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How To Handle A One Collector State Collection

3/28/2013

It has now been two months since Glen Jorde sold his massive collection of North Dakota national bank notes.  The auction was certainly not a failure, but I think the deal was probably worth more privately.  Glen said he thought auction was the fairest route to liquidate his collection, and I agree.  An auction gives everyone a chance to compete and the seller doesn’t have to risk offending lifelong collecting friends.  About once a year a collector decides to sell his state collection:

2008 – Frederick Mayer – Colorado Collection
2008 – Chet Krause – Wisconsin Collection
2010 – Richard Melamed – Minnesota Collection
2012 – Wallace Lee – Michigan Collection

We also saw very respectable collections from Oklahoma, Ohio, New Mexico, and Westchester County get auctioned in the past five years.  I am going to share some information I have learned from watching these very specific state and/or county collections get sold.

1)      The top 1% always sells well but usually underperforms private results.  The two leading lots in the North Dakota collection were serial #1 notes from Bismarck and Rugby.  Bismarck sold for $97,750 and Rugby brought $37,950.  At the top of the market the notes were worth $125,000 and $75,000 respectively if sold privately.  The day of the auction I think you could have probably gotten $100,000 and $50,000.  So the prices they brought were pretty much on target, but still slightly cheap.

2)      The bottom 30% of the collection does very well.  This is where the auction hype comes into play.  A well promoted auction brings in non-collectors and collectors from other areas of paper money.  These people just want to be part of the action so they might pay $400 for something really worth $250.

3)      The serious but average collector can’t absorb all the material.  This is probably the most important thing to understand.  The average national bank note collector is probably 50 years old, with a family, mortgage, and a good job.  His collecting budget might be $10,000 a year.  These collectors drive the hobby.  He might learn about the auction two months before it takes place.  When a lifelong collection gets sold there is probably $100,000 worth of material he would like to buy, but he has to focus on the one or two lots most meaningful to him.  There are probably ten other collectors like him who have to sort through $100,000 worth of wants on a $10,000 budget.  What ends up happening is these guys focus on a couple of notes that sell for way too much money, and other extreme rarities get passed over because everyone is saving up waiting for their must have lot.  A savvy dealer can go to an auction like that, spend $50,000, wait a few months and make a 10-20% profit as the collecting budgets of the true collectors gets replenished.

Other dealers have theories on how to best approach state collections.  Some people advise buying early while collectors are waiting to get a feel for how much money people are going to spend.  That is true; bargains are much more likely to occur early as opposed to later.  There is certainly money to be made on a huge one collector sale.  You just have to plan ahead and come in with an agenda.