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Paper levels and their effect on value


mywei

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Moral: most dealers are always looking for an angle to buy cheaply (and sell high)...

 

Dear Chris san,

I think that most of dealers (in Japan) know almost any items, exactly how much they can sell at dealers auction (Ichi), so, they want to pay a bit less than the price.

I think that you and some of members have been the dealer's auction in Japan.

Did you understand what they do ?

have you seen "碗伏せ(Wan-fuse)" auction ?

 

Those top dealers who Dacy san was talking about, they are extreme,

If you want to make profit, it is better to stay away from them.

but, if you want highest level items, they are the best source....

mmmm :steamed:

 

When a dealer gets very best sword, they want to sell it to the very best client.

when a collector gets very best sword, they want to keep it, and want to sell other sword.

That is different between a dealer and collector, I think.

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Dear Chris san,

I think that most of dealers (in Japan) know almost any items, exactly how much they can sell at dealers auction (Ichi), so, they want to pay a bit less than the price.

I think that you and some of members have been the dealer's auction in Japan.

Did you understand what they do ?

have you seen "碗伏せ(Wan-fuse)" auction ?

 

Those top dealers who Dacy san was talking about, they are extreme,

If you want to make profit, it is better to stay away from them.

but, if you want highest level items, they are the best source....

mmmm :steamed:

 

When a dealer gets very best sword, they want to sell it to the very best client.

when a collector gets very best sword, they want to keep it, and want to sell other sword.

That is different between a dealer and collector, I think.

 

 

Sure, I have been to many dealer only auctions so I know very well what dealers usually pay. I have no problem with dealers buying low and selling high. That is how they make a living.

 

What do you mean by "very best client" What makes a client "very best"?

 

Your observations on the difference between a collector and dealer is a good one!

 

It is only natural for a dealer to want to buy low and sell high. I don't begrudge them their livelihood. Sometimes, the buy/sell pitch is full of what Darcy calls "opinion". Many times these "opinions" are simply "marketing", often times without any basis in fact. As buyers and seller, collectors need to see through the "marketing" and make decisions based on the sword itself with their eyes wide open.

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Hello:

Kunitaro's posting of the 1950 Kicho awards (the earliest in NBTHK history?) illustrates exactly the point I was attempting to make above on the rating of early Kicho. I am sure that the same could be said of early Juyo. I believe that the first police registration dates that really mattered were Showa 27 and 28 (1952 and 1953) subsequent to the Occupation, when the collections of former Daimyo families and of shrines and temples that had never seen the light of day, or at least public expose, were first registered. If they subsequently submitted them to shinsa, and I would guess that only a small fraction would have done that, the quality must have been high and historically important.

Any information on that Kunitaro?

Arnold F.

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  • 3 weeks later...
Swords are always judged individually and whether or not an item passed a Juyo shinsa that some people "believe" was substandard says nothing of the quality and value of an individual sword in and of itself. There are always rumors, old wive's tales, and other forms of noise in any marketplace. "What matters is what people believe" paints a picture with a very broad brush; not everyone believes the same rumors.

 

The market reflects the sum of the opinions of the participants in the market.

 

You can look at, for instance, the stock market. At any point in time some people believe a stock is worthwhile to hold. Other people think it is worthwhile to buy. Others believe it should be sold, and still more will borrow it to sell it short. Each market participant has a different opinion. If enough people line up on the buy side the price of the stock is pushed up. Whether they are right, or wrong in their opinion doesn't matter, the weight of their opinion is reflected in the stock price.

 

There are examples like Nortel and Enron of the market valuing something far above its worth, examples like Bank of America where the market pushed it to be undervalued. There are commodities like oil and gold with values that fluctuate all over the place even though on a day to day basis they are "worth" pretty much what they were worth the day before. What's changing is only the opinions of the market participants.

 

So yes, not everyone believes it to be so, I've said that above and I don't know why you want to keep hammering the point. Whether you personally believe it or not or whether I believe it or not isn't as big a factor because we're only individuals, what matters is the sum of the opinions.

 

There are some people who think for themselves, thankfully, and are able to recognize a quality sword when they see it.

 

I'd like to think that most people do think for themselves and the better they study the more they are able to recognize a quality sword. That dovetails with what I have been saying, in terms of a paper not setting a hard limit on the upper end of the value but representing support of a base value.

 

This type of noise works both ways: dealers exploit it when possible (whether they believe it or not), and the smart money understands it as a place to find value.

 

Who starts these kinds of rumors? Follow the money.

