Collectible Stocks and Bonds from North American Railroads     by Terry Cox

A guidebook and catalog of prices
(I do NOT buy or sell certificates on this website)

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Cox's Corner
April, 2013

This article appeared in:
Scripophily, Apr, 2013

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Taking the pulse of (one part) of our hobby

Many of you know that I catalog stocks and bonds from North American railroads. That means I collect vast amounts of information about prices. When I first started over 20 years ago, prices came from dealer price lists and prices realized from live auctions. Today, the vast majority of prices come from live auctions and eBay auctions with a small number originating from online fixed price lists.

Over the last year, I recorded prices from 7,175 sales, but there is no way I can possibly discover all sales that take place. Perhaps the largest "hole" in information is the near-lack of information about sales that take place between dealers and collectors, whether by mail, online or at shows. I have no way of knowing what percentage of sales I am recording, but's it's probably only a few percent. Whatever the percentage, I don't really have time to handle more.

Recording prices, day in, day out, discloses one fact above all others: identical items sell for amazingly large ranges in prices. It is not at all unusual to see identical items sell for $50 in one venue and $200 in another. It is not unusual to see cancelled remainders sell for more than uncancelled issued examples. It is not unusual to see single coupons sell for more than entire bonds. It is not unusual to see distressed junk sell for more than certificates in near-perfect conditions.

It is also not unusual to record certificate varieties I have never seen before. In fact, I recorded 10.7 new varieties or sub-varieties per week last year.

With such wide ranges in prices and new varieties still appearing with frequency, how can I estimate prices with any degree of accuracy? The truth is, I can't. Instead, I try to estimate prices as uniformly as I can and let collectors adjust prices for the markets they participate in. For instance, live auction prices tend to run about 25% to 50% higher in Europe than in the United States. (The Euro/dollar conversion rate and value added taxes account for about half the difference.) Similarly, American live auctions commonly attract prices 25% to 100% higher than eBay online auctions.

Dealer sales are, of course, private. Only their accountants know their real pricing. It appears that dealer sales tend to take place at or slightly above live auction prices. Getting a handle on dealer pricing is complicated because many dealers negotiate prices, especially with their most loyal customers. Dealer sales are very important because their selections often include seldom-seen certificates. Thankfully, some correspondents share their dealer transactions with me.

Part of my job as a cataloger is to estimate prices of certificates for my readers. In general, my price estimates tend to congregate at a middle point between German live auction prices and eBay auction prices. Because prices vary so much, I constantly review and adjust price estimates. With rare exceptions, my ideal price estimates are far from recorded extremes.

Some of you probably remember previous articles where I talked about my "pricing paradox." The paradox is that my price estimates are probably the most accurate when the greatest number of collectors and dealers disagree with me. In other words, reliable price estimates are those that half of my audience thinks are too low and the remainder take the opposite view.

So, what should I do about estimating prices for new discoveries? I can't just throw up my hands. I must make some kind of estimate, no matter how many people think I'm wrong. We can assume that most previously unseen varieties are probably rare, but who knows if another ten examples of those new varieties are just waiting to be sold?

Varieties printed on generic certificates are easy. I can lean on the huge price history from hundreds of comparable certificates. Very few generic certificates ever sell for large sums.

Conversely, new varieties can be problematic when they show attractive vignettes and represent popular places or popular companies. Regardless of whether such examples sell for $500 in Europe or $25 on eBay(US), I cannot assume either price is a real indication of current or future value. We could play an endless game trying to imagine the reasons for wacky prices. For instance, the eBay example might have been poorly illustrated, inadequately described and seen by only five people. The $500 European sale might have represented a battle between wealthy specialists. Who knows?

As problematic as those pricing situations might be, the most difficult certificates to price are new varieties contributed by correspondents. One-third of all new varieties rarities are contributed without indications of prices. Even if priced, it is obvious that collectors acquired rare new varieties for both pathetically low prices and astronomically high prices. My database is loaded with examples at both ends of the spectrum.

The challenge is estimating what certificates will be worth to other collectors. I constantly wrestle with the question, "What are real current values?"

In cases of extremely desirable and rare certificates, I occasionally contact one or more dealers for their opinions. I would love to have multiple opinions about the prices of every certificate in the database, but no dealer on earth could afford that kind of time. So I turn to the correspondents who contributed new varieties and I ask them for "price guidance." Some are flattered by my question, but some are deathly afraid to answer.

So I must clarify. When I ask for price guidance, I am NOT asking collectors to estimate future value. I am not asking them to estimate what other collectors might pay. And I most certainly don't want to know how much they would like to sell their certificates for at some future time.

Instead, I am asking a very simple question, a question they should be able to answer without agony. I ask, "If something happened to your new certificate, what would you be willing to pay to acquire a replacement?" I tell them that it doesn't matter whether the loss is a fire, a flood, or a theft. It doesn't matter whether the certificate is insured or not. Contributors can imagine any situation they want. They simply need to imagine that their new certificate is gone and they have an opportunity to buy another certificate today. How much would they willingly pay to replace their certificate?

That is not a flippant question. It is as serious as a heart attack! Collectors might be willing to pay more to replace a certificate than they paid the first time. Sometimes they would be willing to re-acquire only if they could pay much, much less. Whatever the estimate, THAT price is probably the best estimate of current value we can find. Here's why.

At the time of purchase, all of us buyers of rare certificates were high bidders. We might have been very lucky to discover our rarities when we did. We might have been the first or only bidder or buyer. Maybe we recognized value that everyone else overlooked. Maybe we let our ego get the best of us. Maybe we were simply willing to pay a few cents more than everyone else.

By asking a winning bidder what he or she would be willing to pay a second time, we eliminate greed and desire as much as possible in a hobby based exclusively on acquisition. After all, owners still have their possessions safely tucked away. If collectors can honestly decide what they would pay to replace their treasured certificates, we can establish better estimates of current value than if we try to predict the intents of unknown, future collectors.

So what can prices tell us? Among a myriad of possibilities, knowledge of current prices can tell us what is popular, overvalued, undervalued, desirable, undesirable, and overlooked. Schizophrenic prices, like we see today, appear to indicate highly fractured and unequal communications between the various participants. Comparison with older prices can show long-term trends in our hobby, some good, some bad. Cyclic prices can suggest when there are good times to buy, hold or sell.

To me, prices are the lifeblood of our hobby. I'm merely one of those guys who monitors pulse and pressure.

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