May 18, 2016

Are Enthusiast Products Expenses or Assets?

Intro

2008 was a great year for me. I graduated 8th grade, played ~1000 hours of TF2 (I'm an accredited hat investor), and fell down the headphone rabbit hole.
As a 13 year old, funding was the major issue, and Head-Fi's Buy/Sell/Trade section was my solution.

Core Point

Generally, enthusiasts do a good job taking care of their stuff, and Audiophile products don't really degrade. These factors produce an environment where secondary markets thrive. Products retain value, the buyers in that market have a good understanding of value, and a large percentage of buyers have also been sellers on that market.
After realizing I could buy a used DT880 for $200, use it for a few months, then reliably sell it for $190, my whole perspective on the hobby changed. Instead of my DT880 representing a $200 cost, now it was $10, all through the magic of reliable secondary market value.
The logical conclusion is that enthusiast products (that don't incur meaningful wear through use) are assets rather than expenses. After realizing this, I stopped buying cheap things and started investing in the "asset level" version of whatever product.

Implications

This works great in the sense that I've probably saved a few thousand dollars by avoiding trash quality products, but it makes new hobby exploration difficult.
I look at EDC as an example, seems like a cool community, lots of neat stuff, but I can't think of too many situations where I'd utilize a pocket knife. I did a little reading, found most people recommend getting something cheap, carrying it for a while, and upgrading/abandoning based on much use it gets.
Seems logical, but I don't want to buy a $50 thing that I'll have to toss in a couple months if I decide to upgrade, but it's hard to get over the $200 it'll take to reach the asset level knives.
I think there's cool potential for a solution to this problem, a secondary market, based on trades, geared toward swapping asset level goods of one type, for similarly valuable asset level goods of another type.

Conclusion

I've got five headphones at home, all worth ~$500 on the secondary market. I don't want to invest $200 in a knife that I'm not sure I'll find useful, but what if there was some easy way for me to trade one of those ~$500 pairs of headphones for a ~$500 knife? I don't have to shell out any cash, I get to try the new hobby, and I'm trying it at the quality level I'm interested in entering at.
Anyway, these are my thoughts, but what do you think? I'm curious to know how other people see this.
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This is exactly the philosophy that l used (use) to justify my audiophile journey. Purchased most of my equipment "barely" used...have sold most for what I paid for it and keep what I love. Also scaled up in price and quality as my convenience grew in both my preference, tastes, equipment knowledge and ability to resell confidently (and more importantly my wife's confidence). My main rig retails for over $5K (CAD)...I paid $3k for all less than a year old equipment...confident I can resell for the exact amount if I choose over the next couple of years. So I do see it as an asset with a decent,shelf life.
GonzoTGreat
Hey Gonzo,

No problem, I have a good time thinking about this kind of stuff, always fun to find someone equally interested in the discussion.

OCR stands for Optical Character Recognition, generally you'll hear it in reference to scanners that can turn written letters into editable text. While that's the definition and official use of the term, it's an acronym that gets thrown around whenever we're discussing software that recognizes specific objects/details within images.

In this situation, it would be something like, take a straight-on picture of the nib. Is it bent in a weird way? Are the tines split too much? The software would be able to recognize such things and either make or help inform a decision around condition grading.

On the whiskey front, not to get us on a new tangent, but I recently picked up some Yamazaki 12 and it's overtaken Glenlivet 18 as my favorite highland/smooth whiskey. Would recommend if you can find a reasonably priced bottle.

When will other communities get discussions? Not sure TBH, depends on the response we get in these communities. That said, if you want to make a case for a particular community, hit up my colleagues Kunal, Mike Wilson, and Alex Peterkin, their team owns this project : )

Best.
GonzoTGreat
Hey guys, as fascinating as this talk is about "value validation" for secondhand products, logistic market matching, etc... and all the brainstorming that's being bantered about... you realize that an intermediary system is already in place for this sort of thing right? It's this funny thing called "money". Yes true, it's an extra step, but it simplifies the bartering system to a (admittedly arbitrary at times) shared commodity that is commonly valued by all parties involved.
Will
Hi Will,

Thanks so much for your incredibly detailed and well-written response. I hope our exchange - out in the open - adds value to thread and the community.

Your post helped me see it's not nearly as complicated to set up an enthusiast barter system as I had imagined, though still a massive, daunting undertaking. This was definitely not something I figured was anywhere in anyone's todo list for the foreseeable future, but I figured I'd ask.

Also, what's OCR?

