Options
The "Dumb Money Index"...
MrEureka
Posts: 24,690 ✭✭✭✭✭
It occurs to me that if one were to compile auction prices realized for certified coins, and then generated statistics on the degree to which those prices deviated from the prior auction record for the same coin, the result would be a number that reflected two primary forces: market volatility and bifurcation. (By "bifurcation", I refer to the difference in prices paid for "high end" and "low end" examples of the same slab.)
It would be an easy matter to factor out the effect of changes in the overall market. And what would be left would be an index of bifurcation, which IMO would be equivalent to the extent to which market levels are driven by diehard collectors. (Diehard collectors are more quality conscious than investors and newbies, and less influenced by the number on a slab. And diehard collectors are always buying, even when investors lose interest in the market.)
In effect, the index would tell us the degree to which "dumb money" drives the market. I think this would be useful because a high "Dumb Money" figure would be something of a sell signal, and a low number a buy signal.
Your thoughts? Any suggestions for improving on the initial proposal?
It would be an easy matter to factor out the effect of changes in the overall market. And what would be left would be an index of bifurcation, which IMO would be equivalent to the extent to which market levels are driven by diehard collectors. (Diehard collectors are more quality conscious than investors and newbies, and less influenced by the number on a slab. And diehard collectors are always buying, even when investors lose interest in the market.)
In effect, the index would tell us the degree to which "dumb money" drives the market. I think this would be useful because a high "Dumb Money" figure would be something of a sell signal, and a low number a buy signal.
Your thoughts? Any suggestions for improving on the initial proposal?
Andy Lustig
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
0
Comments
siliconvalleycoins.com
It would be an easy matter to factor out the effect of changes in the overall market.
Actually, I think that is a very difficult endeavor and, as a result, the index would be forever flawed.
I have met lots of 'diehard collectors' who are not quality conscious, but rather aim for coins with flaws that they feel they can accept in return for low prices.
There is plenty of investor money currently in the coin market that is anything but 'dumb'.
It won't be easy to factor out the effect of changes in the overall coin market. Your 'dumb money' index is not likely to vary by a factor of 10, so crude, qualitative estimates of changes in the overall coin market will likely be worthless.
As you certainly are aware, what a given coin will bring at auction can vary all over the place (and is a particularly strong function of who shows up to bid and how badly at least 2 bidders want the coin)--- this alone can wreck any attempt to develop a 'dumb money' index.
There are lots of 'diehard' collectors sitting on the sidelines right now, because of financial concerns.
Right now, bullion-related trading is the most important market driver.
RMR: 'Wer, wenn ich schriee, hörte mich denn aus der Engel Ordnungen?'
CJ: 'No one!' [Ain't no angels in the coin biz]
I do have one tiny quibble - the analysis as designed appears to neglect the collector group into which I fall. Namely, "Dumb With No Money". It should be easy to factor that group in.
The French could call it the DUMOI.
roadrunner
Another take on a dumb money index would be to take top sellers from HSN or other high priced venues, and divide by realistic wholesale value for said items.
Your calculation makes no allowance for someone buying a coin for less than his/her maximum bid. For example, you are willing to bid up to $2,000 for a coin being auctioned, but it only sells for $1,200. Then, with identical market conditions, you auction the coin, and it sells for $2,000. I wouldn't attribute the $800 difference to "dumb money" on the second sale. Rather, I would call it "a good buy" at the first sale. Your methodology would call for estimating what each coin would have sold for at its first auction, and this is almost impossible to measure.
An authorized PCGS dealer, and a contributor to the Red Book.
PCGS Registries
Box of 20
SeaEagleCoins: 11/14/54-4/5/12. Miss you Larry!
<< <i>I need some excedrin.... >>
I need a Sam Adams..or two.
I completely disagree, if you really focus on all series right now and all activity you will see that your statement is completely false.