This article appeared in
April, 2015

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Upside-Down is the New Normal

Most of my longtime readers know I amass information about stocks and bonds issued by North American railroads. As I write this, I have cataloged 26,147 varieties of stocks, bonds and related certificates. Behind the scenes, I have recorded 996,019 references to railroad certificates, including serial numbers, photographs, sale appearances and prices. Unless traveling, I add information to my database every day. That means I spend substantial time with information about our hobby. With every bit of information I encounter, I ask questions. What are real populations? How is the hobby changing? What does my ever-increasing volume of information mean?

My primary questions involve price behavior. What are today’s prices telling me? What were the factors that made some buyer pay so much? Or so little?

Obviously, most collectors try to understand the factors that affect price. We all do it. I think that in collecting hobbies such as ours, ordinary day-to-day observations cause most of us to form certain de facto rules that help us value items we want. I imagine most of us believe rare certificates should be worth more than common certificates. We think uncancelled certificates should be worth more than cancelled certificates. Issued items should be worth more than unissued remainders. I suspect most of us believe than certificates with desirable autographs should be worth more than those with ordinary signatures.

Until about fifteen years ago, most collectible certificates were sold by dealers and auction houses. If we examine prices from the 1980s and 1990s, it seems that most professional sellers operated under beliefs similar to the ones I just mentioned. Under normal circumstances, dealers would have priced uncancelled certificates higher than cancelled examples of the same variety. Assuming two certificates of the same variety, one autographed by John D. Rockefeller and one signed by his brother William, I doubt any auction house or dealer would have suggested that they be priced the same. It just wasn’t done.

My experience suggests that if dealers or auction houses in the pre-eBay hobby lacked experience with pricing certain varieties, they spent at least some time on research. Most sellers tried to price certificates “reasonably” within their own personal pricing customs.

Circumstances for selling certificates have changed since the turn of the century. Thankfully, dealers and formal auction houses still play highly crucial roles in our hobby. However, we all know that amateur eBay sellers now sell tremendous numbers of certificates, especially in the low price band. Thankfully, several highly professional dealers sell on eBay, but I’m not concerned with them. Their pricing remains sensible. What concerns me are the hordes of amateur sellers and their unconscious effects on overall pricing within the hobby.

Without belaboring the point (and taking up the entire space of this magazine in the process), I’ll just say that I record violations of my de facto rules constantly. Not a week goes by that I don’t record sales of rare certificates at insane prices, both higher and lower than prices that experienced participants would consider reasonable.

Take a well-known $1000 bond from the New Jersey Junction Company signed by John Pierpont Morgan. Among the American and German auctions I follow, bidders paid an average of $388 for such certificates in the last five years. (The range was $312 to $450.) In that same period, sixteen similar certificates sold on eBay for a surprising average of $482! One might reason that eBay is a sensible, possibly more expensive, marketplace. Not so fast.

Included in that average were transactions of $1,200 and $1,300. Those are the two highest prices I have ever recorded for such certificates! To me, those prices are “upside-down” because they are higher than prices normally paid for certificates with more prestigious signatures such as John D. Rockefeller. I can only imagine that those $1,200 and $1,300 buyers will not be terribly happy to learn that more patient collectors (or dealers) paid as little as $80, $114 and $154. As fun as those prices were to lucky bidders, I consider them equally upside-down. They are lower than many prices paid for certificates with more common autographs such as William Mahone, Russell Sage and similar celebrities.

Abnormal pricing is normal on eBay. Anyone who collects autographed certificates can spot crazy pricing very easily. Because I record prices for all types of certificates, I commonly see ultra-common certificates sell for more than one-of-a-kind specimens. I see certificates with ordinary serial numbers sell for more than unique #1s. These days, price differences between unissued remainders and issued certificates are very narrow and prices are frequently flipped. In today’s eBay world, measurable price differences between cancelled and uncancelled certificates are almost non-existent.

Yes, collectors, and especially dealers, have always been able to profit from upside-down pricing by bidding for multi-item auction lots. If there is a bright side to eBay’s upside-down world, it is that collectors (and dealers, of course) can now find singular bargains without needing to buy certificates they don’t want or need. EBay buyers have excellent opportunities to snap up bargains like sharks. Yes, they must filter through hundreds of lots of low-value trash and that is a tiresome task. Still, there are some incredible morsels out there! Calling all sharks, remoras and bottom-feeders. Time to feed!