 

You may call something a rumor and someone else may call it truth. What you have there is a difference of opinion. I personally think it's a little close to conspiracy theory to think that the perception of the late 70s Juyo sessions as being somewhat weak is based on people trying to reap financial benefit... I don't think it makes a lot of sense, because it's a double edged blade. If you are benefiting from some "rumor" you start on the buy side, that same "rumor" is going to affect you on the sell side.

 

That is if you want to say flip a penny stock and you start a rumor that the company is going under in order to buy the stock low, you're going to have to wait for the rumor to pan out as being false in order to benefit on the sell side. In the case of a stock you have a dynamic situation, not a static situation like the art market.

 

We can take Masamune for instance, and say that the fellow who starts the "rumor" (from a non-believer's point of view) that the smith never existed and if he did exist he didn't make all these magnificent mumei Soshu blades is a buyer of Masamune swords and seeks to destabilize the market, lessen the price and buy them up. In order to succeed he needs to really convince people of the strength of his argument. In order to be successful he will need to cause lasting harm to the image of these swords, this is the only way to get the price low, and once he's bought many that same damage to the market prevents him from selling them profitably unless he really does corner the market. So, it's kind of a bad plan if your intent is to make profit.

 

It's a good plan though if you want to just buy them all up and hoard them until you die though, so it's actually much better for collectors that there is a false "rumor" affecting the perception of something negatively. That causes the price to go down, and someone who wants to just buy and keep is the one who benefits. Not the one who wants to trade.

 

So, if you want to follow the benefits then of such a "rumor" it would lead right to collectors rather than dealers.

 

While your dealer story, at face value, seemingly implies that the dealer set his price based at least in part on the session number, we do not know with any certainty how much, if at all, or in which direction, that informatioIt's an actually played in his valuation , do we? Do we know he actually believed it or was simply trying to exploit a rumor?

 

If he were trying to "exploit a rumor" then he'd be sitting there justifying his numbers and giving the whole dog and pony show and lines of BS. I'm sure you have heard them before. He didn't do this, he just took the info and made an offer without any attempts to justify it, I politely declined, and he smiled and we went on to the next subject and never discussed it again.

 

I brought an out of polish sword to a well known dealer once and offered it. His price was, as expected, quite a bit less than what I wanted. He said the reason was the sword was out of polish, and that he liked to buy swords in polish because of the risks of polishing, and that they were worth more in polish. I thanked him and left. I returned 2 years later with the same sword, this time in fresh, high quality polish; the sword showed no flaws. I again showed him the sword. This time he offered slightly less than the first time! He then proceeded to tell me that he liked to buy out of polish swords because they had "upside potential"...

 

This makes perfect and complete sense.

 

An unpolished sword or an unpapered sword has a value that can be represented by a wave function. It's not a certain value it's just probabilities based on what it *might* be.

 

Shroedinger's Cat.

 

The various steps you take along this line:

 

1. unpolished sword

2. polished sword

3. polished and papered to lowest paper possible

4. polished and papered to highest paper possible

 

Each one of those steps partially collapses the wave function and more accurately sets the value of the item. By polishing that sword and showing it to him, you basically took a peek in the box and revealed the cat to be either alive or dead. Whatever he saw, it was not up to the potential that he hoped there to be in the sword. Maybe his evaluation was unrealistic, he saw potential that was not there, but again it's something that involves opinions, judgment and a little bit of luck.

 

Maybe the better metaphor is a poker hand. With five cards down anything is possible. Polishing the sword flips two cards over. There is still a wide range of possibilities for valuation but they are narrowed down now by the process of polishing revealing more of the truth about the sword. Getting an attribution paper flips another card... getting to Juyo flips another... and so on.

 

Failing Juyo or failing Hozon flips a card too, a bad card that doesn't help the hand.

 

The more you go down the road of flipping those cards, the more certain the value becomes.

 

An additional factor though is that the polish could actually reveal the sword to be at the very top end range of the possibilities of an unpolished sword. So while an unpolished sword's "real value" is represented by a wave function and we try to assess the probabilities and come up with a buying value that will over time and repeated purchases of these kinds of swords bring us out ahead, if that wave function collapses at a really high value it will still 999 times out of 1000 remove some sliver of upside but actually returns the benefit of eliminating risk.

 

Still, the owner and seller in this case is the one who had it polished and after the polish no doubt you either re-affirmed your opinion of the value or else adjusted it based on what the polish told you. That adjustment (or lack of it) is what is consuming (some of) his (potential) up-side. The exchange though is that you erased a lot of the buyer's risk by establishing that it had no flaws and was a nice sword and looked good.

