Collectible Stocks and Bonds from North American Railroads     by Terry Cox

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Cox's Corner
December, 2008

Scripophily 78

This article appeared in:
Scripophily, Dec, 2008

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Rarity is a bad way to estimate prices

The rarity myth pervades this and every other hobby involving collectibles. The rarity myth says that scarcity determines value. While I am convinced that every beginning collector in every hobby believes the myth, unlike Santa Claus, I don't think many really outgrow it.

I frequently ask collectors to give me guidance on how to price their new acquisitions. Often they tell me they assign high prices because their certificates "are so rare." Never mind that they paid significantly less only a few weeks before. Although tempted, I never ask, "If rarity is so important, why weren't other collectors willing to pay more than you?"

I am not saying that scarce certificates should not be worth more. I'm merely suggesting that there is a huge disparity between what collectors think scarce certificates should be worth and what prices they are actually willing to pay.

Personally, I think our hobby displays greater disparities between rarity and price than any other collectible hobby that I am aware of. It seems blatantly obvious that other factors are working counter to the rarity myth.

Take, for instance, two certificates of equal rarity from different states. All other things being equal, including rarity, collectors are willing to pay much more for Texas certificates than New York certificates.

If we assume the same number of available certificates, then advanced collectors all accept that all other things being equal:

  • well-vignetted certificates sell for more than plain certificates
  • American Bank Note Company certificates outsell Henry Siebert certificates
  • older certificates are worth more than newer ones
  • celebrity-signed items sell for more than non-autographed items

Let's consider a few more observations that should theoretically doom the rarity myth – but won't!

Every experienced collector has witnessed countless examples of scarce certificates that went unsold in one, or maybe even several, auctions. Then suddenly, those same certificates sold for curiously high prices in later auctions. If rarity were so important, those certificate would have sold on their first appearances. Obviously they didn't sell. Obviously, other factors such as excitement, time of year, promotion, economics or something else had larger effects on prices than rarity.

I am NOT saying that rarity does not affect value. It does and it can be significant. It just does not affect prices in a direct manner. And THAT is the key to understanding disparities between rarity and price.

The world is full of one-of-a-kind items. Rarities are everywhere. You probably have hundreds of rarities in your house right now that you would never willingly part with. Yet, there may be no one in the entire world who wants things like photographs of your grandchildren or trinkets from past vacations. As unique as your items may be, they are probably worth nothing to anyone else.

I strongly suggest that the most important factor in pricing collectible certificates is the number of collectors who are willing to pay to own particular items. Take a certificate variety with only a hundred examples known. If only 25 collectors want that variety, it will not be worth much. If 2,000 collectors want that variety, it will be dramatically more valuable.

I contend value increases not with rarity, but with the number of desirous collectors. The more collectors, the more value.

I see examples every month where two essentially identical certificates go up for sale on eBay and in professional auctions. The rarity of such certificates is equal and the number of collectors is equal. The major difference is that more interested collectors see certificates offered in professional auctions than on eBay. Consequently, professional auctions attract higher bids than eBay.

There are so many disparities between price and rarity that it should be completely obvious that rarity is but a single factor of only moderate importance. I think people ascribe high importance to rarity because rarity is the easiest thing to measure. Our estimates of rarity may be flawed, but it is still easier to estimate rarity than it is to estimate the number of collectors and the depths of their desires.

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