Alternative Investments: Off the beaten path - Vinyl records - an unexpected find

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on January 1, 2018 - January 07, 2018.
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I will definitely consider investing in vinyl records this year. Not solely for profit or return, or because I possess superior knowledge in this area. I would consider it because of a fond memory I have of when I was 17 years old.

Instead of going on an excursion with my classmates to celebrate our graduation, I decided to go on my first overseas trip. When the plane touched down in Kansai International Airport in Japan in December 2005, I was warmly welcomed by Mr and Mrs Iino on a chilly autumn day.

After a three-hour car ride, I arrived at their home, which they had bought from a farmer. It was built high up on a mountain in Wakayama prefecture. In the living room, there were two wooden shelves filled with CDs and vinyl LP records. How cool is that!

As Mrs Iino worked full-time as a nurse at a nearby town, most of my time was spent with Mr Iino. He brought me to the famous places in Wakayama. When I was not sightseeing, I was sitting in the living room listening to CDs and records. I don’t remember what songs were played back then, but I do remember listening to American rock bands such as Aerosmith and Nirvana, which I liked a lot.

The most enjoyable moment during the trip was when Mr Iino brought me to visit a good friend of his on the other side of the mountain. Let’s call him Mr Nagoya as he was originally from there. Mr Nagoya was fed up with city life so one day, he decided to buy a house on the mountain and moved his entire collection of vinyl records there.

There was a room in Mr Nagoya’s house dedicated only to vinyl records and there were thousands of them there. A record player sat elegantly by the window, where the sunlight streamed in. I sat there listening to some of the records playing while Mr Nagoya sipped some tea. In his thick Japanese accent, he told me with a smile that while some of his records could be sold at quite a high price, he would rather not sell them.

I have since lost contact with Mr Iino and Mr Nagoya. But that memory of Japan is something I will always cherish.

But wait, doesn’t it sound rather silly to make an investment decision based on nostalgia? A banker or analyst would say, “You must be kidding me. Look at earnings and growth and future trends instead!”

But maybe this is what makes an alternative investment unique. It is more subjective and emotions play a big part in it. If you cannot sell it at a higher price, you still enjoy owning it anyway. Imagine going home after work in the evening, making yourself a cup of coffee and lying on the sofa listening to your favourite vinyl record.

After all, it does make sense to invest in vinyl records. While digital downloads are dominating the US music market, the sales of vinyl records have made a strong comeback in recent years.

According to data released by the Recording Industry Association of America (RIAA), vinyl records saw a strong rebound in 2014, with the total value of shipment growing 49% to US$315 million. It was also the first year since 1987 that vinyl record sales accounted for 14% of the total value of shipment of the physical market that includes CDs.

In 2015, the total value of shipment for vinyl records were up 32% at US$416 million — the highest level since 1998. In 2016, it was US$430 million.

In fact, The Guardian reported that vinyl record sales last year “reached a 25-year high”. It was also the first year that spending on vinyl records outstripped that of digital downloads.

When there are more people listening to vinyl records, does that mean that some of the limited vinyl records of well-known artists will be more in demand and appreciate in value? I believe it does.

I did a quick search on Quora’s website and found that Nirvana’s first album is actually a good buy. It is one of my favourite rock bands. If I were to buy this record and keep it for a while to let it appreciate, Discog could be one of the platforms that I head to when I want to liquidate this asset. Discog is the largest marketplace for vinyl records globally.

I also wonder if this trend of vinyl records will reach Malaysian shores. While I am not sure about this, a friend of mine indicates that it is probably “no”. “You can go to some malls and find cheap ones there. They just want to get rid of them. That is not a good sign, right?”

I assume that most Malaysians do not appreciate vinyl records that much. So, the market here could be quite small and illiquid.

But then again, if I bought a record and could not sell it, it would be equally good to just keep it and listen to it once in a while in the living room — provided that I also have the money to buy a record player!