 

But, that's not interesting to this buyer as he's not collecting nice swords with no risk, he is a speculator (as are a large number of sword buyers).

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Actually here is another anecdote about opinions and papers and values.

 

Hopefully not so much quantum mechanics.

 

Some years ago when the Fittings Museum collection was being auctioned at Christie's I went to New York to look at the swords, I can't remember which one I was going to look at as I didn't end up buying it but one sword was pretty interesting to me that was shown in NYC. It was attributed to Senjuin by the fittings museum but had no other papers.

 

I thought it was better than Senjuin and looked to me to be better than any Senjuin Juyo I'd seen. I bought it thinking it would attribute to someone else. It had nice koshirae too and a solid gold habaki. So someone really liked it in the past.

 

So I bought it. Here's the auction:

 

http://www.christies.com/lotfinder/lot/ ... 400c019579

 

So at open auction, the sword "is what it is" but the sum weight of opinion is influenced by lack of papers, and by attribution to Senjuin in spite of people being able to recognize a good sword when they see it.

 

I sent it in for papers and it papered to Ryumon Nobuyoshi.

 

That same year I had a Kanemitsu and a Norishige both at Hozon. I didn't want to submit all three to Juyo so I put the Ryumon Nobuyoshi up for sale.

 

Now, potential buyers who went out and sought opinions were told that the price of the sword was "too high" because it was "only Tokubetsu Hozon." People were assessing the sword by the papers using them as a cap. Since it was clear it had never been submitted to Juyo, people were making the error of setting the value as if it had failed Juyo several times. A couple of people kicked the tires, went out and sought opinions, were told by "wiser" people that it was too much for "only Tokubetsu Hozon" and walked away.

 

A friend of mine bought it for slightly more than I paid. I said I thought it had a fair shot at Juyo, and he told me (without naming names) that a lot of people were giving him a hard time for paying a $40k price for "only Tokubetsu Hozon."

 

He submitted the sword right away, and it passed Juyo on the first shot and furthermore the koshirae passed Tokubetsu Hozon. So now after it got Juyo and TH papers on the two components, it looked like a much nicer purchase if you were using the "only Tokubetsu Hozon" judgment.

 

Same sword. Different papers. Opinions now change on the value of the item.

 

Some time later on he put the sword to auction again and it went for $56k. Christie's of course takes a cut there but he got a profit on it.

 

The point here though is that the same sword at the same auction house, with a different attribution and different level of paper came out to a different price.

 

Same auction house. Same customers. Same eyes. Same sword knowledge.

 

Different papers, different attribution, different price.

 

The price changes because with the papers settled the risk is removed, your-opinion-vs-mine debate is settled by the NBTHK on attribution, wave function partially collapses and value in this case is higher at Juyo. Why? Because the net opinions of the marketplace have enough people that use the paper to value the sword rather than the sword to value the sword that the market price is influenced. Wrong or right, the sum of the opinions of the market shift the price.

 

If you're good, you can pick the right sword that everyone is nervous over because they won't trust their judgment, and their lack of participation in the market as a result of that, lowers the price for you. Similarly when you settle the open questions, those people will return to the market with their opinions and if you were right in the first place, their opinions will now float the value higher.

 

http://www.christies.com/lotfinder/lot/ ... 400c019579

 

So the sword went from being a very expensive "not even Hozon" maybe-Senjuin in the opinion of the market (I thought it undervalued so I bought it) to a reasonably priced Ryumon Nobuyoshi with Tokubetsu Hozon papers (in some people's opinion including mine) -or- a "too expensive for only Tokubetsu Hozon" sword (in other people's opinions, including every sword dealer who was not selling it haha) and then to an inexpensive for price paid Juyo Token Ryumon Nobuyoshi with Tokubetsu Hozon koshirae and then finally collapsed on a value of $56,000 in the open market.

 

I could not get much higher than what I paid because those negative opinions in the market about "only Tokubetsu Hozon" weighed on the value. Changing the papers for Juyo + TH took those opinions out of the market and let the value float higher again.

 

So if things were a bit more efficient I could have just sold it to the last guy without the intermediaries but that's a whole other thing.

 

Anyway, in conclusion, what's the value now?

 

Value is always what a reasonably informed someone will pay for it in a reasonable amount of time with a reasonable exposure to the marketplace. Sum of opinions include people who think a school or smith is crap and others who think a school or smith is superior. Some think one organization's papers are crap and others think they are great. Some judge the sword on its own without factoring the level of the paper at all, others look at the level of the paper and assign the sword a value from that ("only Tokubetsu Hozon").

