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acoustics, it’s Gibson, Guild and, above all, C.F. Martin. Although there are many superb instruments made by other manufacturers, these are the only brands that were in common use in “vintage” times.

• Second, buy American. There also weren’t any non-American instrument brands of note in the old days. Although many Fenders and Gibsons are made abroad nowadays and of excellent quality — I own a Mexican Telecaster — it’s only the American-made models that have lasting collector value.

• Third, stay away from eBay unless you know what you’re doing. Vintage guitars get bid into a frenzy there, and are often badly overvalued. And you can’t pick up and play a guitar if it’s halfway across the country. Nevertheless, profitable investment purchases can be made if someone who doesn’t know what they’ve got puts one up for sale, and you move quickly enough — an Internet-era update on the old “attic guitar.”

• Fourth, find an expert and get an appraisal. Forget about going to the Guitar Center and other chain stores for advice. Go to an expert. Gruhn’s Guitars in Nashville, for example, does appraisals online and in person for a modest fee.

• Fifth, inspect for cracks, modifications, replacement parts and playability. A re-glued neck, a re-finish, or re-placed parts will lower a guitar’s value significantly. It’s a bonus if the guitar is in pristine condition, of course, but more important for lasting value is that it remains as it was when sold to its first buyer. Older Fenders and Gibsons with a “road-worn” look of scratches and bare spots often sell for enormous sums, as long as they’re original.

Other than that, here are some generic tips when looking for collectible guitars …

Guitars of Brazilian Rosewood

Brazilian rosewood gives acoustic guitars a beautiful mellow tone. But it’s been illegal to use endangered Brazilian rosewood since the late 1960s. That makes the guitars made from it before that scarce and, thus, valuable. Brazilian rosewood guitars manufactured by C.F. Martin & Co. before 1945 trade for $30,000 to $40,000.

“Blonde” Gibson ES-335 With “PAF” Humbucker Pickups

“Blonde” in this context means a guitar finished with natural, unpainted wood. If Gibson left the instrument unpainted (but sealed with a clear finish), that means they used the best-quality wood grain available. One of the most coveted and collectible guitars in the world, for example, is Gibson’s 1958 ES-335N (the N stands for “natural,” or blonde). This guitar used a much sought-after “PAF” pickup (which means “patent applied for,” stamped on the back of each). Gibson introduced the ES-335 model in 1958 and only shipped 50 of them that year. The ES-335 model became iconic in jazz, rock and blues, played by musicians such as Eric Clapton in the 1960s; I have one myself. A Gibson 1958 ES-335 blonde can go for around $60,000 to $70,000.

Pre-CBS “Custom Color” Fenders

Before Leo Fender sold it to conglomerate CBS in 1965, the Fender Musical Instrument Company made guitars by hand. Most of its prod-ucts had a multi-tone finish called “sunburst,” but it also made some in descriptive colors like Fiesta Red, Sonic Blue and Surf Green. These “custom color” guitars are highly valued. A Sonic

The author’s cherry-red, dot-neck

Gibson ES-355, aka the “Chuck Berry guitar.”

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Blue Jazzmaster (a once-popular Fender model) made in the early 1960s goes for $15,000 to $20,000. Such guitars must have an original factory finish, and condition is particularly important on these instruments.

Guitars Made in a Significant Year

Like wines, guitars have good years and bad ones. Sometimes the first year a famous model was made is a good year for collectors, like the first Stratocaster in 1954, which I wrote about in the beginning of this report. But the year a famous model was updated can be even better. Gibson first made Les Paul “Gold Tops” in 1952. But its 1957 Les Paul Standard version is much more valuable because that’s the year it made some important design changes, which are still the basis of the model today. A mint-condition 1957 Les Paul Gold Top can go for up to $350,000.

Oddball or Specialized Vintage Guitars

I mentioned previously that you should generally stick to the major brands when investing in guitars, but there are some exceptions. Indeed, you might call these the speculative growth stocks of the guitar world, more affordable acqui-sitions that could turn out to be good investments (or duds). These include guitars made by smaller and lesser-known companies like Mosrite, Ampeg, or Danelectro (aka Dan Armstrong). The latter company, for example, made guitars and basses out of plexiglas in the 1960s, which are highly sought-after today, not for their playability or sound, but for their uniqueness. Similarly, quirky but beloved mass-market “catalogue” guitars from the 1940s to 1960s, such as Sears’ Silvertone brand, can fetch a good price if they are in good condition and playable. Some of them are actually highly regarded by musicians for their unique and inimitable tone, such as late-1940s “lap steels,” which were origi-nally sold with an amplifier built into the case.

So, I’ve got a Vintage Guitar … Now What?

People who invest in gold, wine or stamps generally know that there’s more to it than just buying the stuff. It has to be kept safe and sound. This is just as true with vintage musical instruments.

