Score!

This week was a good week for me.  On a business trip, I stopped into a small town antique store and was pleasantly surprised to find a nice inventory of coins and currency for sale.  I found that their currency prices are a bit high.  I found a super nice, likely Extremely Fine, 1928 "Funnyback" $1 Silver Certificate.  They wanted $75 for it, which was too high if it was an ordinary note.  However, this note was printed with the Z-B block.  The Z-B block was one of a group of experimental notes printed for one or two months that was made of a special denim fabric.  It looks the same as a normal note, except for he Z-B block.  Anyway, to make a long story short it is worth about $250 in it's condition and it was mine for the bargain price of $75.


This made me (more) interested in the rarer small notes.  I recently put a very nice 1934 African Emergency $10 note up for sale on ebay.  I had an offer on it for $80 which was a tad too low, and I was waiting to see if I'd receive more offers before my 48 hour deadline to make a decision expired.  However, a VF 1934 Funnyback Star Note in (about) VF was suddenly listed on ebay for $79.  I knew that was a bargain, figuring it was worth $125, so I pulled the trigger and bought it, and then accepted the offer on the African note figuring that I would use the money to fund the star funnyback.  I think I picked up a little equity on the deal, however I believe the star note it much rarer than the African note...only 107 have been slabbed by both grading services.  Compare that to 4,500+ slabbed 1909-S VDB cents in existence which sell for about 8 times as much money depending on grade.

I also have another deal in the hopper that I'm going to wait on with my $20. :)


Collector Steve

How to find a Bargain Slab

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As you know, some collectibles are professionally graded by grading services.  These items are typically assigned a verbal grade, like “Fine” and then a numerical grade, like 15.  Coins and currency are graded on a 70-point scale with 70 being the highest.  Comicbooks are graded on 10 point scale using decimals (e.g., 8.5, 9.0, 9.2, etc).  I think baseball cards are graded the same way.  Professionally graded items are sealed in tamper-proof plastic containers sometimes referred to as “slabs”.

Some items are too rare in the marketplace to easily spot a bargain for the simple reason that they don’t come up for sale very often.  And when they do come up for sale, their difference in condition makes comparison of past pricing difficult.

For the items common enough to have more than a few examples, but still maintain their desirability due to a general popular appeal, bargains can be found by using the following procedure:

1. Compile a list of the prices and numerical grades for an item.
2. Divide the prices by the numerical grade to obtain a price per point.
3. Use the price per point to recognize a bargain.
4. Understand that this typically only works for lower and mid-grade items, but can be still be used for higher graded items when a really good bargain exists.

Here’s an example.  Let’s say you were looking for a slabbed version of a $10 1928 Gold Certificate Note (Paper Money).  For simplification, let's say you were only looking for a PCGS slabbed note.  As of the time of this writing, here are some actual on-line auction “buy it now” prices and grades for PCGS slabs.  I’ve sorted them in price order plus shipping rounded to the nearest dollar.  Some items have been assigned a PPQ (Premium Paper Quality) designation which is like "star rating" that we’ll ignore for now.  Here's what I found:

Fine 15 PPQ $110

Very Good 10    $115

Very Fine 20  $142

Very Fine 20 PPQ $150

Very Fine 25 (make offer) $169

Very Fine 25 (make offer) $169

Very Fine 25 (make offer) $169

Very Fine 30 PPQ $195

Very Fine 25 $199

Very Fine 25 $225

Very Fine 25 $229

Very Fine 25 $234

Extremely Fine 40 $332

Extremely Fine 40PPQ $346

Extremely Fine 45PPQ $386

Etc.  (It goes on..)

Now, let me say a few things.  This procedure assumes all these notes are properly graded.  I have a lot of faith in PCGS’ grading ability, but I’m neglecting the appearance of the notes.  Some will be strong for their grade and some will be weak.  But hopefully this technique will be a starting point for making a final decision.

OK, back to the list.  Common sense tells us we can eliminate some of the entries because they are obviously not a bargain.  After paring the list down, we get this:

Fine 15 PPQ $110

Very Fine 20  $142

Very Fine 20 PPQ $150

Very Fine 25 (make offer) $169

Very Fine 30 PPQ $195

Extremely Fine 40 $332

Extremely Fine 40PPQ $346

Extremely Fine 45PPQ $386

Ok, looking at the list, you can see that the prices are running at about $7 a point.  For example, 7 x VF25 = $175, which is in the ballpark of the $169 asking price.  Also, $7 x VF20 = $140, which is close to the $142 asking price in that grade.