The JW example is appropriate. JW Blue is significantly better than Black (I also like my whiskey). I can tell the difference when drinking them neat, but less so as they are adulterated (with ice or mixers). JW Blue may have a unique subtlety. An attuned enthusiast could make an educated decision as to whether the price difference was worth it. The price difference is probably as a result of the difference in quality AND label color - blue dye costs so much more ;-).

If someone is perfectly happy their ballpoint pen, the smoothness of a fountain pen may be noticeable but not worth the price difference. And when we go beyond $1,000, we're talking about aesthetics and brand almost exclusively.

Cheers.

ps . When is this kind of discussion board coming to other communities (writing?).
GonzoTGreat
Lots of questions, I'll do my best to give clear answers.

Does something like that (a p2p, barter focused, marketplace with value validation) exist today? Not that I know of. Nobody's really been in a position where it'd make sense to build such a thing. Medium of exchange is a pretty big thing that most business people have bought into, but as with all things, it was created based on certain requirements and assumptions.

Bartering was an inefficient way of exchanging value because there wasn't a good matchmaking system in place. If you have a heard of goats, and you want some bread to eat, you'd walk to the nearest town and hope the baker was looking for goat products. If the baker is not interested in goats or goat accessories, you're SOL because you can't spend two days walking to the next village on the off-chance their baker is interested in goat products.

Today, matchmaking can be solved via software. You have a $500 knife and you're interested in $500 headphones? Here are the first 10 people we found that have $500 headphones and want a $500 knife. EZ.

Logistics are solved by UPS/Fedex/USPS and Paypal/Venmo/Square. You were successfully matched with someone that's got a $500 headphone to trade for your $500 knife? NP, send money via internet, ship product via multitude of shipping providers, easiest day of your life.

The only remaining question is, how do we make sure folks are correctly representing the value of items they're trading? I think there's a clever solution based on a reputation system (misrepresent the value of a product and get shunned), some basic OCR, and a 2-3 person team to handle disputes when the scale gets large enough. It's a problem that lots of companies have already solved, with a slight additional twist.

Now, the question of "will Massdrop do this?" is not something I have the power to answer. I don't make choices for what we make or don't make for the website. Creating something like this would be a big undertaking, and we've got a long list of features and improvements to roll out over the course of this year. If it was something we were going to consider, that consideration wouldn't happen for some time.

For the question about Audiophiles, and the limit of "most consumers" ability to appreciate/hear the difference with high quality components, I think it's mostly psychological, consumers need guidance to be shown what to look for. Give a frat bro some JW Red, then give him some JW Blue. He'll probably notice the Blue is smoother, but if you asked him "How much more would you pay for Blue over Red?" his answer's probably not 1000%.

Now, if someone was there, explaining the nuance'd flavors of Blue, pointing them out to the frat bro, showing exactly how the experience is better, 1000% might not seem so crazy.

So the short answer is, unless you've experienced some serious hearing damage, I don't think you hit massively diminishing returns until you're past HD800s (~$1000), provided you love music and are willing to dedicate the time to pay it proper attention.
You make some great points I hadn't considered.

Using a third party for evaluation of both items to be "traded" might be a good compromise. Of course, you'd have to find an entity that all parties trusted (the tricky part, I think).

Once you enter this realm, would the third party entity (TPE) act as a broker? In this case the swapping service would be just that: a service with its own costs etc.

I have no idea how the mechanics and finances of that would work. Does something like that even exist in an organized fashion online? If not, could this be an opportunity or a money sink when accounting for start-up, overhead, etc.?

Perhaps others have considered it and decided against it because they felt it was not feasible. Perhaps no one ever really considered it and this presents and amazing opportunity. Is this an offshoot direction Massdrop could (or would want to) go?

The idea of third party "value validation" is fascinating.

Hopefully, I'm not wandering too far afield as I ponder such things. Is this just an academic exercise or could this become a reality in some way?

Personally, I'd love to spend my time learning why different enthusiast groups are passionate about certain items.

I know a bit about stuff from the writing community and about what makes for (and bad) wet shaving gear. I'm learning about ties and am curious about watches.

A question for the audio file community (perhaps best as another thread): for about a dozen years I was a full-time freelance musician. I had the privilege of making three published CDs and, before changing my career path enjoyed a fair bit of success. I learned a TINY bit about audience engineering and producing and know that good professionals can hear minute differences in sound reproduction. At what point do the limitations of *most* consumers ears and hearing ability (I know way more about hearing than audiophile stuff) significantly diminish value of the super-fancy set-ups?

