# Black Box

This is a common failure in markets where people do not have access to information. They begin to gut it out and lacking information consider all things to be equal. Then you get this question.

Exhibit A: π … this item has a price of \$100.

Exhibit B: π¦  … this item has a price of \$200.

Which is more expensive, A or B?

#### Oops

There seems to be an obvious answer to this until you open the box (i.e. uncover all hidden information).

A: π contains π© for \$100.

B: π¦ contains π for \$200.

Though the face value is different, it is clear that someone paying \$100 for A has wasted their money while the one who paid \$200 for B has made out quite nicely. Thus, though the initial appearance is that A was cheaper than B, the truth is that A was more expensive than B though the price is less.

We can more easily understand that you can’t save money by buying 1oz silver bullion coins at \$200 each vs. 1oz gold coins at \$1300 each because the silver coins are βless expensiveβ than the gold coins. We can go one step more and say that if you are able to acquire gold coins at \$1000/oz you are doing far better than someone acquiring silver at \$200/oz. Now it seems quite obvious, even though the face values are clearly much different.

This is because we compare the silver within its domain of the silver market, and gold within the domain of the gold market. The higher priced market may be undervalued compared to the lower priced market. Over time, access to information is increasing on a constant basis. What used to be closed boxes when there was no information at all available in English becomes a little bit more open every time another book is published or an analysis is made or a sword is photographed and listed online by a dealer. This flattens the access to information curve and the market responds by repricing available items according to new information.

Certain items are going to go down as perceptions shift to the negative and previously hidden information like what papers are reliable and what are not becomes accessible to everyone, and certain items are going to go up as what was only accessible by connected people and hidden under tables at sword shows is now available for everyone to see and visually compare.

This is a one way trip. Can’t put the information genie back into the bottle and dial the clock back to 1978. What was the past value was the past value and is valid if you have a time machine and can go back there. The future value is to be decided. The market will make that decision, and anyone’s voice in that or displeasure about the changes are just one vote in a sea of votes. As we get older, time speeds up and it’s easy to forget that 20 years ago was not yesterday and what you have taken to be a certain reliable truth was only reliable because it was in the recent past.

I have noticed in the past four or five years that the work of two smiths in particular have gone up considerably in price, the first being Muramasa which is not a huge surprise and the other being Norishige. Anyone who knows the two well knows that Norishige is by far the better smith and his work is very close to peer level with Masamune. The price of Masamune in the marketplace will likely always remain as multiples of Norishige but Norishige is starting to close the gap somewhat.

Both of these are easy to assign to access to information. Muramasa is easily accessible to even non sword collectors as being desirable due to the stories and history. So the demand ever increases as more people become exposed to the information.

Norishige, as people elevate their studies and access the works, there are enough out there and there are opportunities to buy them. Every time I photograph and document a Norishige then it adds to the accessible information and the work is most often unique, stunning and exiting. I am not the only source of information, I am just one drop. But the market reacts overall to exposure to more information and the demand goes up for the work and along with that the price.

At the Dai Token Ichi this year there were three daito available by the smith. One was a nice Tokubetsu Hozon blade that Ladder Fallacy says is so expensive at 7 million yen, and that blade was snapped up before the show even began. The other two were a naginata naoshi (these are usually less expensive than katana by a good chunk of change) at 10 million yen, and a katana not in great condition at 20 million yen. Both of these were Juyo. Putting this in perspective, I owned one of the greatest works of Norishige about 10 years ago. I sold it with the economic crisis just beginning at Christie’s auction and the buyer paid \$240,000 at auction. This sword was Tokubetsu Juyo and also had fantastic koshirae.

Now, looking back, it is starting to feel a bit quaint. Yes, that is a lot of money to pay, but considering the silver and gold coins, one may then ask, what is more expensive, the finest quality mint condition masterwork of Norishige complete with high quality koshirae at \$240,000 and ranked Tokubetsu Juyo, or a beat up worn down Norishige that barely passed Juyo and with no koshirae for \$183,000? Christie’s kept \$40,000 as commission so for me as a seller, am I in a good place to be selling the best Norishige Tokubetsu Juyo with koshirae at \$200k when I’d have to buy a much inferior one at Juyo with no koshirae now at \$183,000?

The answers are obvious there. This piece is irreplaceable and the owner who bought it then has to be happy now. Where prices go in the future is not known. Up, down, sideways, it’s not clear. I personally feel that Norishige and Muramasa are easily accessible edges of the information revolution. I think that quality and rarity will continue to bubble to the top and commodities will continue to sink to the bottom.

This information revolution also happens to be an information apocalypse if your business model is selling poop in a box.