So let's compare the prices to our $7 estimate:

 

A F15 should be (15 x $7) or $105 or less.  They want $110 but it's a PPQ note so we're in the ballpark.

A VF20 should be (20 x $7) is $140…so…it’s very close, but FAILS

A VF20 PPQ also needs to be $140 at $7 a point…its close, and maybe that PPQ is worth the extra $10.

VF25 (make offer) x $7/point should be $175…it is $169 so it passes.

VF30PPQ x $7/point = $210…it is $195, so it passes with flying colors

The Ex. Fine 40 x $7 point should be $280…it is $332, so it Fails.  However, when you start getting into the higher grades, you need to re-evaluate.  Points get more expensive.  In the Ex. Fine grade, the points may cost about $8.50 each. If so, at $8.50/point, the EX. Fine 45PPQ should cost $382, so it is accurately priced.

So in summary, where was the bargain? No screaming bargains there.  But if wanted a mid-grade, I like the VF30PPQ.  It should be $210 without the premium for the PPQ designation and it only costs $195.  

If your pocketbook is a little thinner, the VF25 (make offer) might be the way to go unless you only collect PPQ notes.  And bear in mind that some of them didn’t even make the $7 per point cut-off.  Because the seller is asking for offers, maybe you can push your purchase price even harder.  Also, the same seller is offering three of them, so maybe he’ll be more likely to give you a deal.

Does this technique work?  Yes.  I’ve found some slabbed items at ridiculous prices in the past…some at less than 70% of what they should have been.   It’s especially handy if a market is temporarily soft because of a temporary glut of items for sale.  To figure out whether you’re in a glut or not, you have to do your research.

Lastly, I want to make it clear that my search only looked at PCGS slabs.  There are other slab companies…some with good and some with bad reputations.  To run this analysis properly, you need to also run it across various slab companies.  Here’s a suggestion for how to do that:  Search on the key words “1928 gold 10 15 20 25 30 35 40 45”.  The different numerical grades will be applicable across all slabbing companies, but you’ll probably pull up other denominations such as the $20 bill, the $50 bill, etc. which must be ignored.  This is technique is a good starting point to find a bargain.

Epilogue:  After writing this article, I presented it for peer review to a group of collector friends.  A few points need to be stressed:
1.  This method is not a price guide.  In fact, it is only valid in the forum you are in.  For example, you may get different results if you are using this method to compare prices realized at old Heritage Auctions compared to Ebay Buy it Now prices.
2.  Auction Buy it Now prices are not necessarily the cheapest way to obtain items.  For example, you can run this analysis on buy it now items and still get a better bargain if you bid in an ebay auction that is closing.  However, the analysis will give you an idea of how high you should bid.  For example, it would be tragic to bid higher than the price of a comparable item readily available with buy it now.
3.  All slabbed items are not the same.  Remember, this is a tool to narrow your search.
4.  One person pointed out that this method effectively reverse-engineer's the Sheldon Scale.  (google that if you don't know what it is).  He is right...the Sheldon scale still works at lower grades on a proportional basis.  This method tends to stop working at the grade of Extremely Fine, or...stated another way...at the point where the problems associated with the item are extemely small in nature but still pervasive.

Ebay Auction Techniques That Work

If you're buying collectibles (or anything, for that matter) on ebay or other internet auction sites, then here are some techniques that I've refined over time to find great deals and sell for top dollar.

If you're buying:

1. click on "newly listed' and "buy it now"...sometimes that thing you're looking for was just posted a few minutes ago at a very cheap price. If you see it first, you win. Just like $20 bills lying on the sidewalk...they do exist, but only for the guy who gets there first.
2. click on "auction only" and "ending soonest"...then put in a good bid lowball bid. Sometimes the other bidders don't show up and you get it cheap. If you lose the auction, there will be another one along soon. Note that this really works well with auctions that end in the middle of a weekday.
3. click buy it now and then sorting from lowest to highest price. Or if you don't want to wade through the junk, sort from highest prices to lowest.
4. If you see a dealer who has a genuinely good price on something, be sure and check to see what else he has. Sometimes its just a guy who has to make his rent payment and he's blowing stuff out to make sure he raises the cash.
5. If you search by keywords (like I do), be sure and check on mispelling. I've found cheap, rare volkswagen parts because they spelled "volkswagen" as "volkswagon"

If you're selling:

1. Do a market study and figure out what your competitors are selling for. Shaving 50 cents off your price to make yourself the cheapest can really help.
2. Make sure your auction expires in the evening when people are off work, and if possible during the weekend. Be sure to factor in time zone differences.
3. Make sure you think of all of the important key words. Look at other auctions to gather them up. After weeks of searching for and buying double die obverse nickels, I found that some dealers would only write "ddo". I never thought to look for that acronym so they missed some sales. If they'd have put in the word "double" I would have found them and bought their stuff.