 

All opinions factor into what the thing is going to settle at in the open market. Obviously in this case the sword is much more highly valued in the market as a Juyo/TH Nobuyoshi/koshirae than as a nopaper/nopaper Senjuin/koshirae.

 

The issue is not settled though because the buyer bought a piece that has never been submitted to Tokubetsu Juyo. Will it pass? Probably not, because most of everything doesn't pass. But, that's only a "probably not" ... the wave function has not completely collapsed.

 

At every step of the way, as a question was answered about this sword, it established a new range of values with new probabilities of what may be realistic and a new floor on the value. If he can get it through Tokubetsu Juyo it will further collapse the probabilities and raise the value of the sword again.

 

If it fails Tokubetsu Juyo three times or four times or 10 times it will put somewhat of a ceiling on the value of the sword, every failure flips another card and removes some speculative "upside" on the piece.

 

Depending on what kind of character you are, if you find a van Gogh you may not want to flip your cards or see what's inside the box. As is it has speculative value and that is some kind of a guarantee. Flip the cards, and you will find out if you win or lose. And if you turn over some not so interesting cards, poof goes the upside and you find yourself unable to sell it without lowering your price. Because all opinions factor into the market, legitimate or not.

 

It can be problematic again, to think that a sword has a "true value" where as above, value is just what someone will pay for it (short version). Even more wrong is assessing the value of the sword by the papers, especially in terms of a cap, or by rejecting other opinions in the marketplace even if they are wrong.

 

As can be seen ultimately someone was willing to pay $56k for this same sword. So the people who said "too expensive" at $40k were wrong. In spite of them being wrong, there are enough of them that they depressed the market for the sword and their "wrong" opinion became a very strong reality.

 

And that leaves two lessons for people.

 

So the take home lessons are that you can miss out on something good if you try to assess the cap the price of an item by its papers. And if you can educate yourself to recognize something that your peers may miss, you can discover something in plain sight that they may be too leery to touch. If you are indeed right and can get an authority to agree then they will fall in line and that will float the market value of your item. So either you make profit -or- you buy something under market price... but, you take on risk and if you do it wrong you get burned (I bought the wrong Sukesada lot while jetlagged at auction once. Oops.)

 

Cary Condell bought a sword off of a table at one of the sword shows from one of his peers once, showed it to me, after it passed Juyo. He didn't pay very much and the value went up about 10x or so after polish, attribution, paper. He saw something that everyone else walked by at at that show, something in plain view. Maybe if it was polished then more people would have seen it to be what it was including the owner. So that was another instance without getting deeply into it where the sword as the questions were answered skyrocketed up into the marketplace.

 

And that dovetails with Chris' client who didn't want the sword after it was polished. He didn't want the extra information that the polish gave out, even though it affirmed it was a good sword, he wanted the speculative value not the surer thing.

 

Anyway it confirms I think what I'm saying, the main points being that opinions of the market participants are ultimately what sets the fair market value of an item. The influences of experts and written opinions on an item affect the value by influencing the opinions of the market participants. Opinions are never universally held, and all of them sum into the final FMV.

 

It's important to know your market then, if you're going to sell into it, because these opinions are not universally held.

 

Anyone is free of course to hold their own opinion and in fact already does and is influencing the price of things I am buying right now and also those that I am selling. Whether you agree with any of this or not, if you think something i have is too much because of the level of the paper you don't buy. If you think it's cheap for a Masamune with Tokubetsu Juyo papers and you have the cash you buy (I don't have one). That's how the marketplace works when it's not too manipulated. Leaving open then what Christ mentioned that some people do try to manipulate the market, this is true always, cases in points when Japanese or other dealers act in unison at auction then split the swords up later. Corruption is always active in all marketplaces as well. It acts as another opinion and one that tries to influence others.

 

If I'm a house builder I want to tell you how this house is going to be a great investment and you'll make money and you order 10 houses from me. Thing is maybe I go out of business when the housing bubble ends so ultimately it's not so good. Anyway I gotta stop this somewhere. Won't get into the debate further but hopefully some people find some of this to be illuminating.

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Hi Darcy,

Thank you for taking the time to post such a detailed and informative view which I fully agree with.

I can fully understand when buying from the internet without the opportunity to see the blade in hand (which we nearly all do these days) why papers are increasingly important. However the point you make which I think is key is that it is not what papers the sword has, it is whether or not that level of paper is the highest it can achieve. having never been submitted for Juyo is totally different to having been submitted and failed. Good sellers will often say if a sword has reached its papering limit.

