Intresting commentary on liquidity

jdimmick

A few months back, I needed to liquidate a couple of coins from my collection, 1) because of a huge loss fronting a dealer on a gold deal that went south, but more importantly to cover some extra medical expenses. I sold three coins, ones that I could live without if I had too:

first one a better date slq PCGS cac MS range

the other seated $ key in high au. pcgs (not cac)

Other was a proof type coin (which is not part of this commentary)

(withholding exact coin/ and dealers for reasons that don't need to be stated for discussion

These exact coins have traded hands between 3-4 different dealers in approx. 4 months time frame.
When I sold these market softness had already taken affect, so the price I received was just a we bit less than I had hoped, but honestly fair. After thinking that the dealer I sold them too, was able to get a retail buyer soon after, because it had disappeared of their site, it shows up on another, and then another and so forth several times, and these are national large size dealers. What made me want to post this, is one of these coins I just saw just last week on a dealers site for sale, is now at anothers and its the 4th different dealer who's had it.


I was thinking at the original time of sale, that maybe I should have held out for just a we bit more, but after seeing this, actually kind of glad I went ahead and let em roll.


There are a few coins I follow at auctions (between 10k-50k) and over the past year or so have noticed this same trend on some other pieces that sold in the past, only to find out they were wholesale traded between dealers over and over.

keets

I have maintained for quite a while that with so many shows and "hobby dealers" a coin often sells 3-4 times before it ends up in the hands of a collector. the downside --- both the original seller and the end owner lose due to such a market.

MrEureka

Originally posted by: keets
I have maintained for quite a while that with so many shows and "hobby dealers" a coin often sells 3-4 times before it ends up in the hands of a collector. the downside --- both the original seller and the end owner lose due to such a market.

Not sure that it can be proved, but I'm confident that high liquidity and active wholesale trading LOWERS the wholesale/retail spread. Liquidity allows dealers to blow out anything that doesn't sell quickly, which allows them to work closer, take more shots, and turn their inventory more often.

In other words, yes, dealers tend to make money when trading coins among themselves, but the margins are (on average) so thin that those cumulative markups don't amount to much. If you doubt that, compare the liquidity and spreads in the coin market to any other collectibles market.

Walkerguy21D

A couple years ago I snagged 23S walker in Ch AU from pawn shop guy set up at a medium size coin show here in FL.
The coin was a nice slider but had small nasty scratch on the obverse, and I was able to secure it for a little less than AU Bid.

I showed to a dealer friend who BEGGED me for it, and for a $250 profit let him have it. I was concerned it might genny holder anyway, so I was fine with that.
He sold it within 10 min for another $200 profit to another dealer, who then sold it to ANOTHER dealer at the show who was convinced it was 'new' and paid strong $ for it.
Talk about liquidity!

291fifth

Do any other collectibles have liquidity that equals or exceeds that of coins?

keets

Andy, my main point was that the more times a coin trades between dealers the less room there is for the eventual collector who buys it.

BryceM

I've seen this a few times too. It's always interesting to ponder who is taking the profits and who is taking loses on the various transactions. Likely the biggest hits are to the initial seller and to the eventual end collector.



The more desirable the coin, the less time it will float around on the open market, all other things being equal. There is some really good stuff out there that doesn't hit the market but maybe once or twice in a generation. Not all of it is terribly expensive either. Even if the OP's three coins were very nice, they were the ones he figured he "could live without"...... likely not his "really good stuff".



Some dealers have the eye, the knack, and the connections to continually offer top-shelf stuff. I admire them and think that what they're doing is pretty tough. Several collectors-turned-dealers have started their businesses by using their collection as startup capital. It sounds like it's pretty tough to replace that initial inventory. Dealers who find the good stuff are positioned to make money on both the "buy" side and "sell side" of the equation. It seems that most dealers try to make their profit on the "buy" side of large quantities of marginal material, which often results in weak offers from those dealers.