4. If you're selling multiples of a commodity, be sure and have a sweet policy on combined shipping. I was selling silver proof sets, so I advertised that the shipping charge would be $4 no matter how many they bought. One smart buyer bought them all after realizing they would have a real low unit cost that way. I was happy about it...only had to ship one package.
5. Take lots of photos. It provides a sense of security for the buyer that more than makes up for the cost on all but the most inexpensive items. Whats interesting is I've noticed that comicbook sell for much more money when they are photographed from an oblique view lying on a desk. The buyers need help visualizing what it will look like at their house, I guess. Non-clinical photos work.
6. Want fries with that? For God's sake, mention your other ebay sales in your ad...even casually. People will look and some will buy.

7. One that I haven't tried, but I'm really thinking about doing is providing a link to a movie that you put in photobucket. Selling a raw currency note or an antique check might be hard, but if you're confident in it and you provide a movie where you handle it and really show it off, flipping it over, etc., that would probably result in quick sales. Crap, now that I've said this, everyone will do it and it will dilute out my own successes. I did sell a vehicle like that, and it worked really well...gave a video tour of the car and let them hear the smooth running engine...sold it really quick.

Collector Steve

This blog posts the newest stuff on the top. Scroll down to the last post to begin

Use the bus stop list of links to the right (The blog archive) and go to the bottom post to find the introduction.  This site posts the newest post up top, which will come in handy later, but for now, it's a little confusing since my intro is at the the bottom. 

Enough of the Book excerpts for now

Ok, my book chapters are a rough draft and a work in progress.  I'm embarrassed to say how long I've been plodding away at it.  I get real heavy into the nitty gritty of collecting in them.   If you follow this blog, you'll get to read them.  And the things I write here may end up going into the book. 

I also promise to update you on my flipping contest.  Whether I flip my way to $1,000 or crash and burn, you can read about it here.  Stay tuned!

Profile of the Collector, and my own beginnings

This chapter is too long and I'm sure many think it talks to much about me.  Once I got started, I had to get it all down.  I'm sure many of you will see yourself in my story...

CHAPTER FOUR

UNDERSTANDING THE COLLECTOR*

           

            To understand collector theory, you first have to understand the motivations of the collectors themselves.   Simply put, collectors need collectibles.  They must obtain them to assemble their collections. This need to collect can be very motivating and can stem from childhood experiences or feelings of nostalgia.  This need creates an economic demand for collectibles that moves marketplaces and should never be underestimated.  I am sometimes amazed at how much money is spent chasing collectibles.   

            So who is a collector?  Almost everyone is a collector.  Even people who don’t think they are collectors have some type of collection.  Collecting may be an instinct instilled in us from primordial times to keep us from throwing away important things like sharp bones from an animal carcass that may be vital later in life.  The collecting instinct might be a hunting instinct from an earlier time, when man was a hunter and gatherer and had to keep looking for food to survive.  In fact, collecting is very similar to hunting in many respects, and some collectors do refer to the joy their hobby brings them as “the thrill of the hunt”. The most exciting hunting spree isn’t always the one where the most valuable item was purchased at full price, but is often the cherished item that they hunted down in an out of the way place and bought it for very little money. 

Most die-hard collectors fit a certain profile.  In most cases, they were introduced to their hobby when they were young and impressionable.  Maybe they remember filling a Whitman album with Wheat “Pennies” when they were a child.  Perhaps they remember going to baseball games on summer days with their friends and watching the boys of summer smack the ball out of park and swapping their dessert at the schoolyard for the baseball card of a favorite player.  Possibly, they remember plunking down a small portion of their hard-earned allowance to buy the latest issue of Superman or Spiderman from a rotating “spinner” magazine rack. 

Some collectors collected from childhood and never stopped.  But sometimes, the desire to collect comes later in life stemming from an unfulfilled urge during the teen years.  They remember that old desire to have that state of the art hunting rifle for sale in the hardware store window, or that sleek red Corvette owned by the town banker so they can go prowling the boulevards with the top down and the music blaring.  That strong desire to own that cherished item, whether fulfilled or unfulfilled, never goes away.  Instead, it can fester for decades and spring up unexpectedly.