The most expensive sword I ever purchased had hozon papers. When I bought it my intention was to submit it to Juyo shinsa. I then asked myself why? It had three seperate attributions from all confirming the school and maker. It's quality spoke for itself. If I submitted it it would be away for up to 18 months (assuming it passed)

So until such times as I decide to sell it I will keep it here and enjoy it. when I do sell I will consider submitting it for higher papers (which it has never been).

Thanks again for taling the time to post

best Regards

Paul

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For me this has been one of (if not the) best in depth discussion I have been treated to on this board. Worth several readings, this is exactly the reason one could quote for justifying being a member here. For a newbie a complex subject made understandable, thanks to all who contributed. Most enjoyable.

Regards Denis.

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For me this has been one of (if not the) best in depth discussion I have been treated to on this board. Worth several readings, this is exactly the reason one could quote for justifying being a member here. For a newbie a complex subject made understandable, thanks to all who contributed. Most enjoyable.

Regards Denis.

 

As the OP, I fully concur with this. Has been a very in depth discussion with interesting concepts and viewpoints from difference angles. Could not have expected more.

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The market reflects the sum of the opinions of the participants in the market.

 

You can look at, for instance, the stock market. At any point in time some people believe a stock is worthwhile to hold. Other people think it is worthwhile to buy. Others believe it should be sold, and still more will borrow it to sell it short. Each market participant has a different opinion. If enough people line up on the buy side the price of the stock is pushed up. Whether they are right, or wrong in their opinion doesn't matter, the weight of their opinion is reflected in the stock price.

 

This whole argument is based on the very large assumption throughout that the Efficient Market Hypothesis and all that entails is applicable to the sword market. I would argue it isn't, and many would argue it isn't valid for markets period-but that is for economists to debate.

 

The Efficient Market hypothesis is based on certain assumptions:

 

Many Buyers and sellers (liquid market)

Agents have rational expectations and on average make good decisions about buying/selling (symmetric information)

Perfect information about market trends and profit (open markets)

 

Unequal access to information, unequal access to merchandise, unequal access to prices, inequality of market players, uniqueness of merchandise, non liquidity, etc., all create an imperfect market situation wherein there really is no unique "sum of opinions" and few across the board, universal "truths" when it comes to valuation.

 

The sword market is very far from perfect and it is still quite far from efficient (though the internet has improved the efficiency greatly).

 

In addition to the sword market not meeting the assumptions for the EMH, even if it did, investors and researchers have disputed the efficient-market hypothesis both empirically and theoretically. Warren Buffett, among others, has argued against EMH, most notably in his 1984 presentation The Superinvestors of Graham-and-Doddsville.

 

I believe, based on my experience, that swords-each unique- despite having kantei-sho, are always judged and valued individually. Because of this and because of market imperfections, there isn't a convergent valuation or opinion. There isn't a large, open market for swords, rather, many small, disjointed markets. Many are open, many more are closed. We simply do not have unfettered access to most transactional data. There are too many dislocations for a consensus "market price" to emerge in almost all instances, the issue of uniqueness aside.

 

I can look at online dealer sites and at sword shows for say, a shodai Hizen Tadakuni wakizashi. I can probably find a dozen or more. Some with hozon, some with Tokubetsu Hozon, some without. I can find those without papers with a price higher than those with. I can find those with Hozon papers in a range of $4000 to $8000 or more. I can find those with TH papers selling from $7000 to $15,000.

 

In theory, it should be the case that a kantei-sho would set a lower value on a sword, but given the imperfections in the market and the nature of swords themselves, in practice, it provides little guidance in absolute terms in most cases. About all we might say is that a papered sword should be worth more than a sword without papers, all else equal. We know that there are many exceptions to even this most basic of generalities and that with swords, little is ever equal.

 

As far as my anecdote about the dealer and my sword, the important point was he first said he preferred buying swords out of polish (which should always be valued less than the same sword in polish assuming no flaws) and offered X then said he preferred to buy swords in polish (which should be valued higher than the same sword out of polish-provided the polish did not reveal flaws, etc.) and offered X-y. You can't claim to prefer both speculative based and fact based purchasing-they are obviously diametrically opposed.

 

Those interested in further reading should check out:

 

Understanding International Art Markets and Management

edited by Iain Robertson

 

Here is a relevant excerpt:

post-1462-141968760321_thumb.jpg

post-1462-14196876023918_thumb.jpg

 

 

Since my education is in finance, I will defer to Arnold, our economist, for further economic discussion of markets, should he desire.

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OK I will take one more crack at this because I am in agreement with much of what you said and it's a major part of one of the points I am making about opinions affecting the value of something, and in fact the sum of the opinions.

