Sleeping Giants

Sleeping Giants- The Multiples Problem

You decide you want to collect or invest in professionally graded colonial and continental currency.
Good for you! It is a great hobby and a seriously undervalued section of the currency market.

So, being wise, you go to your bookstore, pick up a current copy of the Friedberg Paper Money guide and carefully study prices and information. You decide on which colonies and grades you want to collect and then begin the hunt, looking up dealer websites, or calling to see what they have available.
Right about now you are smiling at all of the fun and possibilities your new venture is going to bring.

In very little time however, you notice a very startling trend. Dealers are charging far, FAR more for their currency then the Friedberg Guide lists them at. “Accursed dealers!”, you swear under your breath. “They are all a bunch of money grubbing !*&!$!”.
So on you go with your search, until finally you come to the conclusion that there is something desperately wrong with the Guide pricing structure, most glaringly with notes encapsulated by the professional grading services.

How come professionally graded notes sell at multiples of Guide value?

First of all, if you know anything about coins and comic books, you can compare the Friedberg to the Overstreet comic book guide and to the Red Book of coins. Both of these annual publications that are designed to give accurate information about their respective hobbies and are truly a wealth of information. However, both price guides do not give up to date prices on the professionally graded segment of their hobbies, nor offer a census as to HOW MANY exist AND in what grade.
We all must understand that it is literally impossible for an annual publication to keep up with current pricing information. As a matter of fact, the moment the new Guide hits the stores, the pricing information is six months old. While this works extremely well for the average (non-professionally) graded items, these guides cannot accurately reflect prices or trends with the professionally graded segment of each hobby.
Looking at the Price Guide value is only a gage for the purpose of "Perspective" then.

Then how do dealers price their professionally graded items?

Let me say that while collecting professionally graded currency, coins, or comic books can be fun and very rewarding, dealers do not run a non profit organization. All dealers are in business to make a profit and will price their items on three very important factors.
1. How much did they pay for the item.
2. How rare is the item *Census results are critical here
3. How difficult will it be to repurchase the same item in similar grade. *This factor weighs very heavily, as professional grading is still fairly new to the currency hobby and no one wants to give away a potential jewel too cheaply.

Now what keeps prices realistic and makes this new pricing system work is the Law of Supply and Demand. A dealer needs to make sales in order to live. No sales = no food. Very simple really but it is the truth. An item is worth what a person is willing to pay and not what we wish it would sell for. So, if prices are too high, adjustment will occur.
Also, most sales take place on dealer auction sites or ebay. Prices realized at auctions are a good barometer of the current pricing trends and will assist (and compete against) dealers with their pricing.
However, prices can swing wildly in the professional graded market, at any point in time, now that the currency is listed on a Census.

Why?
A Census will ultimately tell the true story of just how many exist in each denomination and show the true grades. Investors are shy to invest in non-professionally graded markets because it is far too problematic (learning how to grade, how to spot restoration, difficulty in resale, etc). They will only enter when professional grading occurs and do not mind paying more if the problems are resolved by such a service.

Currently, there is NO basic formula that most dealers use in determining a multiples price for Colonial and Continental currency because the Census for this segment of the hobby is literally brand new. And to be realistic, most dealers (even those involved for decades) are not aware of just how valuable this currency will become over the next few years now that professional grading has entered the hobby.
So let's look at the Comic Book hobby for a moment and see what happened when professional grading in conjunction with a Census entered their hobby.

The Overstreet price guide was a tremendous gage, very accurate and a dealer could expect to get what the guide listed when selling a book. It was simple. Visually grade the book, look up the price and then ask what the guide listed the value at. Books sold moderately well but many times a dealer would sit on their books for years unless they discounted below guide value.
Then came professional grading.
ONLY the visionaries saw the "opportunity" in paying unheard of double guide prices for high grade books.
At first, most dealers thought them to be lunatics but a sale was a sale and no one argued at getting above guide prices. Once dealers saw that multiples were being paid for high grade books when encapsulated by a grading service, the hunt was on for all the high grade books they could find.

At Five years into professional grading here is what you could expect to pay:
NM/M 9.8 = 7 to 25 times Price Guide NM value (equal to 68 in currency)
NM+ 9.6 = 5 to 10 times Price Guide NM value (equal to 65 -66 in currency)
NM 9.4 = 3 to 6 times Price Guide NM value (equal to 63 - 64 in currency)
NM- 9.2 = 2 to 3 times Price Guide NM value (equal to 60 - 62 in currency)
VF/NM 9.0 = 1 to 2 times Price Guide NM value (equal to 55 - 58 in currency)
VF+ 8.5 = .9 to 1.5 times Price Guide NM value (equal to 53 in currency)
VF 8.0 = .75 to 1.25 times Price Guide NM value (equal to 50 in currency)

Alone, this formula has tremendous flaws but if coupled with the CGC Census results, it did give us a good foundation to work off of. What also must be weighed into this formula is HOW MANY exist in each grade, the age or era of the book, and Popularity of the character or title. Lower grade books that are the highest grade on the census are now receiving multiples of value, as we now know there are no high grade copies. This took time but eventualy this will always occur.
* Without professional grading this would be impossible to know
* Without the census this would be impossible to know

As you can imagine, there were be MANY exceptions to the given formula. But more importantly (and what this article is about), what becomes very clear is that ANY Price Guide value for a Near Mint or Uncirculated example is FAR different than the value if professionally graded and encapsulated.
Because of limited supply and ever increasing demand, high graded professionally encapsulated examples are increasing in value faster than the Price Guides can reflect. 
However, the more common items will "cool" in value as the census matures.

Now, when you apply this same logic to the currency hobby, you can expect the results to be the same.
It has already happened with US currency from the 19th and 20th centuries. The Census is filling up and we have learned what is truly rare in high grade. What is truly rare in low grade. We have learned what is more common. And look at the values of the #1 highest census graded notes - simply astonishing!
In both coins and currency, owning the single highest grade is a fantastic accomplishment. Even if just a tic higher, the lone highest graded example can be worth many times more than the next highest grade.

Now back to Colonial and Continental currency.
Can we expect the same type of results in this section of the currency? Most definitely. 
And to be blunt, this section of the hobby will emerge to shock most dealers. 
And I am speaking of the long time dealers who have sold these notes at low values for years.
The history, combined with age and rarity, will propel prices far higher than anyone thought possible.

But the radical price explosion for high grade or rare Colonial and Continental currency has NOT yet happened
It is literally at the "Ground Floor" stage with amazing potential.
Most still see the price guide as a "ceiling" in regards to pricing and investors are in the dark about even the existence of such currency.
The spread between grades is still very small and several are standing back and waiting to see what will happen

The nuances withing the coin and currency hobbies are striking (no pun ntended), and propel values based on the meagerist of findings (full or blunt bands, slight change in a letter or date, limited circulation, etc.). But based upon common historical fact, upon proper application of reason regarding such facts, upon greater public recognition of both printers and engravers, upon the impact by this early currency on our countries society, there is NO currency ever created that, even remotely, has the potential that colonial and continental currency does.

Bold words, I know. But fully supported in numerous ways.
I call these notes the Sleeping Giants.

But for now, it is kind of like the Wild West - no real rules, With the gutsy, fast on the draw sharp shooters getting the good stuff.
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