Author Topic: CLCT - Collectors Universe  (Read 8609 times)

Broeb22

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Re: CLCT - Collectors Universe
« Reply #10 on: March 09, 2018, 06:22:50 AM »
Foreign Tuffett,

As one guide to your research, while I agree that there are few if any direct comps, one way to think about this business is for companies that solve the problem it is solving.

In its 10-K, CLCT does a good job explaining how collectors without a grading service would inevitably argue over perceived quality of coins/cards. So, having an unbiased source to assess coins/cards helps minimize the inevitable gaps between buyers and sellers. It's not perfect, because some will not agree with CLCT's grades, but its better than the alternative.

I've always thought about this as the Moody's or S&P of card and coin grading. It's business model, in my opinion, is very similar to them. It's returns on capital are similarly very high.

Other similar names: the credit scoring agencies (FICO, EFX, Transunion)


Foreign Tuffett

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Re: CLCT - Collectors Universe
« Reply #11 on: March 12, 2018, 09:24:01 AM »
I like CLCT's business model. However, contra what the consensus seems to be, I actually think the company is not particularly friendly to outside shareholders. I submit the following as evidence:
 
David Hall Rare Coins ("DHRCC") is owned by David Hall and Van Simmons, two co-founders and board members of CLCT. DHRCC rents space in CLCT's California HQ. As CLCT's President, David Hall is paid a $500K annual salary. Keep in mind that this can't be more than a part time job for him, since he's literally running another business out of the same building. Also, having a rare coin dealing business based in the same building as a coin grading business is an inherent conflict of interest. Does the CEO of Moody's operate a bond trading business that is based in Moody's HQ?

David Hall and Van Simmons are gaming the coin grading system that they played very prominent roles in designing. The following quotes are from the FY 2017 10-K:

1) "We generally issue an authenticity or grading warranty with every coin and trading card authenticated or graded by us. Under the terms of the warranty, in general, if a coin or trading card that was authenticated or graded by us later receives a lower grade upon resubmission to us for grading, or is found not to be authentic, we are obligated under our warranty either to purchase the coin or trading card at the current market value at the originally assigned grade or, instead, at the customer’s option, to pay the difference in the current market value of the item between its original assigned grade and its lower grade."

2) "During fiscal years 2017, 2016 and 2015.....the Company paid to DHRCC, approximately $2,800, $4,100, and $96,400, of warranty claims, respectively."

In FY 2015 the warranty payments DHRCC received were nearly 1/6 of all the warranty payments CLCT paid out.


SlowAppreciation

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Re: CLCT - Collectors Universe
« Reply #12 on: April 13, 2018, 06:55:38 AM »
https://valueinvestorsclub.com/idea/COLLECTORS_UNIVERSE_INC/141763

Quote
The first one, http://www.legendnumismatics.com/market-reports/farwell-2017/, which was written on 12/22/2017, states: “We can not remember in our 40 years of being full time coin dealers a more turbulent year. What makes it even more crazy-Legend Numismatics was close to a record year of sales. Every month was feast or famine. In December, we totally ran out of coins and our sales slumped to a horrifying number UNDER $1 million dollars.” Therefore, the volatility of sales between CLCT’s most recent two quarters (the first of which was very strong and the second of which was weak) was also seen by other players in the industry and was not unique to CLCT.

The second post, http://www.legendnumismatics.com/market-reports/bull-market-beginning/, which was written on 2/3/2018, states: “After all the stress and worry, we ended up having a far better then expected January. From what we heard from our peers, most did as well. The near shut down of Nov-Dec is still fresh in everyone’s mind. So it would not have taken much to recover-but everyone’s numbers (including ours) were still stronger then expected.” Assuming this is an industry phenomenon, then CLCT should also be experiencing a recovery. The article goes on to make an interesting connection between the stock market and coin market that “The last time this happened-2008 when the stock market really melted down, the rare coin market went on a 2-3 year tear upwards.  We started to see really big mega collectors appear all over. Every day collectors entered in throngs. We see no reason this stock market shake out will not lead to a strong bull market in rare coins. The party is now officially over for stocks and the crowd will start to park their money elsewhere. Hard assets ALWAYS see a share of the money. Real quality rare coins are cheap today.”
« Last Edit: April 13, 2018, 08:20:59 AM by SlowAppreciation »