 

Unequal access to information, unequal access to merchandise, unequal access to prices, inequality of market players, uniqueness of merchandise, non liquidity, etc., all create an imperfect market situation wherein there really is no unique "sum of opinions" and few across the board, universal "truths" when it comes to valuation.

 

Yes, exactly so, except for the sum of opinions part.

 

To try to say it another way, the value of anything in the marketplace is a tug of war between the pro camp and the con camp. Because people don't agree and there is no universally held truth. But the push and pull of the different opinions on value is what settles some kind of normal range for the value of an item. Depends on what the various people participating in the market believe, even if equally educated and exposed to info they can have different opinions on value.

 

If you have something that you believe to be worthless and someone believes to be valuable, you will likely sell it to them and get what you can get out of it.

 

This happens every day in the sword world as collectors with desire and knowledge go out and buy things at garage sales, ebay, in classified ads, etc. The sellers don't believe in the value being high (due to lack of knowledge, aesthetic taste, etc.) and the buyers believe so they buy it. The seller thinks they sold high and the buyer thinks they bought low.

 

Who is right? Depends on how many people agree with the seller and how many with the buyer. It doesn't have to be universal, it just needs to be backed by dollars and action.

 

That buyer may become a seller if he finds someone who believes it to be more valuable than he believes it to be.

 

I bought this gendaito for $10. I think it's worth $500 so I scooped it. Score! You think it's worth $5000 so you offer me $2,000. I sell it. Score! Now we adopt the same positions of the garage seller I bought it from at $10, but I've exchanged places. Below $500 I'm a buyer and above $500 I'm a seller. If you are the only one who believes what you believe you probably just bought too high. If I am the only one who believes what I believe I probably just sold too low.

 

Depending on how many people agree with me compared to how many people agree with you, a market value for that item and similar items is set. That's why collector A will share a link with an item on a website with collector B and say, "What do you think?" Collector B may say, "too expensive" or "good price" as well as "bad item" or "good item."

 

The more people that fall on one side or another pull the value of that item in the direction of their opinion. This is what I mean by the sum of opinions: not that it's a universally held belief, but that the disagreeing opinions each have weight.

 

It only takes two believers at auction to cause an item to skyrocket. The fervor of their belief can then reverberate through the marketplace and cause others to re-evaluate their opinions. Or, they may sit back and say, "What a pair of crazy dudes." If enough agree that those two dudes are crazy there will be little or no impact to the value of similar items. If enough people say, "Hmm, maybe I was missing the bigger picture here" then you will see a possible trend beginning.

 

Here is another case in point. Antique Rolex Milgauss. A watch of little value for most of its history, I was reading an article the other day by an expert:

 

Danny Pizzigoni, owner of vintage timepiece retailer Watch Club, recalls: “Even up until the late 1990s you would see them in auction catalogues for about £4,000-£6,000. Then, in 2000, a client came to me and said he had seen a lightning-bolt hand Milgauss at auction.” Early Milgauss models were distinguished by a jagged second hand that resembled a flash of lightning. “I told him it was a nice watch but that the most he should pay was £7,000. He returned having bought it for £14,000 and I thought he was mad. Now a good one with provenance, box and papers is worth over £100,000, and £150,000 in unworn old-stock condition.”

 

http://howtospendit.ft.com/mens-watches ... mechanisms

 

You see similar situations with penniless artists who die almost unable to give their work away to seeing it go for millions of dollars a century later.

 

Barnett Newman made Voice of Fire in 1967. It's a painting with three stripes. The National Gallery of Canada bought it for 1.8 million in 1990 and the average Canadian did a spit take over their breakfast newspaper that morning. National outrage ensued, anger peaked. People went crazy. Letters were written, radio shows were called, evening newscasters talked about it for weeks.

 

voiceoffire.jpg

 

Fast forward to March 2013, a Barnett Newman goes at auction at Sotheby's for $43 million. Double the previous record for this artist. Nobody bats an eye. Voice of Fire should it go to auction ... $30 million? $50 million? Nice gain.

 

http://www.nytimes.com/2013/05/15/arts/ ... .html?_r=0

 

The take home quote:

 

“The high end of the market is quite deep,” said Tobias Meyer, head of Sotheby’s contemporary art department worldwide and the event auctioneer, speaking of the number of bidders. “People are very educated; they know what is what.”

 

What in 1990 was "misunderstood" and made Canadians flip the hell out, today goes for 50x the price because people are now "educated" and "know what's what."

 

The artworks did not change.

