How Dealers Determine the Value of a Rare Coin.. Article Read

Good read.

I don't know why he thinks there is confusion regarding Auction Prices Realized:

He doesn't go on to explain WHY he thinks they are misunderstood.

 

I find many parallels between what Vic does and what I do, and think he is dead-on with his advice.

I find that dealers who rely heavily on the GS / BS (both buying and selling) are less in touch with the true market value of really rare coins, and trade much more in wares that are available in greater quantity . . . common Morgans, Walkers, proof sets, mint sets, common-dated type coins, etc. The reason is that knowledgeable sellers of rare coins know the GS / BS is too low on the truely rare stuff, so the dealer who uses the sheets as a crutch often fails to buy that kind of inventory when it is presented to him.

There is quite a disconnect between GS / BS and the real value of truely scarce and rare coins, and it is unlikely that CDN Publications will ever close that gap. It is simply too expensive of a proposition for them, based on their current business model. They provide weekly updates to the market for the most commonly traded issues, quarterly for those trading least, and monthly for those trading at a more moderate pace.

While the CDN is the market benchmark for coins covered in the Weekly issue, and are pretty decent in the monthly, I personally consider their pricing performance in the quarterly issues to be a disservice to the industry. Much of the data in the Quarterly issues is grossly inaccurate, and leaves unaware buyers believing they are being gouged by sellers in the know, and savvy sellers feeling low-balled by dealers having bad information.

Unless and until CDN Publications decides that their market position is jeopardized by this shortcoming, things are unlikely to change.

As for me, I'll continue looking for current pricing everywhere I can find it . . . after all, that's what they should be doing, isn't it?

 

For rare coins, many of the high auction prices paid come from dealers who happen to be first to recognize how wrong the market pricing is.

 

To add to what Matt said Rusty, it also helps if you know coins. What I mean by that is that you should be able to look at the pictures and usually see which coins are nicer than another. And by doing that know which ones should bring a higher price.

As I have said many times pick almost any coin you want and look up auction results. What you'll see is that there is a price range, sometimes a huge price range, even for coins of the same grade and graded by the same TPG. The reason for this is because smart buyers know that just because 2 coins are graded the same that does not make them equal. They know that you have to ignore the number on the slab and the name on the slab and judge the coin itself. And then bid, or pay, accordingly.

But if you don't know coins, well, you can't do that. If you don't know coins then you are stuck being a plastic buyer if you do things on your own. Or, you can be smart and use the services of somebody who does know coins.

Do you think the people who form those famous collections that bring millions when the coins are sold pick out each coin themselves ? In most cases, no they do not. They utilize dealers to be their agents, to be their eyes, to be the ones who judge the coins, in hand, and decide which coins are nice and which ones are not.

But you do not have to be a millionaire to do this. Even the guy buying coins that cost a few hundred dollars can do it. And granted, to a lesser extent, so can the guy buying coins that cost less than hundred dollars.

 

This is the essence of collecting versus investing.

While the following is a generalization, it is not a statement without merit . . . "Collectors learn before buying, investors buy before learning".

 

Well Rusty that's more of an issue of the specific dealer just wanting to make more money on a given coin. Or, a happenstance of a dealer having paid too much himself for the coin in question so he prices it accordingly.

That said, it is extremely common for dealers to put their asking prices all over the map. For example, pick any coin you want in any grade you want, have dealer A have 1 example, dealer B another, and dealer C yet another. For all intents and purposes all 3 coins are equal, or as close as they can be.

But dealer A has an asking price of say $250 for this coin. Dealer B will have an asking price of $350 for this coin, and dealer C will have an asking price of $500 for this coin. And yet all 3 coins are equal. This happens every single day. And all 3 of these dealers would be trusted and respected dealers.

Now the price guides are almost all based on dealer asking prices. That's why, depending on what price guide you look at, you find values listed for the same coin that are so widely different than those values listed in another price guide. Dealer asking prices are based on what dealers you ask.

Numismedia will ask 10, 20, or whatever number of dealers what their asking prices are for a given coin in a given grade. CDN will look up the single lowest asking price fora given coin in a given grade that they can find on the dealer networks. And that is the value they list for that coin. PCGS may ask 10, 20, or however many dealers what their asking price is for a given coin in a given grade, but those dealers are all entirely different dealers than those asked by Numismedia or CDN. And that's why the values listed in the price guides are all over the map. It's those values are based on the asking price of specific dealers.

For some dealers, 10% profit is enough, on a given coin. For others, 20% is what they ask. For yet others they may ask even 100%. It all depends on the dealer and the coin and the specific circumstances that go with it all.

You have to always remember that fully 80% or more of all coin transactions, both buying and selling, take place between 2 dealers. Every day ! And sometimes a single given coin will be bought and sold between 5 or 6 different dealers, maybe even more, before that coin ever lands in the hands of a collector. And yet every one of those dealers will make money, make a profit on that 1 single coin.

So, all you have to do is then imagine what dealer #1's asking price was, and then imagine what dealer #6's asking price was, to understand why dealer asking prices can so very, very, different from each other.

If each dealer only made 10% profit, then the final asking price has increased by almost 60% of what it was to begin with. A coin that started out being sold at $250, by the time 6th dealer pays for it, he pays $402. If that 10% profit number was increased by even 1 dealer, the final asking price increase goes over 60%.

It's easy to see how it happens.

 

I'd guess there are probably quite a few more dealers who buy coins on Heritage than there are private collectors who do.

 

It might go through 10 or 12 dealers before you ever get to see it Rusty, or just 2 or 3, I just used 6 as an example for illustration purposes.

But the point I was making is quite easy to verify for yourself. All it requires is a bit of browsing for a given coin. Pick a coin, any coin in any given grade, and search for it. Between magazines, online ads, and various dealer websites, you'l find examples of that coin in that grade offered by many different dealers all over the country. But the asking price will vary greatly, sometimes by as much as 100%, meaning double what another dealer is asking. And sometimes even more than that.

That is why it is so very important for a collector to use realized auction prices as his guide when trying to determine the real value of a given coin. As I have said many times, a coin is not worth what "somebody" will pay for it. Instead it is worth what an educated buyer will pay for it.

Anybody can ask any amount they want for any given coin. But that doesn't make the coin worth that much. And even if somebody actually pays that asking price, that doesn't make it worth that much either.

Joe Collector probably doesn't know what that coin is really worth. An educated buyer does. So the educated buyer will ignore all of those high asking prices and only buy an example that is priced correctly.