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Daruma Capital Commentary - Pawn Shops, Mobsters and the Search for Value

April 11, 2014 | About:
Holly LaFon

Holly LaFon

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By Mark Miller, Daruma Senior Research Analyst

My 13-year-old son, Dean, is fascinated with the TV reality show Pawn Stars. I don't watch much television and I loathe reality shows, but I've been a dad long enough to know that when your teenager asks you to join him in an activity, only a fool would decline. So I agreed.

Much to my surprise, and after watching a few episodes together, I too was hooked.

In short, Pawn Stars follows the wheeling and dealing of father and son team Richard "Old Man" Harrison and his progeny, Rick. Together, along with a couple of amusingly less capable employees, they own and operate the 24-hour a day, Gold & Silver Pawn Shop in Las Vegas.

The pawn shop business model is exactly as you'd expect: people come in off the street to sell (or loan) memorabilia in return for hard cash. The range of goods brought into the shop is remarkably diverse and each item (and its owner) has a story.

Rick has been around the block a time or two and is the house expert (they call him "The Spotter"). He seems to know something about everything - from antique rifles, to high-end motorcycles, to items salvaged from warships.

To me, the highlight of each show is the haggling. The margin between bid and ask is usually quite wide, and the seller almost always arrives with a great story with which to plead his case.

In one episode, for example, the would be seller claimed that the ring in his possession (gold, with a devil's face and ruby eyes) was once owned and worn by infamous mobster, Lucky Luciano. Did he have any documentation? A photo of Luciano wearing the ring? Nope. Just a story about how his mother came into possession of the item thanks to her "close ties to the underworld."

In the end, and after Rick brought in an expert from The Mob Museum for a second opinion, the Harrison team remained unconvinced and declined to make an offer. Most of the time, the decision is a more difficult call, but rarely do you see a guy throw his mom under the bus for a few bucks.

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