As far as liquidity in collectibles, certain classes of firearms are very liquid. For most collectibles, people simply don't care about liquidity because they purchase for enjoyment, not as part of some mental exercise in "investing."

keets

Bryce, when I was making my post just above yours I was considering firearms as another collectible which is very liquid, easy to sell, maybe even easier than coins. the difference I see between the two is that with guns I don't think sellers or buyers believe they'll be able to sell for a profit and it doesn't bother them. with coins, we almost all expect that at some point we can sell at a profit and we purchase accordingly.



Even if the OP's three coins were very nice, they were the ones he figured he "could live without"...... likely not his "really good stuff".

--- I didn't really think about it till you posted the line above, but I think the OP was surprised about the coins trading the way they did and maybe they were better than he thought.

Boosibri

Originally posted by: keets

Andy, my main point was that the more times a coin trades between dealers the less room there is for the eventual collector who buys it.

While that may be true, I think his point is that the fact that such liquidity exists lessens the wholesale/retails spreads overall.

MrEureka

Originally posted by: keets
Andy, my main point was that the more times a coin trades between dealers the less room there is for the eventual collector who buys it.

That sounds logical on the surface, but if fails to take a number of things into consideration.

First, like I explained before, the velocity at which a coin trades increases liquidity and thereby reduces margins.

Second, dealers price their coins primarily based on how much they think they can get, not based on cost, and not based on how many hands the coin has been through.

Third, buyers don't care about anything but the coin and the price. You'll never convince them to pay more by telling them that multiple coin dealers had to make a profit.

If none of that makes sense to you, take a look at the stock market, where trading is far more active and market-makers typically work on a small fraction of 1%. In that market, I think we can all agree that there's "less room in there" for the market-makers, and that the concept of there being "less room in there" for investors is almost nonsensical. Why would the coin market be any different?

Edited to say that on the other hand, if you said that the active wholesale market and resultant liquidity creates a situation where it's harder for collectors to buy coins BELOW market, I would have to agree. In fact, it's harder for everyone.

mannie gray

Originally posted by: MrEureka

Originally posted by: keets

I have maintained for quite a while that with so many shows and "hobby dealers" a coin often sells 3-4 times before it ends up in the hands of a collector. the downside --- both the original seller and the end owner lose due to such a market.

Not sure that it can be proved, but I'm confident that high liquidity and active wholesale trading LOWERS the wholesale/retail spread. Liquidity allows dealers to blow out anything that doesn't sell quickly, which allows them to work closer, take more shots, and turn their inventory more often.



In other words, yes, dealers tend to make money when trading coins among themselves, but the margins are (on average) so thin that those cumulative markups don't amount to much. If you doubt that, compare the liquidity and spreads in the coin market to any other collectibles market.

I agree with the above comment.

Bob1951

Certain dealers have customers for certain types of coins. One dealer may have the customers for commemorative coins while others do not. Some dealers loan coins that they think another dealer may be able to sell for them. This is not a new practice. Many years ago(about30), I wanted an 1815 half dollar that I knew a certain dealer had. I did not see it in his case at the next show. When I asked him about it, he told me that another dealer was trying to sell it for him. He went to the other dealer and got it and I then purchased it. There could also be trades involved so the that the dealer is not into the coin for as much money as it cost the last dealer. There could be a lot of factors involved here.

BStrauss3

It could also be that a specialist dealer is selling on consignment and/or a couple of dealers may have split ownership... "we'll go 50/50, you try to sell it to Joe and if he doesn't want it, I'll take it to Long Beach"

northcoin

In selling Real Estate many different Brokers will advertise the same property giving the impression from their websites that the property is in their own inventory. In reality the listing broker encourages this practice since it gives broader exposure to the subject piece of property. I suspect there are many instances where the subject coin has not physically moved but it just appears that way because multiple dealers are marketing it.