Regardless of when the seeds of desire were planted, the typical collector will most often enter their late teen years and slow or stop their collecting activities.  Their collections often were thrown away by their mom, junked, traded away to friends at school for a new toy, pilfered by their little brother or sister, or their dream for that car or that rifle will be set aside because it was too impractical.  Sometimes, these childhood collectibles were donated to a church charity drive, or garage sale to find themselves in the hands of another collector.  For the lucky few, these childhood possessions were placed in the attic or basement, in most cases improperly preserved, to languish away unloved until some day in the future.

But the collecting bug can go dormant and then suddenly spring back to life later in life when there is time to fill the empty holes in one’s psyche.  In most cases, a typically twenty-something or thirty-something collector is somehow reminded of their old collection or that old desire unfulfilled.  Perhaps because their own children are now old enough to take an interest in the topic or perhaps this “spark”  occurs when they run across a small collectibles show at their local mall.   Whatever it is that sparks their interest, they remember their old collection, or that old desire and they usually try to complete it or fulfill it.  A lucky few find their old childhood playthings improperly stored and waiting for them in the attic or basement.  Most of these collectors must build their collection from scratch. 

This is often the point where the new hard-core collector is born.  The reborn collector is no longer impeded by old barriers.  They are now out on their own, and they have met their immediate needs for food and shelter.  Without fear of reprisal from parents that focused on practicality, they can begin collecting in earnest. They have extra money, and a burning desire to recreate the collection they once had in their childhood, and perhaps even build a much better collection.  But after they have started re-acquiring the collection of their youth, they realize they don’t want to stop collecting.  They find that they enjoy the thrill of the hunt and the pride of ownership.  They enjoy the networking and the forums.  They begin to collect a complete series or run of collectibles based on a theme.  They may widen their search from a few favorite formerly owned Spiderman comics stolen and discarded by their kid sister to collecting every Spiderman issue ever printed.  During this process, they may eventually find that they are dissatisfied with the condition of their collection, and want to re-collect the same items in a higher state of preservation.  As the hunt continues, the dollars continue to flow out of the checking account at a faster and faster rate as the object of the hunt gets rarer, nicer, and more desireable.  These new hard-core collectors constantly struggle with the trade-off between how large and nice of a collection they really want and what they can afford.  Eventually, they focus into what they like the most, but that focus seems may shift over time.  

Collectors are the glue that holds the collectibles marketplace together.  They shape the values of collectibles in the long run.  Without collectors, there would be no dealers or vendors who cater to them.  Collectibles would hold little value because there would be no demand for them.  Regardless of who participates in the collectibles marketplace in the short run, it is important to realize that it is the collector who shapes prices for coins, baseball cards, toys, beer cans, movie posters, etc. in the long run.  They decide what is desirable and allocate their hard-earned money accordingly.  When you fully understand what excites a die-hard collector, you are on your way to understanding what kind of material you need to purchase to make big profits in collectibles.

In many ways, I fit the profile of your typical hard-core collector, so I’ll give you my background.  It may also give you an insight into where my ideas on collector theory originated.  As you read my background, look for commonalities in your own collecting origins and focus on understanding collector motivation. 

            My earliest brushes with collecting predate assembling my own collections.  Some of my earliest memories of collecting were when I was 5 and 6  years old, on special nights why my father was feeling nostalgic, he would sometimes pull out an old felt-lined box wooden box at the kitchen table.  He would carefully open it up to reveal his own private horde of  silver dollars, silver certificates, obsolete coins, odd bus tokens, and strange foreign coins that he had collected over the years.  He would go through them one by one, gently handling them and reverently explaining what they were, why they were valuable or special and where he got them.  Many of them had toned with a rainbow pattern patina from years of exposure to the still air commingling with the decaying felt lining and the stained wood of that special box.  Sometimes Dad would even let me hold a coin and I would study the surfaces, marveling at the obsolete designs and wondering how those coins remained so nice for so many years and who might have held them.  Spending time with my Father this way was something that I always cherished.

 I first started collecting coins on my own when I was 9 years old.  At the time, I was working part time at a gas station that my parents managed. I received a small amount of money for my contribution to our family’s welfare, but one of the benefits of the job is that I could go through the change drawer and look for semi-valuable coins.  At that time, my brother and I shared a 4-hour shift every day.   He started collecting coins before I did by picking them out of the cash register so then I followed his lead, and started collecting them myself.  For a time, my brother and I would spend a lot of time talking about the coins in his little red coin price guide and imagining what it would be like finding some of those coins in change.  We became fairly fluent in the values and rarities in that book. 