Foreign Tuffett

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Re: CLCT - Collectors Universe
« Reply #13 on: April 13, 2018, 08:35:23 AM »
https://valueinvestorsclub.com/idea/COLLECTORS_UNIVERSE_INC/141763

The author of that VIC article seems willfully oblivious to the fact that the hyperbolic coin dealer he uses uses to build his case has a completely different business model than CLCT. The coin dealer is attempting to profit via the spread between its "wants lists" (aka the price and what is sells the coins to its customers for. It's basically a primitive and lumpy form of market making. While it is true that the vintage coin market has been slow, the results of a single coin dealer really don't mean much IMO.

I'm on the fence about CLCT. It has a great capital light business mode. But the board isn't particularly friendly to outside shareholders, and China, which has been the growth engine of the company over the last several years, is a black box of trapped cash.

SlowAppreciation

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Re: CLCT - Collectors Universe
« Reply #14 on: April 13, 2018, 09:34:49 AM »
https://valueinvestorsclub.com/idea/COLLECTORS_UNIVERSE_INC/141763

The author of that VIC article seems willfully oblivious to the fact that the hyperbolic coin dealer he uses uses to build his case has a completely different business model than CLCT. The coin dealer is attempting to profit via the spread between its "wants lists" (aka the price and what is sells the coins to its customers for. It's basically a primitive and lumpy form of market making. While it is true that the vintage coin market has been slow, the results of a single coin dealer really don't mean much IMO.


But doesn't CLCT make money on activity? Kind of like how IBKR would do better at times of extreme buying/selling in the market (i.e.,volatility), or how Moody's would do better when debt is being issued. More buying and selling of coins would benefit CLCT (though I guess once graded, no need to get it regraded).

DTEJD1997

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Re: CLCT - Collectors Universe
« Reply #15 on: April 13, 2018, 09:58:24 AM »
https://valueinvestorsclub.com/idea/COLLECTORS_UNIVERSE_INC/141763

The author of that VIC article seems willfully oblivious to the fact that the hyperbolic coin dealer he uses uses to build his case has a completely different business model than CLCT. The coin dealer is attempting to profit via the spread between its "wants lists" (aka the price and what is sells the coins to its customers for. It's basically a primitive and lumpy form of market making. While it is true that the vintage coin market has been slow, the results of a single coin dealer really don't mean much IMO.


But doesn't CLCT make money on activity? Kind of like how IBKR would do better at times of extreme buying/selling in the market (i.e.,volatility), or how Moody's would do better when debt is being issued. More buying and selling of coins would benefit CLCT (though I guess once graded, no need to get it regraded).
You would be surprised at how many times some coins will be graded.

This will typically happen on VERY high end coins that are right on the edge of being a grade higher. 

For example: a MS-65 $20 St. Gaudens might be worth $30K.  A MS-64 might be worth $18k. If you've got an especially nice MS-64 coin...you might resubmit it in the hopes that you get a higher grade and make the jump to MS-65.  The $100 cost is totally worth it if you've got a 10% chance of hitting that MS-65 grade.

I've known of collectors/dealers doing this.

This regrading or "cracking" is generally only done on higher end coins.  The fees on higher end are of course substantially more than on lower value coins.

So CLCT might actually get a decent amount of $$$ from collectors/dealers doing this.


SharperDingaan

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Re: CLCT - Collectors Universe
« Reply #16 on: April 13, 2018, 11:56:13 AM »
Couple of thoughts ...

While they have a great niche business, the management has essentially made the business uninvestable. It's a couple of folks who had a great idea 'way back when' & executed on it very well; but the niche has since been in the maturity stage for a long time. They haven't found a replacement idea despite repeated attempts, & have begun to asset strip via related party transactions.   

