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3 Money Lessons from Pawn Stars

Posted By Jim On 08/08/2011 @ 7:06 am In Personal Finance | 11 Comments

What do you get when you take the knowledge of Antiques Roadshow, the excitement of pseudo-reality television, and the myriad of characters you’re likely to find in Las Vegas? The History Channel’s Pawn Stars [3]. The show focuses on a pawn shop in Las Vegas and the four folks who work in it – The Old Man (Rick’s dad), Rick Harrison, his son Corey Harrison, and Austin “Chumlee” Russel. While the majority of the show focuses on items people are looking to pawn and sell, you do get a little added flavor from the cast of characters.

It recently appeared on Netflix in the Instant Watch category and I started catching up on the ones I had missed. I wouldn’t call it compelling television but it’s fun to learn about some of the history behind the pieces (the historically valuable ones anyway) and I’m never bored watching it. That said, there’s a lot you can learn from the show because, in a sense, it’s a lot like investing in anything else!

Find an Expert

One recurring theme you’ll find throughout the show is that you always want to bring in an expert. From the very first episode, when Rick brought in the cannon expert, to probably the show’s last, they will always be an expert. Rick is knowledgeable about a lot of history but he always calls in an expert when it’s a big money deal or something esoteric.

The lesson from this is that it’s important to know your limitations and call in the experts (not just one, like in this show, but call in multiple experts when you can). Whether it’s “calling” them by reading their books or actually physically calling a person, the key is to consult with someone who knows more, who has seen more, and has a better understanding of the environment than you.

For example, I “call” on experts when I invest in a mutual fund. I buy shares in a Vanguard S&P 500 fund because I trust their experts’ ability to follow the S&P 500 index better than I can. Could I do it myself for cheaper? At $4.95 a trade at TradeKing, I can probably beat the 0.17% expense ratio in the very long term (since my trades will cost $4.95 each and the 0.17% with taken each year, assuming the index doesn’t change too much).

Learn to Walk Away

When someone brings an item into the shop, often times they aren’t entirely sure what it is. They bought it at a garage sale, it was passed down to them, or they found it in a dusty corner of their attic. Sometimes the item is authentic and rare, sometimes it’s a replica and worthless, and someone it’s authentic and rare but the owner tried to clean it and made it worth less. When they discover the item isn’t what it is, or there’s some question to what it is and an expert can’t help, they walk away. They have so many deals to get to that they really can’t spend too much time on stuff that isn’t worth their time.

You can apply this principle in your own life. If, after you invest a lot of time researching and learning about something, you discover that it’s not what it appears to be, walk away. It’s the idea of sunk cost. It stinks you spent all that time but don’t let that force you to do something you otherwise wouldn’t. Also, if it smells fishy – always walk away. There will always be other opportunities.

Money’s Made on Buying

There are two sides to every pawn store transaction – the buy and the sell. The show focuses entirely on the buy side, when Rick buys an item from someone who brings it in and spend no time (at least in every episode I’ve watched) on the selling of the item. One theme you’ll recognize is that Rick often talks about reselling the item and how the price he offers has to be low enough that he can make money on.

Whenever you’re talking about investments, it’s always about where you buy the asset, not where you sell it. Whether it’s a Pawn Shop or Warren Buffett, who looked for cigar butts [4] in his investments, your profit is in how much you pay for the item. So, when you are looking to invest something, whether it’s shares of Apple or a house, pay special attention to its value and how much you pay for it. Whether you profit largely will depend on that price.

Are you a fan of the show? Learn any lessons or just want to share your favorite moments?

(Photo: auvet [5])


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[3] The History Channel’s Pawn Stars: http://www.history.com/shows/pawn-stars

[4] cigar butts: http://www.independent.co.uk/money/spend-save/cigar-butt-approach-to-bargain-buys-638017.html

[5] auvet: http://www.flickr.com/photos/auvet/4380940488/

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