June 09, 2010

What's it worth?

Every collector wants the answer to the #1 question in collectibles. It is terribly hard to answer because values are only established at single, short-lived moments in time.

The value of every collectible is what the next person will pay you. It does not matter what you or I think something is worth. No opinion matters except that of the buyer. Period.

Oh, sure, I can estimate value for you and I can back up my opinion with almost a million price records. But so what? Unless I am the guy buying from you, my opinion is nothing more than an educated guess. Nothing more. Nothing less.

It also does not matter one tiny bit what you pay for a collectible. Your ownership can certainly detract from value if you mishandle your collectibles, but your ownership can rarely add value. The amount you paid for something has no relevence except to you, your family, and potentially your heirs. Once you’ve purchased a collectible, the meaning of your expenditure disappears like mist in the sun.

It is difficult for me to explain this point clearly, so let me give you a real-life example from this past Monday.

I retruned from a trip to southern Colorado and began recording prices from eBay sales that had occurred over the previous four days. I saw one person had willingly paid over $150 for an unissued certificate. That might have been a fair price for an issued certificate, but I would have estimated its value as under $30 in its stated condition.

Did the buyer make a mistake? Maybe he or she did not notice that the certificate had never been issued. Maybe the buyer thought that unissued certificates were worth more than issued examples. Perhaps the buyer purchased the item as a gift and did not care about its competitive value.

Either way, how can we estimate what the certificate is worth today? We make that estimation by predicting what amount the next buyer will pay.

I personally predict the next buyer will probably be unwilling to pay more than $30. (Even if the sale does not occur for thirty years, we merely back-calculate and remove the effects of inflation over that period.) Of course, I can be wrong. There are certainly greater fools out there, but I think it is highly improbable that the next person will pay $150 to the person who purchased over the weekend.

Every collector has overpaid for something. Get over the idea that you are somehow immune from making mistakes. The goal is not to avoid mistakes, but to make fewer mistakes. Try to be clear-headed when buying. And please, please, please remember: just because something SEEMS to underpriced does not mean it really is. No matter how low prices seem today, they CAN go lower. Value is not set by you but by the person who ultimately buys from you.

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