As with anything made of a perishable organic material, guitars require special storage. Like wine or cigars, guitars are sensitive to changes in temperature and humidity. Rapid changes or extremes in humidity can warp or crack a guitar’s neck, and persistently dry conditions can lead to cracks in the finish as the guitar’s wood contracts. (Indeed, one of the challenges of playing professionally in Atlanta, as I do, is the tendency for older guitars to respond erratically to humid nightclub conditions.)

For this reason, guitars need to live in a room with proper climate control (and a good security system). But unlike top-end wines or cigars, this need not be a special fridge or humidor. As long as the relative humidity is in the 45% to 55% range, and the temperature is in the human comfort zone, you’re fine.

For example, I keep my guitars in my home office, where I have a dehumidifier, and they remain stable no matter whether I leave them in their cases or hang them on special display hooks on the wall. Many serious collectors just keep them in their cases, stacked next to each other in a cool closet. My personal guitar hero, Jeff Beck, keeps his guitars on a rack in the attic of his house in England.

Keeping your guitar string-up and in tune is also important. Guitars are designed to handle a certain amount of ten-sion on the neck from the strings. This tension should be maintained at all times, even when the instrument isn’t in use, so the neck doesn’t bow, twist or warp.

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Cashing In

Earlier, I mentioned that successful investing in vintage guitars generally requires either personal expertise or the sup-port of a good, trustworthy dealer. In that sense vintage guitars are like anything else that people collect. And like any service, you should expect to pay for the expertise of a guitar specialist.

There are three ways in which guitar experts can assist an aspiring guitar collector:

1. They can help you determine whether an instrument you already have or intend to purchase has value in the vin-tage market by conducting an appraisal.

2. They can help you locate vintage instruments, or sell ones you own, for a brokerage fee.

3. They can sell instruments on consignment, like that 1954 Stratocaster I mentioned.

My personal advice would be always to work through a recognized dealer such as George Gruhn. I’ve been playing guitars for most of my life, and I still don’t know enough to plunk down tens of thousands of dollars on an instrument for investment purchases without help. (I know what feels and sounds good to play, but that’s another story.)

Kind regards,

Ted BaumannOffshore Editor, The Sovereign Society

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Contacts:

George Gruhn has been buying and selling used instruments since 1963, and Gruhn Guitars, established in 1970, was the first store devoted to vintage and used instrument sales. He is recognized worldwide as a leading expert on vintage guitars, mandolins and banjos. He brings over 40 years of experience to an instrument appraisal, as well as the decades of experience of the Gruhn staff.

Gruhn GuitarsAddress: 2120 8th Avenue South, Nashville, TN 37204Website: www.gruhn.com Email: gruhn@gruhn.comTel.: +1-615-256-2033

Appraisals are available by uploading the following to their secure appraisal site:

• Front and back photos of the instrument (up to five photos can be uploaded). • Serial number.• Description of modifications, repairs and other issues not apparent from photos.• Credit card information for $50 appraisal fee.• Mailing address and email address.

For appraisals requiring the examination of 10 or more photos, a higher fee may apply. Please contact George at 615-256-2033 or gruhn@gruhn.com to discuss.

Appraisals are available at Gruhn’s during regular business hours for a $75 fee. This detailed appraisal will provide a significantly higher level of service and certainty than one done from photos alone, since the instrument will be thoroughly examined by their repair staff and evaluated in-hand by George Gruhn. Though it is not necessary to schedule an appointment, it is best to email or phone in advance.

For pre-CBS Fender instruments and most pre-Norlin Gibson Les Pauls, Gruhn’s can also provide a complete, in-depth appraisal, including authentication of all components of the instrument, for a fee of $225. Please contact them to set up an appointment.

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Other Reputable Dealers

Rainbow GuitarsAddress: 2550 N Campbell Ave Tucson, AZ 85719Website: www.rainbowguitars.com Tel.: +1-520-325-3376

California Vintage Guitar and AmpAddress: 5244 Van Nuys Boulevard, Sherman Oaks, CA 91401Website: www.californiavintageguitarandamp.com/Gibson_Main.htm Email: sales@californiavintageguitarandamp.com Tel.: +1-818-789-8884

Rock and Roll VintageAddress: 4740 N. Lincoln Avenue, Chicago IL, 60625Website: rocknrollvintage.com Email: rocknrollvintage@gmail.com Tel.: +1-773-878-8616

30th Street GuitarsAddress: 236 W 30th St. #1 New York, NY 10001-4904Website: www.30thstreetguitars.com Email: 30thstreetguitars@verizon.net Tel.: +1-212-868-2660

Matt Umanov GuitarsAddress: 273 Bleecker St., New York, NY 10014Website: www.umanovguitars.com Tel.: +1-212-675-2157

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