The “Race for the Rottom”

It’s been several years since dealer Scott Winslow and I talked about the scripophily market and what he called the “Race for the Bottom.” At that time, we bemoaned what appeared to be eBay sellers trying to outdo each other in selling certificates for the lowest possible price.

The complexion of eBay certificate sales has changed a lot since then. EBay started out as an online auction platform. At present, only 4 to 6 out of every 100 certificates are offered in the auction format. All the rest are offered with “Buy It Now” or “Buy It Now, Best Offer” formats.

As I write this, there are 39,025 items listed under “Stocks & Bonds, Scripophily” on eBay(US). If we remove 2,000 off-topic items that probably do not qualify as “scripophily,” there still remains a huge, but highly repetitive inventory. Considering that the numbers of items offered and sold varies by the minute, it is hard to nail down precise numbers at a single moment in time, but I am guessing 37,000 items is a reasonable estimate for daily inventory of stocks and bonds offered on eBay(US). Of that number 2,000 to 2,200 items are currently offered as auctions across all categories. Summer is typically the slowest time of the year for collecting hobbies, so I cannot say this is a typical period. Having run these analyses at several different times, the relative percentages of auction and fixed-price items seems normal.

Regardless of offering format, one would expect that a well-visited inventory of 37,000 lots would generate a ton of certificates sales every day. Quite the opposite. During the last three months, sales have averaged a mere 87 lots per day, the exact same as measured a month before. I call that a pathetic “sell‑through” rate.

Aside from the fact that 96% of all offerings are now fixed-price listings, analysis proves that three-quarters (!) of all scripophily offerings are priced under $33. I can comment only on my specialty of North American railroad and coal mining certificates, but from what I have seen, genuine rarities appear on eBay infrequently. When they do, they tend to sell at normal to high prices. However, if sellers establish unreasonable offer prices, either too high or too low, items may be overlooked, ignored or sell for absurdly low prices.

Be assured, I am not promoting eBay in any manner, but eBay seems to be a go-to market for collectors new to the hobby. For that reason, I am highly concerned about the trend to fixed-price listings further damaging our hobby. Prices for scripophily in the eBay universe are often fixed by inexperienced sellers who have no idea of true rarity. In doing so, they have created a chaotic situation where common items are often priced too high and scarcities are priced too low. How can new collectors gauge what the hobby is really like in such an environment? How can amateur sellers help new collectors when they themselves don’t understand the hobby?

Fixed-price offerings make up 94% to 96% of daily offerings, but account for only 14% of sales. Conversely, only 4% to 6% of offerings are in the auction format and account for 44% of scripophily sales. Moreover, the sell-through rate for auctions over the last three months was 33%. I cannot say whether hobby-wide offer prices are too low or not, but it seems the auction format is the better way to sell certificates.

Professional dealers work with fixed price listings all the time. They know what kinds of certificates their customers want. They know what those certificates should sell for among experienced collectors. The low sell-through rate strongly suggests that is not the case with the majority of eBay scripophily sellers. It is true that a few professional and semi-professional dealers sell on eBay, but a large percentage of sellers seems to have little knowledge of market prices outside eBay world.

Before I conducted my analysis, I suspected eBay sellers would have offered their higher-priced material as auctions. Not so. In fact,  three-quarters of all auctions were for items that sold for $30 or less. Even then, the approximate 33% sell-through rate held.

I cannot say how many new collectors ultimately find professional dealers and professional auctions. One of the big problems for professional sellers is that eBay effectively prevents them from contacting buyers except through eBay and it works hard to prevent off eBay sales. By doing so, it locks collectors into limited and repetitive selections of beginner material, also known as “eBay jail.” If that kind of material was what collectors wanted, eBay sell through rates would be much better than 87 lots per day out of 37,000!

The low sell-through rate implies sellers are hard-pressed to entice sales with fixed prices. It is clear, though, that new collectors quickly fill up on low-priced common certificates and find it difficult to acquire scarcer material on eBay. Making collectors see the same old, tired, common material day after day, week after week clearly results in embarrassingly low sell-through rates.

One of the enduring problems that contributes to low sell-through rates is that eBay sellers don’t analyze their own offerings. If they did, they would describe items better, improve their photographs, and adjust prices.

Looking at the problem from outside the fray, the offering of ultra common material helps eBay, but does little for sellers. In the last ninety days, 7,878 certificates sold. 4,633 of those lots sold for $15 or less. I will let my readers calculate that percentage, but let’s just put it this way: a LOT of sellers have successfully raced for and reached the bottom. Unless sellers acquire inventory for free, there are lots of losers. After paying eBay fees, anyone selling low-priced certificates is almost paying for the honor.

I do see a potential upside for professional dealers; I clearly detect an unsatisfied hunger for better, or at least new, certificates among buyers trapped in the insular eBay environment. I say this because I record many robust, and sometimes surprisingly high prices when scarce and rare certificates are offered at fair prices. The apparent hunger for “new” items sometimes causes inexplicable purchasing behavior. Here is an example from three weeks ago.

I saw an ordinary generic remainder offered on eBay at a price that clearly indicated sensational lack of experience. The fixed price offer was FOUR times my estimated price and my estimate was already TWO times higher than I expected it to fetch on eBay. The certificate offered was one of 95 remainders that had originally sold in a single lot several years ago for $1.09 each. The certificate offered was the first I had encountered since that time. Although the certificate was already listed in my database for all to see, the certificate seemed “new” to the hobby and new to eBay. I fully believed the item would never sell for such a ridiculous price.

A week later, someone proved me wrong. Remember, I am talking about an ordinary, unissued remainder of an ordinary generic certificate.

Although this example was a standout, eBay buyers have been paying increasing amounts for remainders for several years. Are they simply hungry for something “new?” Are they unaware of the typical pricing structure in scripophily? Are they collectors who have come to scripophily from other hobbies where unissued items are prized?

Starting in about 2015, I began recording instances where remainders sold for more than issued examples. In the five years between mid-2017 and mid-2022, I recorded 916 sales of unissued remainders that sold for more than issued examples of the same variety. By comparison, I never recorded a single remainder ever outsold an issued certificate of the same variety in the railroad or coal mining specialties in the five year period of 2010‑2014.

High prices paid for remainders certainly makes it appear that eBay collectors are playing by different rules than the rest of the hobby. I don’t know whether that translates into unsatisfied demand among eBay buyers or not. I have felt for a long time that professional dealers could develop a good market if they engineered a way to reach eBay buyers without violating eBay rules that currently constrain sellers and trap buyers. I wish I had a clear answer on how to do that because I would tell them right here and now. All I have to offer is my unproven theory of the opportunity.