Price discovery in the coin market

[jtryka]

Just so I don't get too academic, price discovery is simply the process by which prices are set in a market between buyers and sellers. For efficient markets (and if you really want to discuss efficient market hypothesis and the functioning of markets, I'd be happy to do it offline), transparent price discovery is essential. In the equity markets, it is basically the exact prices at which all market participants are willing to trade at a given time.

 

The coin market is inefficient, there is just no way around that. There is imperfect information (i.e. coin doctors, variances among grading services, etc.) and the market itself lacks the elements of a commodity market such that it cannot trade efficiently, just as markets for Rembrandts are not efficient. Yet, price discovery is still essential in this market, and we must know what the current market price is when we make a purchase or sale in order to maximize our profit or minimize loss. So the question becomes, how does price discovery work in the coin market? CDN would seem logical but so often it doesn't apply across the board. Auction archives are another, but they are really historical and thus do not reflect the current market. So how do we look at the appropriate price to pay for a coin we want?

[Tradedollarnut]

The most efficient price discovery is to look at comparable sales - either thru the same date/grade or similar date/grade at auction, or known private sales.

[michael]

specialize specialize specialize

 

then collect coins you really REALLY like!!

 

coins that make you sing and dance something to have an interest in that takes the edge off life that you enjoy to collect and have fun with over the long haul

 

but within your income and circumstances only with money you can afford to lose

 

and again you must specialize in the coins you like to know everything about them or as much as you can keep learning over a long lifetime

 

i firmly believe if you do this within reason after years of collecting you can at the very least get your money back and maybe more!!

 

but as the best bonus you have enjoyed a lifetime of collecting meeting many new friends and having some grest experiences and much learning and again the thrill of the hunt and discovery

 

if you do not do all of the above or none of it that is okie

 

but for me the above would be the better/best ways of doing this coin thing

 

but again it is up to you what you do i just hope you have fun

 

if you have much worry anxiety sleepless nights over coins then GET OUT coins are not for you life is too short

 

michael

 

 

[sinin1-migration]

I think the coin market is more efficient than you give it credit for

 

 

I agree price discovery is needed on new issues and new top pops -

 

 

 

but I will wager you a dollar, you can not bring up the price of NGC/PCGS MS65 Morgan dollars by 30% in 2 weeks

[Leothelion]

Let's not forget about the boneheads that pay outrageous prices for registry points!

Why someone pays 10X to 20X for a common modern coin, this really screws up the coin market, especially for the newcomers who don't have a clue why to they're paying $XXX for a $X coin. Only to find out later that they paid the price for what two clowns paid in some bidding war to get that pop top and some stupid registry point.

 

Leo

[Trime-migration]

It seems obvious to me that the coin market is inefficient and relatively illiquid. Coins are not easy commodities because of many factors especially the fact that any grade coin is not identical its grade cohorts. If they were, there would be much less blabber on this and other forums about grades, eye appeal, luster, etc. Price discovery is very important in any marketplace; the more ignorant a buyer is about relative value, the more susceptible he/she are to errors in judgement. This gives a significant advantage to the professional who dips his toe in the water more frequently than the collector.

[spy88]

Jeff, I agree that the coin market is very inefficient but it is the only one we have. If there were a way to make it as stable as price discovery in equities, I'm sure it would have been done as soon as it was figured out. Your analogy to the equity market is close but not quite the same for many different reasons, not the least of which is the fact that the equities market is purely for short-term/long-term profit with no thought to buying simply for the simple pleasure of owning.

 

It has always been a pet peeve of mine that I prefer to use the word "value" instead of price when referring to coins. To me, the price of a coin is its basic minted amount---penny, nickel, dime, etc., while its value is what someone is willing to buy/sell it for. Therefore, value discovery makes more sense to me then price discovery. And to find this "VD" , you can use every resource within the realm of your informational network, and still only have an approximation for it.

 

It is truly a guessing game---and I for one, would never want to be a dealer unless I was so wealthy, I would not have to rely on buying/selling coins to make a living.

Just my HO.

 

David

 

 

[1jester]

I suppose that both efficiency and price discovery have improved since the advent of TPG services.

[EZ_E]

Howdy, Jeff.

 

I agree with Spy88: Price discovery is less relative than is value discovery. As an example, I had a table at the Hot Springs, Arkansas coin show a month ago. I liquidated some coins that I was no longer interested in. Despite reports of such a hot market, I did very little retail sells. Most was sold at low wholesale to dealers. So, the value factor was what I was willing to let the coin go for vs. the price an individual was willing to pay for it.

 

Coin World Trends and other catalogs are mostly fictitious with their pricing, in my experience. So, it all boils down to value. What is a certain item worth to an individual?

 

p.s. I should be a master at value discovery (VD) since my name is V.D. Easley.

 

 

p.p.s I may be going back to Tacoma in June to do CT in the same hospital as before. Awesome local!

[jtryka]

Interesting. I am not sure what the difference between price discovery and value discovery are, they seem the same to me, and rather just a matter of semantics. If you want to try to explain it to me, I'd appreciate it.

 

There are a number of issues at play here as well. Geography plays a role. As Victor can attest, the market in Arkansas is probably different than the market in Washington. Local economics plays a role as does local collecting preferences. The advent of such venues as eBay has certainly played a role in improving market efficiency and providing transparent price discovery for coins. I remember in the old days, prices were basically set by the local dealer. If the dealer had a large inventory of a particular coin, the price was lower, and vice versa. You might go a few towns over to find another dealer with a different supply/demand dynamic that might improve your odds a bit, but overall the market was distinctly local. Now, take S-mint coins for example. They are more common on the west coast than the east it seems. So out here they might sell at a discount, whereas on the east coast, they might sell for a premium. National venues like eBay broaden that market, and open up supplies from other geographies that might not normally be available to a local market. This is also true of more esoteric or less collected series. My local coin shop may have a half dozen common date Saints, but through eBay and national auction houses moving on line, it's easier than ever to find the coins I need.

