Condition, Condition, Rarity, Rarity

[Jim VB]

Originally Posted by barrysloate

Peter- I think the majority of dealers are upside down on much of their inventory, and in order for them to offer cards at current levels they would be forced to take a loss. Many are not willing to do that, which is understandable.

From a business point of view, there is a fallacy with that way of thinking, prevalent as it may be.

Refusing to sell at true market prices often means refusing to sell at all. If this is the approach a business opts to take. They better have sufficient reserves to endure an extended period of reduced cash flow.

The money invested in inventory is already spent. It's gone, as far as the seller is concerned. Their profit results from continually buying, and reselling inventory. If their inventory is over valued, good business sense says to take the markdown necessary to move the goods, take whatever revenue they get, and buy more at the currently depressed prices.

Now I can fully understand if a collector, and sometimes seller, prefers not to take a "markdown," but full time dealers are different. A collector can just choose to sit it out and wait for an upturn. A true dealer will find it harder to do so.

Our hobby is filled with people who straddle that line between dealer and collector. Ebay makes it easy for anyone to open a store, with minimal overhead and expense, and become a dealer. A couple of months of reduced sales don't really pressure them that much. But anyone who relies on card sales as their prime source of income will react differently.

[barrysloate]

Good analysis Jim, and I'll admit that during this year I've had to sell a lot of my material at a loss. I try to keep those losses to a minimum, and I try to sell items that aren't too rare and won't be missed. But there are plenty of people who just refuse to sell anything at a loss. I agree it's not a great strategy, but I don't assume that every baseball card dealer is an economic wiz.

[Matthew H]

Jim's post is right on the money. When prices started to inflate, dealers made inflated profits from their inventory. I seriously doubt they continued to sell at lower prices because they bought their inventory when prices were lower. Now there is an adjustment, that "extra" profit has to come from somewhere. If you purchased cards only when prices were inflated, sorry about your luck, that money is coming from you.

If you decide to sit on the cards, put them back in your personal collection and enjoy them that way. It may be a long time before the upturn your waiting for comes along. Just like how it may be a long time before the average two bedroom one bath condo in Los Angeles sells for 850K again.

[Exhibitman]

Pretty accurate statements, folks. I'd add IMO that overall rarity has been the key factor in holding value, much more than condition. If you stocked up on rare cards before the crash-stuff you just don't see regardless of condition--you will be pleasantly surprised if you sell them now. If you loaded up on the flavor of the month mainstream cards, you are going to take a hit selling them now. If you fall into the latter category and are treating your selling as a business, you might consider liquidating the biggest loss items before year end to net the losses against your taxable gains for the year. Might help cushion the blow of the loss some to know that the tax man is your partner in it.

[tbob]

Originally Posted by Matthew H

Jim's post is right on the money. When prices started to inflate, dealers made inflated profits from their inventory. I seriously doubt they continued to sell at lower prices because they bought their inventory when prices were lower. Now there is an adjustment, that "extra" profit has to come from somewhere. If you purchased cards only when prices were inflated, sorry about your luck, that money is coming from you.

If you decide to sit on the cards, put them back in your personal collection and enjoy them that way. It may be a long time before the upturn your waiting for comes along. Just like how it may be a long time before the average two bedroom one bath condo in Los Angeles sells for 850K again.

I agree with Jim and Matt. Well said.

[Doug]

Originally Posted by barrysloate

Good analysis Jim, and I'll admit that during this year I've had to sell a lot of my material at a loss. I try to keep those losses to a minimum, and I try to sell items that aren't too rare and won't be missed. But there are plenty of people who just refuse to sell anything at a loss. I agree it's not a great strategy, but I don't assume that every baseball card dealer is an economic wiz.

I'm sure no economics expert. I thought buy high, sell low was the strategy all of these years!

[Exhibitman]

I figure that the money I spend on cards is in lieu of golfing or other diversions, so as long as I don't need to have the cash flow, I won't sell off stuff at a loss. I'd rather just have the cards to enjoy.

[sportscardpete]

Originally Posted by Exhibitman

I figure that the money I spend on cards is in lieu of golfing or other diversions, so as long as I don't need to have the cash flow, I won't sell off stuff at a loss. I'd rather just have the cards to enjoy.

To be honest, if I was a collector, I would be excited to have a time come like this where the market is fairly cheap. Investors are probably hating the market, but that comes with the risks in buying with the intent of flipping. If you're in it for the hobby, price fluctuations should not matter (well, should not matter much). I've picked up quite a few cards in recent weeks that I never thought I would be able to afford when prices were skyrocketing. I used to have a budget that wouldn't get me anything nicer than an e93 HOF graded psa 1. Now, I picked up an e93 Plank PSA 3 for $475, a price that probably would have went for double in 2007.

Investors and dealers should be making their purchases now, and than sell it off when the market recovers (maybe in a year or three). However, they got greedy in scooping up cards at all-time highs and are now holding on to cards that will most certainly be marked down. There is simply not enough free cash for these dealers, and that is why prices aren't really recovering. They can't really buy anything, since they will have to cover their markdowns.

For collectors that have some free cash flow, it is a perfect time to add to a collection. Just sit back, relax, and enjoy the cards. In a few years, they are bound to go up. And even if they don't, people have to remember it is a hobby. Not an investments portfolio.

Take care,

Pete

[M's_Fan]

I'm going to disagree with the central premise of the original post: That "truly rare" and "ultra high grade" cards haven't declined in value.

This is not the case. I've seen everything go down, rare stuff of Shoeless Joe, Plank, etc., you name it, you can likely find an example of price depreciation in recent months/years.

The high-end art market took a big dive in this recession, and high-end baseball collectibles are not some magic category that is recession-proof.

The simple fact is there are a lot less wealthy people out there than there used to be, and bidding competition isn't what it used to be.

[calvindog]

Originally Posted by Jim VB

From a business point of view, there is a fallacy with that way of thinking, prevalent as it may be.

Refusing to sell at true market prices often means refusing to sell at all. If this is the approach a business opts to take. They better have sufficient reserves to endure an extended period of reduced cash flow.

The money invested in inventory is already spent. It's gone, as far as the seller is concerned. Their profit results from continually buying, and reselling inventory. If their inventory is over valued, good business sense says to take the markdown necessary to move the goods, take whatever revenue they get, and buy more at the currently depressed prices.

Now I can fully understand if a collector, and sometimes seller, prefers not to take a "markdown," but full time dealers are different. A collector can just choose to sit it out and wait for an upturn. A true dealer will find it harder to do so.

Our hobby is filled with people who straddle that line between dealer and collector. Ebay makes it easy for anyone to open a store, with minimal overhead and expense, and become a dealer. A couple of months of reduced sales don't really pressure them that much. But anyone who relies on card sales as their prime source of income will react differently.

This is dead-on accurate. Holding one's inventory at the expense of purchasing new inventory makes no sense -- but have you been to a show recently? It's somewhat hard to find the economists under all those t-shirts with mustard stains.

[HRBAKER]

Originally Posted by calvindog

This is dead-on accurate. Holding one's inventory at the expense of purchasing new inventory makes no sense -- but have you been to a show recently? It's somewhat hard to find the economists under all those t-shirts with mustard stains.

There's a good line hiding here about mustard stains and "trickle-down" economics but I can't put my finger on it. Even in good times I never spied too many economists behind the tables at a card show. In many retail businesses that are inventory driven much of their profit is sitting in inventory build, if you are sitting on what this thread is calling common prewar stuff there is really only one way to pull out the profit and that is mark it down. If you don't need to that's another story.