Fair Market Value Changes in the US - Up and Down

One of the providers of pricing data on coins in the US is a company by the name of Numismedia - they provide two tiers of information - what's called "fair market value" and "wholesale dealer" prices for pretty much all US coins.

This topic is of interest at the moment as Numismedia just issued a press release that took the position that prices for many top quality US coins were trading at a premium over fair market value during 2008, and that this situation is no longer the case. I find this an interesting way of looking at things - notice they didn't say that market values have come back down from 2008, but that collectors are no longer paying a premium over market value. Just whether this is the case or not I'm not quite sure, but on first blush, it sure does sound like a case of the Emperor having no clothes! Make sure you click on the links above to read Nuimsmedia's defiinitions of the above terms in full - they certainly will pad out your understanding of the term "value" or "price" as it relates to rare coins.

The best way to deconstruct this statement is probably to get clear on just what fair market value is (as defined by Numismedia) - "It refers to the price a dealer is asking for a coin, which is somewhat over his wholesale price."

If this is indeed the case, it could well be that either wholesale prices remained reasonably static throughout 2008, and that there was more intense competition than normal among collectors (perhaps novices or otherwise who were desperate to get at least some good quality numismatic items in their portfolios before stock "dried up" completely). As the "puff" came out of the market with the modest rises in confidence in the economy and banking system, perhaps that desperation eased somewhat.

An easing in income levels or a loss of income altogether, coupled with or replaced by an increase in expenses, could all contribute to a rising number of individual collectors looking to sell certain parts of their collection in order to ease a financial strain. This does seem to have been the case lately, as this quote from Numismedia shows: "Because the economy has influenced the everyday lives of so many people, many collectors have had to not only stop buying coins, but they have had to sell into a softening market as well. As the recession worsened, certain areas of the coin market actually weakened and prices fell dramatically for some issues. This is both good and bad for those who are still able to purchase coins for their collections. The FMV may be lower for coins they already own, but they are also able to purchase new coins at lower FMV levels."

Personally I don't see a drop off in prices as being completely a negative thing, even though I'm someone whose business assets (a significant component of my total wealth) are invested in numismatic items. Anyone who thinks that it is possible to invest in an asset that only ever goes up needs to have their head examined in my opinion, whereas the rises and ebbs in price are a normal function of a healthy market. I obviously don't particularly like it when assets I own go down in value, however I do certainly like it when assets I'm interested in owning or trading get priced at a level that I believe is great value for money. If I were an emperor, I'd certainly rather an inferior outfit of clothes that I can see than a designer outfit that I can't - I don't want to embarass myself in front of my harem after all.

So were rare coin prices in the US  trading at a "premium" to fair market value through 2008? Or has the market come down significantly this past six months as a result of the financial tornado that's unfolded right around the world?

Realistically, we shouldn't be shocked if the latter is the case, nor should we try to deny that fact if it is indeed true. When putting my strategic plan for this business together a few years back, I bought some CD's titled "Good to Great", by Jim Collins. In it, he coined the phrase "The Stockdale Paradox", which is a term that refers to the world view of one of the US's most highly decorated military veterans, Vice Admiral James Bond Stockdale.

I won't go into the whole story here, just to say that Stockdale survived an extended period of incarceration during the Vietnam War under horrific conditions, and during that time he was guided by what is seen by many as being an almost naive take on the world: "You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.^"

There are some in the numismatic industry that say that we should never even whisper the mention of the possibility that rare coin prices might dare to stagnate, let alone drop. I wonder however just how well they are prepared to last the distance, or if they'll be able to survive the worst that the market can throw at us!