BAJJERFAN

Originally posted by: northcoin

In selling Real Estate many different Brokers will advertise the same property giving the impression from their websites that the property is in their own inventory. In reality the listing broker encourages this practice since it gives broader exposure to the subject piece of property. I suspect there are many instances where the subject coin has not physically moved but it just appears that way because multiple dealers are marketing it.

So wouldn't all of those dealers have listed the coin/s about the same time then? Seems like from the OP's description that the coin moved from A to B to C etc. Would it also be fair to assume that there is little or no demand for the coin/s at retail pricing?

ricko

Bryce and Al..... Firearms DO resell well....I have always made a very nice profit on firearms I have sold..... Cheers, RickO

hchcoin

Originally posted by: 291fifth
Do any other collectibles have liquidity that equals or exceeds that of coins?

Antique fishing lures if you know what you are doing. A 1920's Heddon lure in a mint box will move for strong money very quickly online.

DaveWcoins

Originally posted by: keets

Andy, my main point was that the more times a coin trades between dealers the less room there is for the eventual collector who buys it.

Keets - you are assuming that all the dealers made a profit. That is not always the case. I have purchased a coin at a show, realized I made a mistake and sold it for less later that same day.



Not often, but it does happen.



More frequently I have sold coins at break even prices soon after, once I realized that the chance and effort and time needed to properly market it did not justify my holding on to it.

Elcontador

Having first shot at a coin means that you can get your hands on it before someone else has marked it up. I agree with Keets in that by the time I see a coin I like at a show, it has often changed hands three times, and is marked up so much that I'm no longer interested in it. OTOH, as Dave W wrote above, occasionally a dealer makes a mistake, or misjudges the market, and has to unload a coin.

Baley

"First shot", now that's an interesting expression when applied to a 200-or-so year old coin.



What does First Shot mean for a coin that has been bought and sold probably dozens of times since it was pulled from circulation? It must mean, "First opportunity to buy it from someone who bought it cheap from someone who didn't know the value of what they had, or wanted to sell it fast for whatever they could get"



Last shot, then, must mean, the coin now resides with someone who knows exactly what they have and what it's worth, and can afford to wait for a full-price buyer to come along.



Later, when that full-price buyer runs into hard times, or dies and leaves the nice coins to the widows and orphans, the process can start again?

Elcontador

First shot means that you are the first one who has a chance to buy a coin that has been off the market for an extended period of time, ie, a fresh coin. The term is pretty straightforward and has been in use in numismatics for quite some time.

jcping

Originally posted by: Elcontador
First shot means that you are the first one who has a chance to buy a coin that has been off the market for an extended period of time, ie, a fresh coin. The term is pretty straightforward and has been in use in numismatics for quite some time.

+1

What's extended period of time? 15 years or 20 years and longer ?

Baley

Thanks, I'm aware of the term and its general meaning. It's the connotations and implications of it, that I'm thinking more about, in this context.



The OP's coins were "fresh" to each of the successive dealers who "handled" and then "placed" them

mustangmanbob

EBAY:



Cutting out the middleman dealers for 21 years.

bidask

While I have some great coins I have positioned myself to never need the liquidity.

That said I do like to occasionally buy and sell coins for fun.

TwoSides2aCoin

It's all too deep for my pockets.

Baley

Originally posted by: keets

I have maintained for quite a while that with so many shows and "hobby dealers" a coin often sells 3-4 times before it ends up in the hands of a collector. the downside --- both the original seller and the end owner lose due to such a market.

I'd disagree with that last part, about the "losers" in this situation.



As a seller, maybe I'd rather take 80% of "full market value" *right now* than spend hours "marketing", and days, weeks, or months more "holding" to*try* to maybe get "all the money".



Similarly, If I am looking for that specific coin, and have finally found it, I don't really care how many times it has traded in the past, I just want to pay the money and have the coin, and then hold onto it and enjoy it in my collection for years and years.



Note that none of what we're talking about applies to "ordinary" coins.



No one cares how "fresh" my white 1885 dollar in MS64 is or isn't, and no one is drooling over it or the opportunity for "first shot" at it.