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What Determines Value in Collectibles?

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"What's it worth?" is perhaps the most asked question among collectors and dealers of collectible items. From coins, to sportscards, to stamps, to comics... no other topic elicits more debate, or interest, than the market value of a given item.

While purists often decry this rather mercenary aspect of the hobby, it's a reality that establishing a fair market value enables trading and acquisition to take place, and is the vehicle that allows collectors to collect and dealers to deal. I am reminded of the late John Ford's famous line about the young dealers of the day about whom he remarked: "they know the price of everything and the value of nothing."

So what is it that drives the price of a collectible item? Is it age, rarity, or condition? It is none of these. It is the simple interaction of supply and demand. That's it. How many are available on the market of something, and how many people desire to own it.

Let's look at a few misconceptions held by the general public about collectible items.

First, is age. If it's old, it must be valuable, right? Well, this is true only to the extent that more people want to own this old item then there are on the open market. Many ancient coins are worth very little. A low-grade bronze coin from two thousand years ago is worth only few dollars. There have been many hoards containing thousands of pieces found, and not a lot of people wishing to own one. On the other hand, a mint error on a brand new State Quarter may quickly run to several hundred, or even several thousand dollars. So age unto itself counts for very little.

What about rarity? If it's rare, it must be valuable, no? Again, only true to the extent people want one. Many tokens and medals are nearly unique items, but trade for a very modest amount. Why? Because no one is collecting a complete set of tokens and medals. Look at the 1880 gold dollar. It has a miniscule mintage of only 1,600 pieces. Yet it is shown as a "common" date, with only a slightly higher value than the 1862 with a mintage of over 1.35 million pieces. Here is a coin that is almost 1,000 times more rare, with a price that averages only about 20% higher. Again, the reason is very few people are pursuing a date set of gold dollars.

How about condition? I've always heard that things in really nice condition are valuable. Again, condition is relative. An MS-68 or MS-69 Silver Eagle is probably the most frequently seen grade in a holder. They trade at a very small premium over an uncertified example. An MS-64 example is far scarcer.

What about if something is really old, and rare, and high-grade? Even the combination of those three factors doesn't guarantee a high price. A lovely XF 17th century silver Rupee from a particular obscure Indian state isn't even worth $20, yet finding one could take you years. It's rare, high-grade and old. And almost worthless. Again, it's because almost no one collects 17th century Rupees by state.

Value and price in all collectibles is driven by supply and demand. Often recently made, relatively common items can achieve ridiculously high prices if demand becomes overheated. Can anyone say "Beanie Babies?" Likewise, a fresh copy of The New York Times from March 14, 1851 may sell for only $10 or $15. It is incredibly rare, old, and nice. Finding a second example might take one decades. However, there is little demand for old copies of The New York Times. And demand for a particular date is almost non-existent.

In the classic economic model, (shown above left) supply is shown with an upward sloping curve, meaning that a greater quantity of a commodity will be supplied at ever-increasing prices. In collectibles, the supply "curve" is often almost vertical... meaning that there is a fixed quantity known, and no more can be made (shown above right). In the case of ancient coins or artifacts this isn't entirely true, as new finds have the effect of increasing supply. Other classes of collectibles such as stamps, comics or baseball cards occasionally benefit from the discovery of a collection or hoard that has been "lost" for many years. For the most part though, the supply of a collectible is largely fixed.

Demand is often seen as a downward sloping curve – indicating that at a lower price, more will be demanded than at a higher price. Again, in collectibles, because the supply curve is a nearly vertical line, changes in the price (the intersection between the two lines) can only be achieved by a shift in the demand curve. As the demand curve shifts to the left (increases) the price rises. See graph at right, above.

So while the general public often wishes to simplify the collectibles markets by equating value with age, rarity or condition, the real key to understanding the value of collectibles lies in understanding the dynamics of supply and demand.

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