Dealing with an Irrational Market


I watched a documentary a few years ago that discussed how well vintage guitars hold their value. Many of the experts that were interviewed had made extremely impressive returns on their investment in older guitars.

Ever since I watched that documentary, I have been very interested in the idea of collecting vintage guitars as a sort-of high interest savings account. Much like any other type of market, if I could find a way to identify a good deal, I could allow myself to buy at low relative prices and then hold a collection that would continue to increase in value.

This idea would eventually lead to me having a cool collection of vintage instruments that I could sell if I ever need the money, or pass on to family after I’m gone. It would also be a hobby that could provide a net gain to my personal balance sheet, instead of the net loss that most of my hobbies prove to be.

However, there is one huge problem that I have run into attempting to implement this plan. People who sell used guitars are completely irrational about their value. 

If you’ve ever watched Pawn Stars, you know that when they bring in an expert to appraise something, the pawn shop never offers that full value for the item. They are generally willing to pay about half what a given item is “worth” because they have to leave room to turn a profit.

This has been my mentality with attempting to “trade guitars” through Craigslist. I have been using ebay listings that have actually sold to gauge the value of a guitar, and then offering about half that value in a polite email.

What I have found, is that the majority of people who sell guitars on Craigslist believe their guitar is not only worth what the used model sells for on ebay, they believe it is worth what the guitar would cost new. Many sellers believe that their guitar is worth what they paid for it, plus what they have spent upgrading or maintaining it.

This situation can become very frustrating for someone who is looking for great deals. They simply aren’t there.

Many traders will relate to this situation. We all go through periods where markets aren’t conducive to trading our strategies.

When we are forced to deal with irrational markets, we have two choices: we can attempt to wait for better market conditions, or we can find a different market to trade.

Because I really want to be a part of the vintage guitar market, my choice will be to wait out the market. I’ll have to keep researching and looking for great deals. I know going in that these deals may be few and far between, but that’s ok.

I’m willing to wait for a great deal. I’m not willing to make what I know to be a bad trade.

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