There has been much frenzy and debate over a Malaysian 50 cent coin from 1969 with milled edge that was graded by NGC at AU55 being auctioned off in Singapore for a whopping RM10,253 on 19 October 2013. Ever since news of this broke, I had people coming to me saying that they have that 1969 50 cent coin to sell and asking me how much I am willing to offer.
And of course my response was that the price offered is highly dependent on the type, variety, condition/grade of the coin. The grade of the coin is in turn dependent on the big 4 major factors i.e. luster, contact marks, strike and eye appeal. But that’s not the point of this article; I will save the grading part for another day.
But what has made this episode even more interesting is that a recent article published has put forth a notion that “the auction price is NOT market price”. An interesting notion indeed and it has since fueled endless debates on social media and coffee shop chats which lead to perhaps even more confusion for the collectors out there. It's obvious what auction price means; but just what is "market price"?
Here’s my analysis of the situation.
Let’s begin with the term “market price”.
In economics, the term “market price” refers to the price of goods and services in a market place, as defined here in the Wikipedia. Market price is essentially historical and it is determined primarily by 2 things, supply and demand.
Before we go further, it is also worth defining the term “market place”. It is where the goods and services are exchanged or traded. Now applying the term in the local numismatics scene – the market place comprises of 2 main spaces:
1. Physical space - market places that exists in the real world like a dealer’s shop, events like auctions conducted by professional auctioneers, flea markets as well as collector to collector exchanges. Markets can be divided by geographical region or country. Prices of the same item with the same grade may vary from country to country as well. For this case, we're talking about the Malaysian market.
2. Online space – market places in the form of the Internet or virtual world of exchanges or auction sites like eBay, Lelong.com.my, Mudah.my. It also include social media sites like Facebook, where communities and groups meet and exchange ideas and sometimes, goods. These online places initiate the transactions across different locations/countries over time and conclude when deals are agreed upon, payments are made and physical goods are received by the buyers.
So we have a numismatics market place where items are traded and priced primarily on their condition or “grade” and to some degree rarity, real or perceived. The term “grade” is often used to describe the condition i.e. from “uncirculated” to “poor”, in essence it describes the relative state of preservation, therefore its market value. Market value is an estimate of its worth, not necessarily equals to the transacted price or market price. An item worth RM1,000 may be transacted at RM800, if the buyer and seller agrees to the deal. So the market price is RM800, technically speaking.
In theory an efficient market is where the market prices reflect the true value. An efficient market is where information are freely available and accessible by all buyers and sellers, they are all assumed to be rational i.e. they do not make illogical or emotional decisions.
A stock market is a comparatively efficient market, where all previous transacted prices for a particular stock are available; company accounts are published and easily accessed. Prices of stocks are determined by company valuations which in turn based audited accounts, a trustworthy source. The market is regulated by the Securities Commission and that gives confidence to the public dealing in the market.
Compare that to the local property market, pricing information is not readily available. Those published on newspaper and online classifieds are sellers’ price, not transacted or market prices. So if a buyer is looking for a property, it is harder for him to determine the “right price”. Therefore the Malaysian property market here is a less efficient market. In countries like Australia however, transacted property prices are readily available and accessible.
Now let's put that in the context of the local numismatics market, you will immediately see that it is the least efficient of the three. While some transacted information is available via the online space, via auction sites like eBay and lelong.com.my, those that are transacted via Facebook are more difficult to get as they are not always visible or searchable. On the other end of the extreme, the transactions at flea markets, dealers and collector to collector deals are more obscure, only the buyer and seller know the price, most of the time.
To make things more complicated, the market value of a coin is highly dependent on its grade i.e. a 1969 50 cent coin in “Very Fine” condition is worth less than a one that is in “About Uncirculated”, now how much less is really anyone’s guess! It depends on the buyer and seller, supply and demand, as well as the prevailing market conditions e.g. the state of the economy. The situation is better for officially graded coins, like that from NGC pr PCGS, because there is a reference point – the Sheldon Scale; for example an “Extremely Fine 40” piece is worth double that of a “Very Fine 20” piece.
What happens in reality is that people see and hear that “a 1969 50 cent piece was sold for RM10,000! ”, they conveniently leave out the "AU-55 grade and the variety part!". So the public will end up thinking that ALL 1969 50 cent coins are worth RM10,000. How I wish that was true, all I have to do is to find 100 pieces of that and I will be a millionaire!
In the final analysis, it comes down to 2 things - market condition and trust.
Markets in the real world are NOT perfect. By that we mean it is full of people who make irrational decisions, at least 50% of the time. The fact is that people are affected by emotions like fear, greed and not to mention ego. Even when information is widely available in the supposedly more efficient stock market, severe price spikes and fluctuations do occur from time to time due at least partly to the emotions of the investing crowd. It is also not immune to speculators who are in for a quick profit.
For the numismatics market, bidders in a live auction can get carried away and end up paying much more that he initially intended. Market price information may not readily available, buyers have little way of knowing if they have overpaid for an item. Sellers likewise may not know if they had under-priced an item. Most of the information buyers and sellers have are from their previous transactions; and to some degree what their friends told them! We also have an issue with the accuracy of those information as well. Then you throw in people who allegedly try to bid up the price artificially in an auction, you now have a really exciting market place!
This is where the issue of trust comes in.
The statement of “auction price is NOT market price”, is fundamentally an issue of trust.
From a technical standpoint, the “auction price” IS the “market price”. In this case, it is the perception is that the price information here cannot be taken as the benchmark for all future transactions for “1969 50 cent milled edge graded at AU-55”. The significantly higher price compared to previous transactions MAY have led to the belief that it is artificial. Whether that is true or not, it remains unproven. But it also does not mean that there are no speculators in this market.
Moving forward, one can also argue on whether should ONE SINGLE TRANSACTION for that piece of AU-55 1969 50 cent piece at RM10,000 be upheld as the “market price”? This single transaction may very well be an “outlier” i.e. an abnormal occurrence since the final price is so far off the previous similar transactions. Or who knows - it may be a case of irrational behavior?? Another way of looking at this is - if you have a 100 pieces of AU-55 graded 1969 50 cent milled edge coin, can you find someone to buy from you at or above RM10,000, every time? Consistency is the main criteria here. To extend the argument further, is the reverse also true? If the same 50 cent coin is auctioned off later at a much much lower price, is that the market price too?
So how do we determine what is the "right" market price? By the term "right" we mean the price that a genuine collector is willing to pay for the item that is not too far away from the prices of recent transactions. That is based on the premise that as collectors, the last thing we want is to overpay for something!
Consequently a more acceptable way of determining the "market price" is to take the average price of the past transactions of the EXACT item i.e type and grade. This will help even out price abnormalities and provide a more realistic view of the situation. The average price of recent transactions is a better reflection of the prevailing market price, plus it has to tie in with the volume of transactions as well, the higher the volume of transaction, the more accurate or closer it is to the market price (with the assumption that the genuine collectors in the market place outnumber the speculators by a wide margin!)
So what were the previous transacted prices for other “1969 50 cent milled edge graded at AU-55”?
Now that very question, bring us back to the issue of efficient markets ....
No comments:
Post a Comment