 

There is still no universal acceptance of value. Most people would walk by these things and go "hmm that's pretty" or fail to get it at all. I am one of those people. I fail to get it. To be they have zero value. To me Voice of Fire is a big joke. I have always thought it preposterous, so much so that I used the design to make a coffee table a few years ago.

 

table.jpg

 

Voice of Coffee? Table of Fire?

 

Anyway, my point is that I still personally find little to value in Voice of Fire or any of this artist's works. This is partially because I'm uneducated and partially because though I like to look at them for a few seconds, I don't believe there is a lot of skill involved and I don't find them impactful enough that I would consider buying one for any more than a few thousand dollars.

 

Most people agree with me.

 

But those that don't, they believe strongly enough and carry enough clout that the market value of these paintings is extremely high.

 

And of course... now that I've been subjected to those opinions shown at market, I probably would indeed jump at the chance to buy a Barnett Newman for 1/50th of the market price because I know I could sell it for more. As would anyone else who is now exposed to this information. In fact it makes me think too, yes, there is something I am missing here (why I call myself uneducated, obviously I don't get it). But like anyone reasonable, knowing what they "go for" I can look at what I can "get it" at and I would flip one if I found one in a yard sale.

 

No universal truth. No universally held valuation. Just enough people on one side of the equation and believing hard enough to tip the balance in that direction and other people, exposed to the information, will float the general value a bit higher.

 

Certainly without knowing anything about any of the above, I would pay a couple thousand and beyond that forget it. Knowing what I know I would pay much more. So their opinions influence mine. Anyone here who just read this if they found one at a yard sale that they knew 100% was legit would buy it for a hellavaluation that they'd never buy at before without being exposed to the information. We call that common sense. They wouldn't be buying to keep, but would be buying to sell. Regardless the desirability has gone up for them because their education has gone up and their opinion changed. There needs to be no consensus and it doesn't need to be universal and what the real market value is is only a guess until it hits an auction. But it can be known within a range, an estimate as the auction houses may say or as may be told to you on antiques roadshow.

 

This is entirely what I mean by the sum of opinions. Happens every day in the art market, happens every day when a collector buys a sword at a garage sale and brings it to a show and sells it for a profit. No universal valuation but the guy who buys it cheaply and sells it higher knows that enough people support the higher value that at $100 or $500 or $50,000 or $500,000 that this item is undervalued.

 

At the time with Voice of Fire the National Gallery said it was undervalued and time would show them to be right. They were sure right. Even though it looked like it was too expensive for a Tokubetsu Hozon painting they nailed it.

 

But if it's just an unsigned three striped painting that you found at a yard sale, the final value as I said above in the other post is just a probability curve, a wave function. How probable is it that it's Barnett Newman? How probable is it that it's a joke painting by Darcy making fun of Barnett Newman? If you don't answer the question the value won't collapse but is just a weight of the probabilities and the possible values, somewhere between the certainties. That's why an unpapered, unsigned, unpolished blade can have more value than one that has had all the questions answered. As long as the questions are not answered, it could be a Barnett Newman and that possible reality factors into what the current price is going to be. As soon as you answer the question, yes, it's actually by a student of Barnett Newman, bang, the value may collapse a lot lower than it was beforehand. Same painting, same audience, lower value with the questions answered.

 

So that may seem like I was saying there is a universally held truth, but it wasn't my intention, the question was more like a sword I found that I thought might be Chogi, unpolished, unpapered. I calculate the value as a potential from it being nothing / fatally flawed to it being a beautiful Juyo Chogi when polished and papered and weigh the probabilities. When those questions become answered, bang the value collapses down, but in this example I was talking about a probability curve that starts at like 5% chance of being worth $0 if it comes up with a hagire to a 5% chance of it being a Juyo Chogi worth $70,000, and the thick part of the curve being centered around a mid ranking smith and value around $10k. Now that $10k it collapses down onto based on polish and the smith, that value becomes questionable based on personal aesthetic taste, and other subjective/objective matters that could make it go up or down by a good chunk. But once it comes out in polish, the extremes are what drops out, and maybe you have +/- 20% around the price, so you get a range of say $8,000 to $12,000 instead of $0 to $70,000. So on a relative basis the price is set, but practically yes there is a range in there based on opinion again.

 

That's why I said when you had your sword polished and you lost the customer who said now there was no upside, to me it makes perfect sense. When I polished my Chogi and it came out as a nice sword but definitely not a Chogi, it also lost its upside. It was still a good and valuable item but it was not going to be a $70k Juyo Token anymore. So the speculator customer would be lost based on what I did to the sword, by answering the questions. Even though people may disagree on it being worth $10k, high or low, everyone would agree for 100% sure that it was not $70,000 and would never be $70,000 and if I were to list it at $70,000 only a madman would buy it and I would be subject to universal derision and people would email me questioning my judgment and motivations and post on messageboards laughing at me. In that case you have 99% of people on one side of the valuation line and for that reason it would never sell. Even though it was still a nice sword and desirable, it was just not a $70,000 item.