Then something happened that really made me want to collect.  If you understand kids you can imagine that our increasing knowledge and shared shift at the service station began to lead to arguments about who should get the occasional well-worn wheat cent or winged liberty dime.  As a result of these escalating arguments, my parents decided that since my brother started collecting coins first, he was allowed to collect U.S. coins until he lost interest in them.  But, I was only allowed to collect the Canadian coins spent by tourists.   Living in Florida, there weren’t many of these coins in circulation!  I was devastated by this.  When you are a child, nothing makes you want to do something more than when you are told that it is forbidden.  It was aggravating, but I still helped my brother with his collection.  I continued to memorize facts in the little red price guide and check the cash register for “new” coins.  I spent time thinking about what made some coins more valuable than others.  Some coins were valuable because they were rare.  Others were valuable because they were interesting or in a high state of preservation.  Meanwhile I collected Canadian coins and waited.

Eventually, my parents realized my interest in collecting U.S. coins was more than just a boy’s passing fancy, so they relented and allowed me to collect U.S. coins too. I immediately started out by collecting wheat cents by date and mint location.  I collected what I could find in the cash drawer and what I could buy on such a limited budget.  But since I was a kid, I couldn’t afford the rare coins, and I couldn’t find the real rarities even though I started searching through hordes of rolls of cents from the bank.  At the time, I simplistically thought that the older a coin was, the rarer it was.   I looked forward to trips into the city and visiting the coin shop just to look at all the rare coins.  While I focused on cents, my brother built a respectable collection of silver dimes and bust halves. When the price of silver shot up to almost $50 per ounce in the 1970’s, he sold his collection and made a hefty return on his allowance money.  I then tried to jump on the bandwagon by collecting silver coins, but it was too late.  I then began to follow the gold and silver market every day in the newspaper watching and waiting for any sign that the price would rise again.  It never did.  However, reading the spot price of silver and gold sparked my interest in the financial markets in general.  I wanted to know why gold and silver went up so high, so that I could capitalize on it when it happened again. So I started studying the commodities market and I developed an interest in business and economics.   Of course, it’s obvious now that the meteoric rise of silver in the 1970’s was a “price bubble” brought on by investors to tried to corner the silver market.  This was not the last time that I’d be fooled by a price bubble!

I was 12 years old in 1977 when the movie Star Wars came out.  Anyone who saw the movie when it first came out will tell you that it was light years ahead of anything else in its genre.  Because of the impact that movie had on me, I put coin collecting on hold, and spent my allowance on Star Wars comic books.  I tried to keep them in “like new” condition.  This eventually lead to collecting more comics of different types.  I remember finding the third issue of Marvel comic’s Iron Man at a neighborhood flea market and showing it to my comic book reading friends.  It was worth much more than I paid for it and it was somewhat rare.  I was intrigued by the rarity and value.  After that, the chase was on!  I had to have more.  Over just a couple years, my collection, though modest, became fairly valuable.  I was intrigued by the disorder in the comicbook marketplace compared to the coin market.  the comicbook market seemed to act like the immature cousin of the coin market.  It has some similarities, but it seemed to be a lot more “fast and loose”.   

A few years later, my collector focus started to shift again, and I eventually sold my comics for a decent profit to a local comic book store.  I used some of the money to jump start a new coin collection. I then continued my pursuit of coin collecting, through college and beyond.  During that time, I delved into collecting high grade nickels, gold coins, Morgan dollars by die variety, high grade proof coins, etc. 

After college, a friend of mine rekindled my desire to collect comic books again.  This spark grew into a flame that raged out of control as I met other hard-core collectors. I would attend comic book shows with a briefcase full of rare comics and wheel and deal on the bourse floor.  My friends and I drove hundreds of miles to all the major comic conventions in the southeast. I even set up shop at some of the smaller shows.  At that time, on-line auctions were still in their infancy, so my mobility translated into profits.  It wasn’t uncommon, at that time, to buy a “book” for a few hundred dollars at these conventions, and sell it on the internet for hundreds more after other internet forum members vouched for my honesty.  In the span of a year, on three occasions, I bought and immediately sold books for more than $500 profit which was a lot of money to me back then!  I also began buying and selling rare toys if I saw a bargain.  I didn’t really collect toys, but comicbook collectors and toy collectors often gathered in the same places.  I once bought a toy collection of the original Star Wars action figures in unopened packages for $1200 and resold it for $2200 in less than 24 hours to a dealer who met me halfway between my city and his at a gas station 100 miles from home in the middle of the night.  I even gave one of my friends $100.00 for riding as security.  By this time, I had learned most of the elements associated with profiting from collectibles, and I scoured flea markets and conventions to find rare collectibles to re-sell for profit.