Their product is the slab & it's related warrantied authentication. In the art world this would be a letter from Mr 'X' of 'XYZ Institute' attesting that your Renior painting is genuine and not a fake. In the diamond world this would be a certificate (with spectrograph) attesting to the diamonds origin. With the 'appropriate' authentication, the item can be sold for much more.

They are really selling a 3 part product; the appraisal itself, the CLCT 'experience', and provenance as the 'story'. But put this on a blockchain ..... You could use the slab as the solution to the digital/physical fraud interface; use the blockchain to prove ownership provenance accross both time AND space; and use the building as a vault to warehouse the physical - and underpin lending/leasing to museums and galleries.

Imagine you live in an unstable country.
As & when you can, you travel to the US and buy the most expensive 'slabable' collectable that you can. Then arrange for storage in the CLCT vault, and permit CLCT to lease your collectable to a 'Hall of Fame' somewhere. As that collectable never entered your country local authorities cannot seize it, but if you ever have to run - you have a fully provenanced asset that you can sell outside of your country, any time you wish, from anywhere, and at full market value. Very appealing to a wide swathe of market, but it can't happen without your slab/blockchain solution ;)

SD


     
« Last Edit: April 13, 2018, 03:02:01 PM by SharperDingaan »

eclecticvalue

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Re: CLCT - Collectors Universe
« Reply #17 on: April 13, 2018, 12:28:34 PM »
SharperDingaan- Sharp thoughts as always.

I am also thinking about the millennial and their collectible habits. The only collectibles that are popular right now are sneakers and streetwear. There are private companies that taking advantage of it such as Stockx and Goat.

SlowAppreciation

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Re: CLCT - Collectors Universe
« Reply #18 on: April 13, 2018, 12:31:59 PM »
https://valueinvestorsclub.com/idea/COLLECTORS_UNIVERSE_INC/141763

The author of that VIC article seems willfully oblivious to the fact that the hyperbolic coin dealer he uses uses to build his case has a completely different business model than CLCT. The coin dealer is attempting to profit via the spread between its "wants lists" (aka the price and what is sells the coins to its customers for. It's basically a primitive and lumpy form of market making. While it is true that the vintage coin market has been slow, the results of a single coin dealer really don't mean much IMO.


But doesn't CLCT make money on activity? Kind of like how IBKR would do better at times of extreme buying/selling in the market (i.e.,volatility), or how Moody's would do better when debt is being issued. More buying and selling of coins would benefit CLCT (though I guess once graded, no need to get it regraded).
You would be surprised at how many times some coins will be graded.

This will typically happen on VERY high end coins that are right on the edge of being a grade higher. 

For example: a MS-65 $20 St. Gaudens might be worth $30K.  A MS-64 might be worth $18k. If you've got an especially nice MS-64 coin...you might resubmit it in the hopes that you get a higher grade and make the jump to MS-65.  The $100 cost is totally worth it if you've got a 10% chance of hitting that MS-65 grade.

I've known of collectors/dealers doing this.

This regrading or "cracking" is generally only done on higher end coins.  The fees on higher end are of course substantially more than on lower value coins.

So CLCT might actually get a decent amount of $$$ from collectors/dealers doing this.

Good info—thanks for this.

SharperDingaan

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Re: CLCT - Collectors Universe
« Reply #19 on: April 13, 2018, 02:58:50 PM »
Collectables are cyclical, price routinely moves up and down.

There was a time when natural coloured diamonds were so cheap that they were substituted for more expensive gems. At the time, the diamonds were  fairly numerous, usually larger than their clear counterparts, were considered 'junk stones', and were typically selected to match the colour of the recipients eyes. Today heirloom jewelry from the late 1800s/early 1900s made with these diamonds is worth a fortune; as coloured diamonds are rare, & the diamonds can be certified to specific mines that have long since closed.

Similar story around Parisienne art-deco jewelry from the 1920's. It fell out of fashion in the early 30's, & could be picked up for pennies in many Paris street markets shortly after WWII. Today a good piece from a top jeweler of the time, costs more than a house.

Price may change, but quality is a constant.

SD