 

And here is something else that's interesting about the auction market, it allows ignorance to make a greater impact on price. I'm not trying to be mean, but here is an example. A dealer in a shop or at a table at a show sets their own prices. They can go off of gray sheet, or their cost or whatever they want. But if they actually want to move inventory, they will price at a point where buyers will open their wallets. In many auctions, the initial bid migh be low, and then buyers bid the price higher until the person that wants it most wins. Well this group of buyers may include people who are unfamiliar with the market, or who want to buy for a different reason than average collectors. For instance, a new collector might be surprised to find that many bust halves are worth less than $100, but they might bid higher on eBay thinking they are rarer than they are. In other cases, a person might really want a coin for a year that commemorates something in their lives, birth, graduation etc, and might bid higher just for that. If these same bidders walked a show floor and saw those same coins at lower set prices they might think they are getting a bargain, even if they aren't. And it works the other way too. The same bust half might be a rare Overton variety, and if the dealer is unfamiliar, he could price it too low and leave money on the table at a show, whereas smart bidders on eBay would bid it up knowing what it really is.

 

So it seems there are a lot more subtleties in the matter of finding the price or value of a coin than we might normally think.

 

PS-it'll be good to have you back Victor!

[EZ_E]

re: In other cases, a person might really want a coin for a year that commemorates something in their lives, birth, graduation etc, and might bid higher just for that.

 

Exactly. That individualed valued that specific coin more highly than others, regardless of the market price.

[Nysoto]

I have bought quite a number of coins at auctions the last few years, using price realized information is important to develop pricing for a bid. PR's are not always current, especially for rare coins or varieties that come to market a few times a year.

 

Another problem with price realized data is that you only have the price paid, not the price the winning bidder was willing to pay.

 

Price realized data from Sheridan Downey's mail bid sales of bust halves include the hammer price, the underbid, the overbid, and the total price. The overbid is the most interesting, as it gives you the price you would have to pay to get the coin, regardless of the hammer price. An example from one of his MB sales was a rare sub-variety of a scarce overdate. I was the underbidder at $1200, the winning bid was 10% over at $1320, but the overbid was $2100! On thinly traded markets such as rare varieties, price realized info can be misleading, because you do not know the amount the winning bidder was willing to pay.

 

The rare coin market is very inefficient compared to equities markets, but are more efficient than other collectibles such as classic cars. A fairly common coin such as a blast white 1881-S Morgan MS64 would have more predictable and efficient pricing than thinly traded coins, such as rare varieties of bust coins.

 

Dealer prices can be better than auctions in some instances, such as flowing hair half dollars over the past year, depending on the dealer's source of the coins. Auction prices could be considered leading indicators of future coin prices.

 

[EVillageProwler]

Nysoto,

 

If you haven't done so already, you should get a copy of Steve Hermann's auction results booklet for the Bust Halves. I don't know if it includes the pre-Turbs though...

 

EVP

 

[jtryka]

Another problem with price realized data is that you only have the price paid, not the price the winning bidder was willing to pay.

 

That is an excellent point Nysoto, and probably the biggest difference in my mind between price and value. I am sure this also accounts for some of the wild swings in prices between auctions on the more thinly traded coins. This illustrates the missing bit of information when people "hit the bid" so to speak.

[Nysoto]

Thanks EVP, Steve Herrman's "Mail Bid and Auction Prices Realized for Bust Half Dollars" is a great tool to use for pricing, I have copies at home and work. It is available through the John Reich Collectors Society, and does include all bust halves 1794-1839, along with counterfeits, errors, proofs and countermarks. Another benefit of AMBPR is that because it goes back more than 10 years, it can be used to determine the rarity of a variety, as there can be a large difference in rarity and pricing between a R.5+ and a R.5- die marriage.

[Coinosaurus]

I think the coin market is fairly efficient for generic material. For esoteric things it is very inefficient, and always will be.

[Trime-migration]

I am embarrased to learn but delighted to discover Hermann's " Mail bid...." available through the JRCS (of which I am a member"). Bust halves are not my area of focus but this document should be very valuable in pricing coins. I will check my current issues for further info. I agree that the overbid and underbid info is very important in pricing rare coins with thin markets.

Are similar documents available containing over and under bids for other series?

 

[JD-migration]

but I will wager you a dollar, you can not bring up the price of NGC/PCGS MS65 Morgan dollars by 30% in 2 weeks

 

Well, I remember doing some research a short while back on the CDN price of the 1879CC Capped Die in MS65. I "think" it was in January of 2002, that the price went up by about 100% in ONE WEEK.

 

I had ocassion to research this when I was offered one, certified by NGC, substantially back of bid. Since then I've seen another discounted similarly. I passed on the coin because I had serious doubts about the validity of the CDN price and what may have prompted such a dramatic increase in such a short period of time.

 

Granted, this is not the usual, but it goes to show it does happen, nontwithstanding the validity behind it.

 

OK, now for the dollar you owe me.... I want an NGC MS65 1879CC capped die Morgan Dollar. (you didn't say what kind of dollar.... )

[Oldtrader3]

Some scarcer issues trade so infrequently (i.e. many "CC" Eagles) that they are outside the parameters of CDN market price or even auction results. All it takes is some bidding competition at a large auction to blow pricing off the map.