Though I eventually got married, my wife seemed to tolerate my collecting bug.  It was the pressures of being a young professional and going back to school for a Masters degree that eventually caught up with me, and I sold off my comic book collection (again).  Since that time, those same books more than quadupled in value.  For the last decade or so, I’ve been dabbling with rare coins, including ancient coins and foreign gold coins.  I also bought some old video games in their original packaging on speculation.  For the last two years, I’ve been collecting comics.  As the years rolled by, I saw which of my collector theory ideas withstood the test of time and which did not.  But after watching almost all of the items I sold go up in value year after year following their sale, I learned one very important lesson which I began follow strictly: Unless certain criteria are met, it is almost always a bad idea to sell carefully selected collectibles. Only sell what isn’t working.  Once you have something good, hold onto it tight!

Is my self-history lesson over?  Almost; here’s the big finish.  As I said, I was bouncing back and forth between comics and coins when I went back to school.  I took night courses in business and economics.  I began to see that the study of economics was augmenting my hard-earned collector experience.  A firm understanding of economics is a powerful tool for understanding collectibles markets.     

As I bounced back and forth between coins and comics as my passions lead me, I found opportunities to exploit the differences in the coin and comic book marketplaces.  I began to realize that comic book collecting was still somewhat in its infancy, with respect to coins which is arguably the most mature hobby of its kind.  If you were to assign a rank to the maturity level of a marketplace, the coin market would be a “10” on a scale of 1 to 10. Since I’ve dabbled with them, comics have gone from about a “5” to somewhere around “7” and rising fast.  Back when I started collecting comics, I accurately predicted that someday, high grade comics would have a very high premium associated with the highest grade specimens, like coins do though at the time, the premium was negligible.  I also predicted that someday comics would be “slabbed”, which I predicted would profoundly accentuate the price difference in higher grades.  I predicted that slabbing of comics would also cause a boom and bust as it did for the coin market. This boom has occurred and I’m seeing evidence that this bust may be beginning as well.  But, did I throw caution to the wind and buy all I could buy to make a fortune on this great idea?  Sadly, not like I should have.

So, wait a second…does my history have a happy ending?  Definitely!  Even though I missed the boat on some opportunities, I did, eventually, learn from my mistakes.  Even though I didn’t buy certain collectibles when I probably should have, it did teach me what is best to buy now.  I also learned a valuable lesson:  The first rule of collecting is that hindsight is 20/20.  All veteran collectors have their “if only I had kept or bought that” stories.  My happy ending is I’ve been very successful with my buying and selling once I mastered collector theory.  I learned a lot about markets and collectibles along the way and I can and do draw on that experience, today, and it gives me great returns.  Do these ideas work?  Absolutely!  I can now identify what to buy, when to buy it, how to buy it, how long to hold them, when to sell, and how to get the most out of selling.  These principles have helped me make real money in the comic book, toy, and coin markets and they govern the marketplace of other collectibles as well.  They can help you too.

Epilogue:  I put the finishing touches on the above about a year or so ago.  It's worth mentioning that since that time I've absolutely flipped over currency collecting and antique check collecting.  I am very impressed with their potential and the fast and loose nature of their markets.  Currency collecting is somewhat immature, which provides lots of opportunities.  Check collecting is in its infancy.  It may someday take off since it's loosely tied to currency collecting.  But the real neat thing about them is the amount of beauty and history you can obtain for your dollar.

