Dinosaurs Must Die and How You Can Profit From Their Death

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The pawn shops of America seem a mysterious business. Perhaps only once have I seen a new one open. Yet, year after year the old ones remain. Corner groceries, restaurants, apparel stores, seem to change names and ownerships on an annual basis or simply go under.

The pawn shop struggles on, but its time has come to go the way of the dinosaur.

Once a great bargain center, where the desperate could sell their wares seems like a medieval institution in comparison to the international bazaar that we know as eBay.

Most of these shops instead of incorporating this new technology cling to the old brick and mortar business. A profit opportunity arises as an arbitrager between the pawn shop and the internet can now make a quick buck. If the shops won’t do it themselves; profit hungry entrepreneurial-minded consumers will take the advantage.

The first weakness of the pawn shop is their capacity to merely sell to customers who walk through the door. For this reason, they limit the amount of major income from pawn loans that can be given to customers. When the object held as collateral cannot be sold easily, the ability to offer loans is hindered.

A friend of mine recently attempted to take his thousand-dollar clarinet to a pawn shop for a pawn loan. The store owner flatly told him that he could not accept the clarinet, because he was unable to sell it. Of course, you can’t sell a thousand dollar clarinet at a pawn shop easily, but on eBay, it comes with remarkable ease. This is what my friend did, making about $800 dollars.

The pawn shop owner with the use of the internet could have easily identified the brand of the clarinet and found a general price. Second, he could have given a pawn loan based on the accessibility of an internet market. It’s a business idea to say the least. Pawn loans based on eBay services, but this isn’t the main issue that I’m talking about today.

The difficulty of managing a pawn shop lies in being an expert at all things sellable. No one man but the best can master all prices. The common ones are guns, jewelry, and tools. Between the cracks, fall silver and gold coins.

Buying gold and silver from dealers such as Camino Coin can be convenient. However for those of us who have more time than money, the shipping and handling costs with insurance can set us back a substantial amount above spot price.

Pawn shops give the perfect opportunity for a scavenger with time. I knew that pawn shops carried occasional bullion, but what I discovered was beyond my expectations.

These stores were selling coins way below market price! Consider that these shops are not prime spots to locate bullion. The owners must be experts in commonly sold goods, but they are hardly experts in coins that have sat on the shelves unasked for in years.

Gold and silver prices are different from years ago, yielding a large difference from today’s prices. Often times, it has been ages since the prices have been adjusted to the market value. The second factor is the lack of knowledge regarding coins.

Look, I’m not an expert. I don’t know the difference between an MS-67 coin and an MS-70 coin. I’m simply looking for the spot price on commodity with some knowledge on general mark-ups for standard coins. (You can easily learn these from eBay itself or online sites that sell coins. I suggest checking both prices to cross-reference. A coin is only worth what you can sell it for. The difference between online dealer prices and eBay prices can be considerable especially for junk silver like Kennedy Half Dollars. For actual recognizable bullion, the eBay price is almost exactly market price.)

The pawn shops you enter may have ridiculous prices, but don’t be discouraged; this is part of their weakness. Amongst the most overpriced places which indicate lack of market knowledge, I have found low price anomalies. A store may have circulated silver eagles at $25 an ounce. Nonetheless, search all of their coins, and I can almost guarantee that one price will be far below market value.

As I said before, what pawn shop owner knows the difference in price on junk silver, Morgan dollars, peace dollars, eagles, and even older coin?……very few.

They acquire these coins at disputably cutthroat prices, and have not sold them in years.

This brings us to one of the most important parts of acquiring a good deal at a shop, negotiating ability. These coins have been on the shelf for a long time. The power is on your side. If you ask for 25% off their price, there is a good chance that you’ll get it. Once again, I’m no coin expert and neither am I a sweet-talking salesman with the skill to sell ketchup popsicles to a woman in white gloves. This is simply a reasonable deal between someone who has held the coins a long time without knowledge of eBay’s capabilities and someone who wants the coins.

In silver, the deals are constant and exceptional. Gold is trickier, but can be profitable as well. After all, the store must constantly check the gold spot price for their jewelry purchases. Recently, I bought a Canadian Gold Maple Leaf Ounce about $100 below market price.

Another time, a pawn shop carried 1/10th ounce American Gold Eagles for good prices distorted by their lack of knowledge. I almost walked out the door when the owner told me that he was going to check the price of gold. He did. He calculated the price of the coin to be 1/10th the gold price.

As any bullion investors knows, the price of a 1/10th coin is about $10—$15 above the gold price. The owner had six coins. With the instantaneous market approaching spot value of gold and silver on eBay, I could easily have bought his six tenth-ounces and made $60 to $90 the next day. Hey, it’s not a huge profit, but its better way than spending above spot for shipping and handling.

This isn’t big money. You’re not going to quit your day job tomorrow. But it’s something to consider if you have more time than money like me. These places don’t carry very much stuff. That coin, at $100 below the spot, may be the only coin in store. A serious investor hardly has time to waste on such investments. For the rest of us, it’s a great deal.

The best investment is not the one that will simply go up. The best investments are the ones that you buy below price today, and they will go up. My method for making a little cash won’t make you rich. If it did, I certainly wouldn’t be writing about it online. But it’s a nice way to make some extra cash on the side.

The simple fact that coins are even on the shelves is absurd. The owner could place them on eBay and have them sold at market prices at any time. Their presence is evidence of the rigidness of this business model.

These stores will either have to change or very slowly go the way of the dinosaur. In the mean time, the rest of us can make a quick buck before it happens.

Good luck hunting for these deals. And please do send me an e-mail and let me know how this advice treats you.

Vedran Vuk [send him mail] is a student of Economics at Loyola University of New Orleans, and a 2006 Summer Fellow at the Mises Institute.

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