3.10.2009

Book Value vs. Market Value

OK, I'll risk another silly flame war. Yes, I'm diving into the deep end with all the Big Thinkers and Blog All-Stars. I'm going to address... book value! (Cue the scary music, Psycho screams in the background, lightning flashes, haunted house, etc.)

Book value is, well, just that. Value. A number. Someone's idea of a "fair price" that he/she had the gumption to print, to put it on paper and let the world read it. I agree with Bailey, Dave and Gellman, though, that this is random and arbitrary. There is no real basis for it.

What makes a card valuable? Scarcity. Supply and Demand. Economics 101. My 11-year-old kids are already learning about it in 5th grade! If a product is in high demand, the price will increase due to low availability. That is why error cards (or any item) that are corrected shortly after being noticed are more valuable than the corrected version.

As an example, let's go outside our dear hobby to look at a few significant examples. The Inverted Jenny is one of the most famous stamps in American history, due to the fact that only one pane of 100 stamps ever made it into the public domain before the error was noticed and corrected. One collector happened to buy the entire 100 stamp panel and soon after sold it for $15,000. In 1918!



A recent example of this is the "
Godless dollars" that circulated in 2007. Certainly, a dollar coin is worth a dollar. Right? Wrong. In the case of the George Washington gold dollar coins that are being issued currently, approximately 50,000 of the coins were printed without the wording around the edges of the coin that say "In God We Trust" and "E Pluribus Unum," thus resulting in the name "godless" coin. The first instance of this coin sold on eBay for $600, but as more started appearing, they came down in value to $40-60. Even more scarce are similar versions of the second coin in the series with the likeness of John Adams. As Wikipedia states, "They are lesser in quantity than George Washington plain edge dollars, making them rarer, thus more expensive."

There it is. Right there in black and white.
  • Lesser quantity = rarer = more expensive.
How much more plain can it be? The market sets the value.

Of particular interest in the Wikipedia article on coin collecting is the subject of grading, one of Gellman's pet peeves. The gist of the following paragraph is "Buyer Beware." Grading is good in getting rid of counterfeiters, but it gives rise to the subjectivity of experts.

Several coin grading services will grade and encapsulate coins in a labeled, air-tight plastic holder. This process is commonly known as coin slabbing and is most prevalent in the US market. Two highly respected grading services are the Numismatic Guaranty Corporation (NGC) and the Professional Coin Grading Service (PCGS). However, professional grading services are the subject of controversy because grading is subjective; coins may receive different grades by different services or even upon resubmission to the same service. Due to potentially large differences in value over slight differences in a coin's condition, some commercial coin dealers will repeatedly resubmit a coin to a grading service in the hope of a higher grade. The grading services came into being (PCGS being first) in an effort to bring more safety to investors in rare coins. While they have reduced the number of counterfeits foisted upon investors and have improved matters substantially, the goal of creating a sight-unseen market for coins remains somewhat elusive.

Does this all sound familiar? Substitute "Card" for "Coin" and you have our hobby.

In the end, it is us who determine the value of a card, not someone sitting in an office. Who knows what method is used to assign value. It could be well-reasoned research. But then again, it could be a dartboard. As President Obama has been saying lately, we need more "transparency" to this. Dissemination of information is never a bad thing. Secrecy is. Just ask all the critics of ex-President Bush.

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