The collector's challenge

CHAPTER THREE

THE CHALLENGE OF MAKING PROFITS IN COLLECTIBLES  

The requirements for making big profits in collectibles sounds simple at face value.  All you have to do is identify those items that will rise in price the fastest, buy them at the lowest possible price, and sell them at the highest possible price in a reasonably short amount of time.  It sounds easy, doesn’t it?  It would be, if there was no competition and a pool of wealthy buyers eager to buy whatever you offer them.  The problem is that there is a multitude of people just like you, trying to do the exact same thing.  Another problem is that the consensus ”best item to buy” changes periodically so you’re trying to hit a moving target.  (Note: that sounds like a bad thing, but it can help you…we’ll get to that later).  Worse still, even if you know what type of material or items to go after and you have all the money in the world, you may not be able to find it due to its rarity, or because there aren’t any sellers willing to part with it. Or maybe you will find it, but it will be in a poor state of preservation.  And worse still, you may not have a lot of money to start out with.  With limited resources, the pool of material you have to work with is limited to what you can find and what you can afford.  But don’t despair!  If you had infinite resources at your disposal and a consultant to guide you into making the best possible purchase, you would probably make a great return on your investment, but you would miss out on so much fun!  Putting your limited resources to work, and networking with other collectors to plot your next move and then battling with buyers and sellers in a real or virtual forum is an adrenaline rush that adds a whole new dimension to your hobby.  It sounds hectic and fun, doesn’t it?  It is.  Some collectors crave it. 

Arguments for and against Collecting for Profit

Ok, I'm biased about the potential for profits from collectibles.  Here's an excerpt from the book I'm working on:

CHAPTER TWO

ARGUMENTS AGAINST COLLECTIBLES AS AN INVESTMENT:

            If you do your research, I’m sure you’ll find those who disagree with buying collectibles as an investment.   These well-intentioned people will say that you should buy collectibles because you like them and not as an investment because people seldom making money with investments.  They will cite many reasons why investing in collectibles might be unwise, such as:

• It is difficult to determine the market value of these items:  You can overpay.

• You have to have specialized knowledge to invest in collectibles:  For every one winner in collectibles, there are often a large number of losers and it takes specialized knowledge to know one from the other.

• You can break or lose them:  What if you buy a rare item and break it?  Or lose it?  Or it burns up in a fire?

• Collectibles don’t pay off until you sell them:  They don’t pay dividends.

• Collectibles aren’t liquid:  They are not easy to sell.

• You can get ripped off by scam artists:  A sucker is born every minute.

And do you know what?  They are right about all of these!  Just like any other form of investing, there are risks involved.  Let’s look at them one at a time:

It is difficult to determine the market value.  Let’s give ourselves some credit here.  The fact that you’re holding this book in your hands automatically puts you in a different class than the potential investor this advice is aimed at.  You do your homework.  Collectibles do require homework.  You will need to do homework not just to prevent losses, but also to maximize gain.  But here’s a tidbit; unlike highschool, homework can be fun!  You can, and should, start off slow, and use some of the ideas contained within this book.  By learning prices (studying price guides, reviewing past auction results) and purchasing items in a competitive environment (like an auction),  you likely won’t overpay.  Overpaying is a real risk, but it can be overcome with education.

You have to have specialized knowledge to invest in collectibles.  Yes you do.  You also need specialized knowledge to invest in stocks or real estate.  But should we avoid investing in stocks and real estate because we’re not real estate professionals and stock brokers?  Of course not.  Instead, we need to educate ourselves to invest in collectibles just like stocks and real estate.  This book will give you a jump start on gaining that specialized knowledge.  It will highlight what you need to look for, and where you need to look.  In preview, one of the things we’ll learn is to buy the collectibles that are already established “winners”.  Read this book twice and do some window shopping first before you start investing.  Start off slow, apply the principals in this book and you’ll be fine.

You can break them or lose them.  Yes. Yes you can.  That is why we have insurance and safety deposit boxes and why we must use caution when handling our collectibles.  If you don’t already know this, you will quickly see that amount of care you will take with an object is directly proportional to the amount of money you have invested in it.  This is because the state of preservation is a key component in the valuation of better collectible investments.   So, yes, collectibles do exhibit this type of risk, but all investments have risk of some kind. If you elect to avoid investing in collectibles because of the risk that you might drop it or damage it, you will want to invest in something else, and you'll end up transferring the responsibility to grow your investment to someone else.  It's a fact that the alternative to “collectible damage risk” is the risk associated with giving your money to someone else and making them responsible for growing it.  Personally, after being an unwilling participant in the recent Wall Street meltdown and watching land values turn upside down in a foreclosure crisis, I am as comfortable trusting myself not to break a collectible when I carry it from Point “A” to Point “B” as I am to trust someone else to invest my money wisely.  There will always be risk in investing.