 

Before polish I sure had hopes though!

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What you are talking about can be summed up in one word: arbitrage. Taking advantage of market imperfections, id est, to profit from price inequalities across markets. Several Japanese sword dealers became very wealthy men doing this in the 1980's. It happens exactly because there isn't a unique value or convergence of opinions of value.

 

To try to say it another way, the value of anything in the marketplace is a tug of war between the pro camp and the con camp. Because people don't agree and there is no universally held truth. But the push and pull of the different opinions on value is what settles some kind of normal range for the value of an item. Depends on what the various people participating in the market believe, even if equally educated and exposed to info they can have different opinions on value.

 

"settles" implies a market in equilibrium, meaning supply equals demand and a market clearing price has been reached-there is a consensus on value. A "range of values" implies the market has not reached equilibrium. We can't have both concurrently.

 

The fact that the sword market is far from perfect, for the reasons I have already mentioned, and that swords, again for reasons mentioned, are not commodities, there is no consensus on values and yes, as a result we see a broad range of values. Those with the knowledge advantage and ability to exploit market imperfections are still able to profit from arbitrage opportunities, regardless of whether or not the swords have papers. I agree that papers add "value" but not in a discreetly quantifiable manner that is specific enough to be of any real value in the practical assignment of price at an individual level.

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This has been a terrific discussion. I have read and reread it with interest and I learned something each time. Thank you Darcy for the long and thoughtful contributions.

I think Chris is exactly correct in suggesting that the issue is “arbitrage.” This is a term I learned years ago from Arnold Frenzel who told us 40 years ago (at Dallas), that swords were a lousy “investment.” When I asked Arnold about this, and pointed out all the money that a lot of guys were making, he told me that those guys were not “investing”, but doing “spot arbitrage.” In those halcyon days, it was easy to move between Markets. We could buy low (at gun shows and motels) and sell high (to Japanese buyers who seemed endlessly willing and very deep-pocketed).

I am not sure if swords bought then and held ‘til now were a good investment, but there are lots of collections, mine included, that were built that way. Arbitrage collecting was great sport. It was fun and adventurous. And it supported a lot of sword learning. Every sword was a learning experience since nothing came with an assessment. Each new sword required research. Libraries built at that time were extensive rather than intensive. That kind of collecting was great fun, but it is largely over.

Hearing about the dynamics of the modern market in “good” swords has been wonderfully revealing aspect of this thread. I read it like an ethnographic description of an exotic tribe since I do not operate at that level. Nothing surprised me, though. This is how the sword world works.

As Chris pointed out, the market for swords is still imperfect, and I would add, imperfect enough to support “arbitrage collecting”. Knowing where arbitrage might be is a part of modern sword collecting.

There are very few swords “in the woodwork” so hunting for undiscovered war trophies rarely pays off. What I do think is developing is a community and a market composed of naïve “sword collectors.” This community is not likely to be on this forum. They do not go to sword shows. But they are served by dealers who meet their needs. I don’t think we see these guys at sword shows. This market adds a chaotic side to Japanese sword collecting. And that is where slightly expert collectors can still find under-appreciated collectible swords. Let me describe a couple of specific recent experiences that illustrate this world of sword.

For years I have enjoyed attending a major national gun show with a couple of friends. This summer, I brought some gusto that I had at the last Chicago Token-koi. Most of this stuff sold quickly. Among them was a nice o-surface blade that had to be koto Tegai – that was 21” long. It got no respect in Chicago but sold quickly to a dealer who just sold it on-line for TWICE what I would have taken at Chi-town.

After the feeding frenzy was over, I was left with a couple of totally ordinary, out-of-polish Seki blades in rough mounts. I can’t figure out why anyone would want these blades. But I swapped them for a signed, dated, polished, koto wakizashi in buke-zukuri koshirae. Helloooo!

My point is that there seems to be a diverse spectrum of interest in Japanese swords. Forces we cannot fully explain, have decided what is “important”, but there are lots of other worthy, interesting, and collectible swords out there. Collectors who have basic knowledge, who can recognize the qualities of “good” swords and who interact with others, can still find worthy swords, even If they aren’t wealthy and don’t hang out at Christie’s or Tokyo.

Peter

P.S. Brian, It worked. You ARE a saint!

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