How efficient is the supply and demand in the numismatic world, and are there truly undervalued coin

Longacre

I frequently hear comments such as "this coin is one of [enter numeric figure here] coins at the MS64 level, and I cannot believe that it is only priced at [enter dollar value here]. It's way undervalued!" Other than admiring the speaker's frothy frenziness and marvel at current pricing, I frequently weep knowing that the numismatic markets cannot be that inefficient, and that coins can remain undervalued and "undiscovered".

Does anyone know how efficient the supply and demand forces are in the numismatic market? Is it truly possible that a low population coin can be "undervalued"? Or, by definition, are these supposed undervalued coins truly being traded at their true market worth? What do you think?

pmac

I find that the demand is often a whim of the folks on this forum (see ATB 5oz). Once the frenzy ends, the values even out. The "truly" undervalued coins are the sleepers out there that haven't been discovered by the zeolots who want to flip them and the lemmings who buy. I'm a lemming in this case.

dbcoin

I don't know the answer but imagine how truly inefficient the market would be if there were no TPG's and/or no TPG warranties

MrEureka

If you for one moment think that the coin market is efficient, consider how easy it is to find overvalued coins.

mrpotatoheadd

<< <i>I frequently weep knowing that the numismatic markets cannot be that inefficient... >>

How efficient do you think the market for Wheaties would be, if every box was different from the next and you might have to search through hundreds before finding the one that met your expectations?

tradedollarnut

The market itself is a whole lot more efficient than the price guides for the market. If greysheet is ten years out of date, it's a lot easier!

AngryTurtle

My interpretation of an "undervalued coin" when cited by a dealer or expert is this: Undervalued Coin: A coin where its rarity (condition or population) is not reflected in its price; e.g. it is priced similarly to a more common coin.

The examples of this that leap to mind are 3 cent slivers and shield nickels, where there may be scarce coins, but the demand is not there.

shorecoll

There are also market cycles to consider, a coin may be undervalued in this cycle, and they may remain down longer than you have time to wait.

RYK

I think that demand, especially for better date material, is the key variable. For example, if two collectors simultaneously decide to take on CC $10's, the value of the dates in the 1870's goes up. If two collectors decide to sell their CC $10 collections (assuming no one else decides to collect them), the value of these coins goes down. Price guides cannot possibly account for this.

crypto79

It is a popularity index that people get confused with predicting popularity gains. The only true undervalued coins are ones that dealers sell in seconds instead of weeks, could have priced them a little higher but that is a case by case kind of thing.

MrEureka

if two collectors simultaneously decide to take on CC $10's, the value of the dates in the 1870's goes up. If two collectors decide to sell their CC $10 collections (assuming no one else decides to collect them), the value of these coins goes down. Price guides cannot possibly account for this.

Should they? Is the price guide supposed to be a guess as to what the next coin will bring, or is it a report of what the last coin brought?

earlyAurum

For rare/scarce coins, I can believe that it is not very efficient because it only takes 2-3 bidders to skew the market from averages. In so called efficient markets the number of buyers and sellers are large and it is very difficult for a small number of participants to skew the market prices. Just the fact that we pay a 15% buyer's fee is indicative of an illiquid market!

RYK

<< <i>if two collectors simultaneously decide to take on CC $10's, the value of the dates in the 1870's goes up. If two collectors decide to sell their CC $10 collections (assuming no one else decides to collect them), the value of these coins goes down. Price guides cannot possibly account for this.

Should they? Is the price guide supposed to be a guess as to what the next coin will bring, or is it a report of what the last coin brought? >>


Given the frequency in which some of these coins trade, price guides have little use, IMO. Guessing or reporting a number does little to serve the person trying to buy or sell, in these cases.

JCMhouston

This is an extremely difficult question, is one item undervalued, or are comparable items overvalued? As others have pointed out, demand, or popularity, whichever you prefer to call it what really drives prices. So yes, I would say at any given time the market may undervalue certain coins, and if you can wait out the market then you may see large price increases when they suddenly become popular again.

There are many examples of actually rare, but largely uncollected, coins that sell for very low prices. To many people these would be considered undervalued, while an equal number would argue that the market price represents their true value since no one collects them. I can't really speak about US coins but examples in the World coin market would include 19th C. German States proofs. Many of these have mintages in the range of 25-100, but they sell for just a couple of hundred dollars in PF65. Of course there are only two of us who collect them and there are not enough available for a big promotion so prices will probably always remain low. I do believe the US coin market is more efficient than the World coin market by the way, however it is subject to well planned promotions which may drive prices much higher or lower over very short periods of time leading to more opportunities for the investor.

RWB

A small, highly fragmented market cannot be efficient in the capitalist market sense. That model applies only to identical (or nearly so) items. As Wall Street fund investors learned long, a rare coin is not a stock.

TahoeDale

Longacre,

Not a bad question , for once. In many cases, the undervalued example will trade at it's market value, WHEN it trades. It is the infrequency of trade that allows it to be undervalued, sometimes for years.

As DH explains, he will adjust the PCGS Price guides after sales/auctions/dealer transactions, but perhaps not up to or down to the last trade. But when 2 or more prices are realized for similar coins(grade, appearance), then the last trade might be the current price( as guides go). And if the particular coin is a pop 1, then the current guides will reflect that last transaction.

Latest example is the 1807 CBH large stars im PCGS 65.( O.114) that sold in April 2010 at Central States. A pop 1, none higher, and there was no 65 graded before this one( 2 small stars had been graded in 65, but no large stars).