I listen to everything from classical (chamber and orchestra), jazz (big band to small combos), folk, rock and "world" music. I know my tastes. I don't care about a if thumping bass, but I can discriminate mid-levels (eg. I can pick out the violas in an orchestral piece).

Well, so much for staying on (one) topic. The first part of my response nose is relevant. The second may be better suited to its own thread.

Would love to hear your thoughts.
I feel you on this. I have a similar experience in the Audiophile world. Having started with my ATH-M50s, I decided it'd be a great investment to step up from an 8-year old 2.1 system from Radio Shack back in the day to a pair of Kanto YU2s (Bought for $250 CAD on MD) and a Polk Audio PSW10 sub.

Needless to say, you're absolutely right about second-hand​ value retention. After a year and a half of use, I sold those bad boys to a grateful enthusiast for $220 CAD. I can't think of a better return on any other Hobby :)
Will,

You pose an interesting question but, as you say in you OP:

(that don't incur meaningful wear through use)

The challenge in this particular example is that, unless it's put on a shelf, the knife will be used, the blade will be dulled and the value of the used item will change over time (unless you are able to keep it sharp and in the same condition as when purchased).

Otherwise, interesting food for thought.
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Will
This thread is really interesting but your scotch comment caught my eye. I've tried the Glen Livet 15, the Glen Fiddich 18 and the Glen Morangie 10 and the Morangie seemed to me to be the most "fun". I have to add more to my list of community recommended scotches and I see two here to add. Cheers!

On the topic of bartering there is still a major issue with global bartering as delivery costs and import taxes and duties (where they apply) really puts a damper on "value" for any goods.
Hi Steve,

Thanks for the info about how this is expanding; I'm starting to see more communities with a dedicated forum. I agree wholeheartedly that slow growth with quality content is the way to go. I'm looking forward to when it reaches the writing community. In the meantime, I've noticed other nifty features to the website. The opportunity to introduce ourselves on our profile pages is a great addition.

Cheers!
I think in the general vein of the conversation, we are taking "asset" to mean an object that still retains (reasonably good) monetary value after purchase. For those of us who buy used and are able to sell again at zero/minimal loss, it's kind of like saying we're investing our money in gear rather than in the bank.
Armaegis
I understand most people in enthusiast communities prefer to see assets as objects that don't lose as much value as other things, but that sounds like a world where everything is expected to be worth less tomorrow than it is today.

With people experiencing negative interest rates at banks in some countries, that makes sense, and comparing money in the bank with money in gear is a fair comparison. But eventually monetary policy will make compound interest work again for people like us who don't use private jets like Uber.
You've described mitigating the costs of ownership, which as others here have pointed out is a common strategy among enthusiasts and collectors, but based on your supporting details I don't see a basis for calling the purchases assets. My CPA would cite GAAP, but my take is that assets are assets if they play a role in making you money--and it absolutely needs to be more money than they cost to own/control, or else you're still just paying for the privilege.

Examples--the first things people think of as assets are cars and houses, and then something hobbyish like golf clubs. In this context, your car gets you where you make money, and your house keeps you safe when you aren't making money (or maybe when you are, too). If you are making payments on a car that you can't drive or taxes on an empty house, then they're not your assets. Golf clubs can be assets if golf is an important part of making money for you--you're a pro or you have an easier time making deals while playing. If you couldn't finish eighteen holes or the only thing you got out of a day of negotiating was a tan, then those clubs are not assets.

In my case, my business partner drove a Prius. Whether he showed up at an office or a construction site, he got ribbed about it--not too hard, because he's over six foot and could bench press even more than he weighs, but every time I saw him wearing a three piece suit and ducking into the Prius to meet a client, I heard Jeff Dunham and Rodney Dangerfield doing standup. So last month I burned through favors at a dealership and arranged to lease him a heavily discounted Cadillac ELR. The key here is I still won't call it an asset until our numbers improve without changing anything else, but I'm hopeful as we've already seen the car turn heads, and all indications are that it will continue smelling of success long after it no longer smells of new car. The counterargument could be that he made as big an impression with the Prius, and that the Cadillac results in no appreciable return beyond its cost--in which case I will call it an expense that has improved his quality of life.

So, setting aside professional musicians, if music makes the voices go away so you can make more money over the life of the audiophile purchases than they cost, then they are assets.
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I can certainly agree with equating the audio purchases to stocks, as there is potential to realize capital gain with no guarantee of return with either--liquidity being the biggest differentiator and why people with no interest in commerce find the market accessible, even if it's just through a 401(k).