Collectibles do not pay off until you sell them?  That’s true.  But this is also true of other asset classes such as land purchased on speculation and many "growth" stocks that purposefully do not pay a dividend for tax considerations.  Just because an investment does not pay dividends does not mean it is a poor investment.  The yardstick with which to judge an investment is it’s rate of return and by this measure, collectibles perform admirably.  Further, in some ways, collectibles are superior to non-dividend asset classes such as land or some common stocks because they can be portable and leave little or no paper trail.  In perilous economic times or even adverse political times, this is a side benefit that is worth your consideration. 

Collectibles are not liquid?  This is partially true.  Liquidity of assets has significantly improved due to the creation of local and national internet sales sites.  Irrespective of the greater liquidity that has been created by the internet, some collectibles are definitely not liquid, but some are liquid.  Whether a collectible is liquid or not is dependent on its popularity, rarity, and condition.  It could take months to sell a rare automobile worth over $1 million.  It could also take months to sell an inferior run-of-the-mill collectible without a deep discount because collectors are picky and are more hesitant to purchase common items unless they are deeply discounted.  However, some collectibles are relatively liquid if they fall in a price range that does not create significant price resistance and they are otherwise very desirable.  So the bottom line is that the collector should stick to items relatively unaffected by price resistance and that are popular, rare, and in a nice enough condition to command the attention of other collectors when they come up for sale.  Education is plays a large role here.   Most importantly, however, the collector needs to recognize that collectibles, like some other asset classes such as real estate or even a certificate of deposit may not be easy to cash out without selling at a discount.  With the exception of items bought on speculation, collectibles are generally expected to be a long-term asset and profit will be maximized when great care and patience is exercised when it comes time to sell them.

You can get ripped off!  How can you stay safe?  There are many sad stories, with a basis in fact, about some old man or old woman who spent their life savings buying collectibles only to later find out that they were fake or over-graded or over-priced.  Yet all of these cautionary tales had one common thread.  In almost all cases, the buyer was dependent upon a single seller for their purchase.  The solution to this problem is simple.  Never buy all your collectibles from a single source.  Whether you are buying all of them at one time, or a little at a time, do not purchase from the same source; Not from shopping networks on television; Not from dealers, or from classified ads, either in a newspaper or on-line, with the bargain of a lifetime.  Heck, not even from me.  Don't put your trust entirely in one person or one institution.  Instead, spread your purchases around.  You should buy from at least 3 to 5 reputable sources minimum.  And though you may  believe on-line purchases are risky, in my own experience, the risk is minimal if you purchase from sellers who have proved their trust-worthiness over time and have the positive feedback to show for it.  Also, another way to protect yourself is to attempt to sell one or two of your collectibles every once in a while as a test to confirm that what you think you are buying is really worth that you think it is worth.  Sometimes, the results can be eye-opening.

You may noticed that there is one potential argument against collectibles that is not listed here.  The rate of return of collectibles as an investment is seldom called int question except, perhaps, by the uninformed.  Over the long un, well selected collectibles handily outpace inflation and returns of more than 10% can be common for the better material.

          

Introduction...two purposes

December 12th, 2011

Hello all,

Welcome to my blog.  I'm Collector Steve.  I have been working on a book for several years now.  The purpose of the book is to outline the techniques and science behind profiting from collectibles.  My working title is the same as this blog.  I started this blog to help facilitate development of the book.

Although the topic of making money in collectibles may sound vulgar to some, don't misinterpret me.  (Some collectors view profiteers as middle men that drive prices higher).   I love to collect stuff for the sake of collecting...coins, comicbooks, currency, old checks, and even old telescopes.  If I had the space, I'd have a big car collection too!  Some of the items in my collections have little value...I just enjoy them for their artistry or beauty. 

I also enjoy the thrill of the hunt...of chasing down that one elusive item to complete a set.  But I can't help but be fascinated by the money-making aspect of collectibles; the science behind the hobby.  If you choose the right collectible at the right time, you can very handsome returns...rivaling some of the best stock market returns.

Though I've tried to keep this blog simple enough for the beginner, the fact is that it really helps your understanding of these concepts if you've dabbled in the collectibles marketplace.  For you hard-core collectors, you'll be happy to know that some of the material in here is advanced.  I've had some of these passages peer reviewed by "old salts" in the collecting arena, and some have expressed surprise that they've learned a thing or two when they didn't expect to see anything new.

I hope that you enjoy this blog, and keep checking back for updates.  Or better still, subscribe to this blog for content.  If you really like it, please share it on your social network of choice.  I hope I can develop enough of a following to make my dream of publishing this material come true!