It realized 149,500, over double what many thought it might bring.

mgoodm3

Supply and demand is only efficient when there is a sufficient quantity of trades.

291fifth

Underappreciated may be a more appropriate term than undervalued. The US coin market is very, very mature. Few, if any, US coins can be considered undervalued.

CoinRaritiesOnline

<< <i>Longacre,

Not a bad question , for once.

<< <i>

Ouch! You've been served, Longacre.

09sVDB

Something else to ponder.What % of nice collector coins(certified or not) are left in original condition? These can be coins graded P01-MS70?

Longacre

<< <i>

<< <i>Longacre,

Not a bad question , for once.

<< <i>

Ouch! You've been served, Longacre. >>




No one loves TahoeDale more than Longacre, and I know deep down he loves Longacre, too.

ColonelJessup

<< <i>I think that demand, especially for better date material, is the key variable. For example, if two collectors simultaneously decide to take on CC $10's, the value of the dates in the 1870's goes up. If two collectors decide to sell their CC $10 collections (assuming no one else decides to collect them), the value of these coins goes down. Price guides cannot possibly account for this. >>

ColonelJessup

<< <i>A small, highly fragmented market cannot be efficient in the capitalist market sense. That model applies only to identical (or nearly so) items. As Wall Street fund investors learned long, a rare coin is not a stock. >>





MS64 Saints, MS65 $5 Libs, MS66 Morgans, PR67 Walkers may be fungible, but MS67 Seated 25c and Busties are not.

Lakesammman

Prior to a big promotion, those targeted coins are undervalued.

AMRC

As with any system, the coin market may not always be in homeostasis, and that explains why (a true story) a coin on Heritage that was won for $18,000 and was generally known to be selling for $26,000 in the retail space was truly undervalued. The coin sold for $26,200 only a few months later. But this is the exception. Overall, in open markets (which I believe the internet has brought to coins) are pretty efficent at determining price. And there are just enough exceptions to keep us eternally hopeful.

PinkFloyd

Oh yeah. As the last 25 years have progressed, the collectable options offered by the mint have increased by a lot. I'm sure there is an increase in collectors, but it seems as though there is definitely some dilution going on. This is how we're getting platinum eagles and first spouse gold pieces into the 2,500-4,000 mintage range. Granted most of these pieces are entirely dull to look at. But the spouses are getting more popular now because of their low mintages.

Although the mint has axed some of their varieties in the last year, I think some of these will be reinstated, and we have a long National Parks series to look forward to, as well as a new palladium eagle coming down the tube.

So, in conclusion, I think there's a little lag in the supply/demand system.

Walkerguy21D

A good question, and lots of good commentary. As others have pointed out, a low population coin with low popularity probably really is not undervalued. I also think that there are local market INefficiencies in play all the time - but these are usually quickly rectified. Take for instance a dealer selling some better Barber halves on the bourse at around sheet. They are temporarily undervalued, but odds are he'll get cherry picked pretty quickly, and those coins will soon be bringing 2X sheet or more when offered to specialists in a broader venue, like Ebay.

Bear

The coin market is so efficient, that I have been able to buy high

and sell low, almost every single time.

cladking

Collectibles markets are highly efficient at setting prices for coins that are both in
adequate supply and in very high demand at some price. "Adequate" means that there
are enough that they trade every six months or a year. If they trade less often then
some potential buyers are squeezed out by poor timing and markets can move much
faster than the frequency at which they trade. By "demand at some price" I mean
that there are numerous buyers for an item if the price is right. Very few collectors
would pass an 1804 dollar for $50, or even $5,000. There are still some buyers at
$500,000 or more.

The classic US coin market (pre-1964) is highly efficient for coins that aren't in some
way unusual like a clipped 2 cent piece or an 1888 3 cent nickel in AU with a tiny hole.
Even things like slick buffalos have a firm bid and ask which anyone can affect by just
bidding more.

A few tokens, medals, and modern coins also have highly efficient markets. There is
enough demand for 1980 proof sets that a bid and ask can pretty much be chiseled
in stone. But most of the less traded coins can have highly inefficient markets. One
buyer might have a strike price to buy something like a gemmy 1955 Chinese 5F of
$50 and another might be willing to pay far more. Such a coin is probably not going
to be sold in a venue where the highest buyers will even see it so it might sell for a
few dollars or less. Price guides and catalogs can be far behind the times on this sort
of material and this will suppress many buyers' appetites for the coin; who wants to
bid $50 for a $10 coin.

It's far worse with medals and tokens since so many of these are scarce, rare, or uni-
que. What is the value of an Eaton Rapids, Michigan good for token? To one collector
it's just another good for that is worth a dollar or two but to another it's a big hole in
his collection that he will fill at any price. Locating these collectors and tempting them
to bid is the problem. There probably aren't more than twenty serious Michigan collec-
tors and not all would even be very interested.

There are lots of rare US moderns with almost no market at all because the coins are
rare and the buyers are rare. Even if such coins did trade hands (many don't because
they are in the hands of collectors) they would require years to establish an efficient
market.

TequilaDave

I was once told by an old school dealer that a coin is worth only what you can sell it for at that very moment. If this pragmatic approach is applied to this thread, then I suppose the market is extremely efficient.

MrEureka

The US coin market is very, very mature. Few, if any, US coins can be considered undervalued.

With respect to "mainstream numismatics", I would argue that this is true for the sight-unseen market and false for the sight-seen market. There are also many tremendous values off the beaten path.