The listening experience as a dividend is harder for me to get behind, though I can see your reasoning for doing so. My issue with it is that it results in the mentality of 'investing' in objects without a plan to sell or receive any other monetary return, like a new wardrobe, couch, or bag.

I'm all for people making these purchases if doing so makes them happy and improves their lives, but I would prefer understanding the purchases as figurative investments rather than literal ones.
eunu
It's a fair point in the dividend ms. That was more for the sake of shoehorning the main reason most people buy audio gear into my analogy.

Interesting thread though - l wonder if any people here actually buy audio gear for financial gain or value as compared to just wanting to listen to them? Interesting thought.
A lot of people know the price of things - but not many know the value.
There is a danger to viewing gear as assets though, because that's just one more little voice that tells you "yeah, go ahead, spend that money, you don't need groceries this month..." Fighting gear acquisition syndrome is much easier when you think of it purely as an expense, not building equity.

My early days in headfi saw me "invest" money into two sets of $200 headphones. With these, I power traded through a LOT of headphones. At least that's what I tell myself. In truth, I was not-so-secretly adding more and more money into the hobby. After a couple years, Pokémon syndrome had taken over and I was a full fledged collector/hoarder.

I managed to pull off a big downsizing and after some crap in my life took a plunge on a used HE-6. Surely stepping up into the big leagues would slow me down! Nope, because now I was buying bigger gear and still using the asset/equity excuse to justify it. I had built up my rig to usb filter, dac, pre, monoblocks, HE-6... and it was getting ridiculous.

So I've managed to downsize again, but I've been busy in one of my other hobbies setting up PA systems for local dance events that have been growing. I started off with some modest powered speakers years ago, but now I'm up to 4000W, 600 lb rig that takes two cars to transport. It would be so much easier to rent what I need, but nah all this stuff I'm buying is an investment.

I need help =P
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Nope, Bay Area born and raised! Those U15 tops are sweet, they were part of the reason I got the UCS1 subs. I always intended to pair them with a set of Unity tops, but had to sell them before that could happen.

To be fair, I didn't get the UCS1 subs until I was living off campus. In my dorm room freshman year I had the two Mackie subs. Trust me, output was never a problem haha. I had to attenuate the signal at my rack as even one click was too loud for regular use in the house.

If I had to do it all over again I'd probably go with the powered setup and do away with the external racks and amps. My current home DJ sound system is powered and the simplicity is a refreshing change.

We're always hiring! Check out our jobs board and feel free to reach out to our talent team.

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LukasM
A little while back there was a local guy here who used to own a club, selling a full fledged Yorkie TX system. It was a little bit drool worthy. Right now I've got enough gear to set up for an 8 piece band and play in a gym sized venue to acceptably loud levels. Seeing as this is just a hobby, I probably shouldn't be investing any more into it. I don't think I can do better than the U15's in my current price bracket. I wouldn't mind upgrading the subs, but again, weight and size are limiting factors as well. At the moment, I can actually fit into my car: two U15's, two B1500x subs, two 4U racks of amps and processors, a 16ch mixer, two large cases of mics and cables, two stands, a folding cart and folding hand truck, and two backpacks of miscellaneous gear. It is a rather amazing game of tetris I play which completely loads my wagon to the brim.

I see the appeal to powered stuff, but then I can't play with all the hookups. How am I gonna feed my audiophilia nervosa otherwise? =P

Hah, well being Canadian and all, I think applying for a job in San Francisco might make things problematic. Plus my skillset is more as a teacher, event organizer and mechanical engineering researcher, with absolutely zero experience in web development/marketing/sales related skills. I've got strong communication, organization, and writing skills though. Then again, I still want to do that "angry audiophile" column which is kinda anti-sales, haha! (although strangely, my less-than-positive reviews over at HF are the ones that seem to generate the most discussion and interest)
This is an interesting one as for me, headphones and earphones are a collectible. I'm a big fan of collecting and have a ton of collections; keys, stamps, baseball/hockey cards, game consoles, etc. Given my deep interest in earphones and the variety you can find in both design and sound, I just don't see myself selling them since there is always something new to discover.

If I knew of others in my general area with an interest in the hobby, I might be more included to sell or trade, but the classifieds seems to be dominated by brands that do not cater to my individual preferences.

In the end, I guess I would fall into the 'expense' category since when taken from a monetary perspective, I get nothing back from my purchases. Just, you know, personal enjoyment and the pleasure of listening to a variety of gear.

Expanding on Armaegis's comment, maybe Massdrop could look into firing up a trades marketplace for used goods where product values could be discussed and appropriate trades initiated in a safe and controlled environment.