August 28, 2009

August Newsletter Online

Two newsletters within a month? What's up?

Well, I had a lot more to say about the concept of rarity and how it relates — or doesn't relate — to price. This time I try to point out several serious flaws in The Myth is that says "rare is valuable."

The basic idea is that just because a collectible is scarce or rare does not mean it is automatically valuable. Someone needs to have the desire to own it. And not just one or two people, but a bunch.

I was talking with one of my car-collecting buddies the other day about the concept of demand. I pointed to a one-of-a-kind bond and asked, "So how much would you pay for this baby?"
"A dollar."

"But you collect old cars and you play golf. You can afford more."

"Okay, two dollars. I don't want to piss you off."

"What if I told you it was unique? One-of-a-kind. Only one on the planet. A whole lot rarer than those old junk heaps you collect."

"Great. I don't feel so bad about upping my offer to two bucks."

This tongue-in-cheek conversation illustrates a concept we agree on 100%. And yet so few collectors fully undertstand. If a collecting hobby is small and only a few people want something, exceedingly rare items might not be worth much at all. It does not matter what a cataloger or seller thinks collectibles should be worth. And it certainly doesn't matter what collectors originally paid. Value is determined strictly by how much future collectors want things. It does not matter whether collectibles are rare or common; prices can be very flexible.

In this issue, I examine five certificates that have historically sold for about $75. I show how many serial numbers are known and I estimate how many examples might exist. I think you'll find the numbers enlightening.

This deeper examination of rarity shows a pardoxical twist.

No matter how much we understand about the flawed and indirect relationship between rarity and price, I actually don't think it is possible to change our behavior or thinking. Not even one little bit. I suggest that the very next time we evaluate a collectible for purchase, rarity will be the first thing we will think of. No matter how much we know better, I think all collectors, including myself, unconsciously believe The Myth that "rare means valuable."

Download the August 2009 Coxrail newletter.


Anonymous said...

Thank you for this. I think an 'extra' issue (for lack of a better term) when you have something interesting or important to report on is a great thing.

Now, if I only had a color printer...

Tim W

Anonymous said...

Interesting article on rarity versus value. However, isn't this simply a matter of supply and demand?

One area of desirability that you did not mention is associated with collecting items for an exhibit. I will tend to pay significantly more for an item if it is important for an upcoming exhibit that I want to show. Many times these items are rare and don’t appear on the market often but I certainly will be overpaying just because of the exhibit.

This also used to be true if the item is necessary to illustrate an article for a journal. Given today’s availability of images on the internet, the necessity of actually owning an item for an article has been reduced. Terry, you yourself have taken this to the extreme in your efforts to catalog RR stock/bonds without owning many yourself.

Regarding rarity scales, have you looked at the ones used for obsolete currency? These would probably work quite well for stock/bonds too.

Thanks for all your efforts.