A bit on the heels of the recent Triton numbers, I thought I'd bring up a phenomenon I've long suspected - that of "money sniffers." Some of us may call them "morons with money", but they basically thrive on the principle that something with a certain number of bids must be worth more. They know relatively little about the coin they're bidding on. For example, let's take a coin that's worth $1000. During the auction, it gets bid to $1500. A money sniffer see this, and assumes that since it was bid up that high, it must be worth more than $1500. That money sniffer fights with someone who really wanted that coin, and now it's up to $2k and the original high bidder drops off. However, now another money sniffer is drawn by the $2k bid and both go at it until it sells for $10k. I recently became more convinced of the phenomenon when I listed two apartment buildings for sale. There's a smaller one and a larger one, both for roughly the same price per door. One potential buyer for the larger one said "we want to see what someone pays for the smaller one." In other words, rather than running the numbers and determining the actual value themselves, they want another party to dictate how much they pay. So, when it boils down to it, a money sniffer determines the value of a coin based on how much someone else wants to pay. Pretty much everyone here determines the value based on previous sales, though unique coins are obviously a different ballgame. What do you think. Do money sniffers exist? Here's a coin that occasionally falls victim to money sniffers. Kings of Macedon. Pella. Demetrios I Poliorketes 306-283 BC.Tetradrachm AR 30 mm, 17,12 g Diademed and horned head of young Demetrios right / ΒΑΣΙΛΕΩΣ ΔΗΜΗΤΡΙΟΥ, poseidon standing left resting foot on rock, monograms at either side. Newell 90 Ex Savoca
You are actually describing a few dealers who get their stock exclusively from auctions. They have little idea about the coins. If you offer them the same coins for a direct sale they would only be prepared to pay 1/5 of what they will pay in auctions. As long as there are people out there (and in CT) who keep buying from them, they become more and more aggressive.
Arbitrage usually refers only to financial instruments, but the idea of taking advantage of price differences between markets when it comes to commodities, like coins, is simply business. For instance, if I can get a coin on eBay that will sell for a profit in a show or elsewhere, I'll bid it up to a point where I can still make a profit, but if someone wants it more and bids higher, I let it go. That's what all dealers do. If you can't sniff out a profit, you go out of business.
In the end, when it comes to collectables, this IS the way to determine how much something is worth. At the time anyway. If working with a normal budget, and interested in paying a price that won't hurt you in the end, then making decisions based on previous sales and trends is the appropriate thing to do. But, when it comes to the variety of people that you are describing, this type of logic probably doesn't apply. The type of person that you are describing decides which coin that they want, and then bids whatever is needed to get it. They can do this because they have so much money that they don't care about the money. In fact, they probably want the coin to cost more, because ultimately it is the price tag that determines whether a coin is or is not worthy of their collection. There are people out there with 1000X more money than the rest of us. Imagine that $1000 coin that you'd like to have. If, instead of $1000, it sold in the $1 range, would you not be willing to bump it up to $2 or $3 or even $10 to get the one you wanted with your current budget? That's exactly what these people are doing, except that their frame of reference is shifted by 3 orders of magnitude. It is useful to notice when this type of thing happens because you don't want your perspective on value to get skewed by millionaires throwing stacks of cash around with reckless abandon. However, the prices will be what they are, we just have to evaluate and deal with it.
Arbitrage can refer to financial instruments, but it can also refer to just taking advantage of price differences. I didn't mean to imply anything unsavory about it. I've done the same thing at times.
There are undoubtedly people like this and I'm sure at times we may seem like this to others with less funds than we have, but these aren't the type of people I'm discussing. The primary difference is that the type you describe wants the coin because of some non-price related attribute of the coin itself. It may come from an emperor he's heard of. It may look cool. It may be listed as unique. There's something about the coin that he likes, and he's willing to pay anything to get it. Money sniffers select coins much differently. They choose coins primarily based on the current price. Perhaps the feeling is the object that's wanted most should be wanted more. The actual attributes of the coin are secondary.
I believe what I'm discussing is different from arbitrage. For example, in the real estate world, flipping is a form of arbitrage. I've flipped homes before, and it involves calculations of the work involved and the profit once it's fixed up. Generally, when a flipper goes against someone who plans to live in the property himself/herself, the flipper loses (unless the flipper is a moron). Lets take an object different from real estate or coins: an apple. Of course there are different types of apples with different prices, so I'll be more specific with an inorganic granny smith apple. On a table are a bunch of these apples, and you're in a room with others bidding on them. Just for fairness, these aren't the only apples in existence, and you're perfectly capable of walking out of the store and buying any other apple or food item at any normal grocery store. Also, the money is going to pay for an expansion to a mansion that Jeff Bezos rarely uses. Not a cent will go to charity. Now, you know roughly what apples cost at the grocery store. You're hungry. Would you bid $1 for an apple? Maybe, or you might be like my mother-in-law who buys carrots at one store and apples at another based on where one's cheaper. Would you bid $5? Maybe $5 isn't much for you and you really don't care. You could also just bid on another apple. However, lets say someone walks up and places a $1000 bid on one particular apple. Would you bid $1100, or would you just buy some other apple? I believe the overwhelming majority of us wouldn't bid on that apple. Why? Because our price justification for the apple is based on our knowledge of how much apples are worth. That apple may look shinier than the others, but it's not any tastier, nor are you going to be able to resell it for a profit. The money sniffer, though, will bid $1100, and more if necessary. Why? Because his price justification is the fact that someone just stated a willingness to pay $1000. The thinking is that there must be someone else who will pay more. In other words, the entire price calculation has nothing to do with how much he wants the item, nor in any past apple sales, but on what someone else has valued it.
