Get the red out

© DBR Currency 2007

We like PCGS and PMG, two very reputable grading services. We have sent many notes to both grading houses over the past two years.

We just don't like PCGS' red holders. We worked in companies where the sight of red on an income statement was ugly. Red is the color you wear if you want to get attacked by a bull.

So in that vein, we took our PCGS red-holdered notes, cut them out, and sent them to PMG for grading without telling either TPG (third party grader). The results were demonstrative, and we thought readers would be very interested.

Our sample of PCGS red holders totaled 162 notes – 118 large and 44 small. The notes ranged in value from $64 to $85,000, the latter being a small $5,000 bill. The grades ranged from a low of 4, to a high of 65 EPQ. So you can see we cut a swath across the spectrum of both values and grades.

We divided the resulting PMG grades into three buckets: holders with comments, holders with no comments (generally positive), and holders with the EPQ designation (very positive comments). If the two TPGs were identical, then one would expect all 162 notes to have PMG comments.

But this was not the case, as shown in the following table of results:

We were surprised by these results. Only 46% of the PCGS red-holdered notes ended up with (negative) comments from PMG. Almost half (49%) of the PCGS red holders ended up with no PMG comments, and 5% actually received the Exceptional Paper Quality (EPQ) designation from PMG.

However, the numerical grades between the two TPGs were similar – albeit red in PCGS' case – as shown below.

Spanning all 162 notes, PCGS and PMG median grades were identical at 25, and the averages were close at 28 vs. 26.

The grades diverged most when it came to the 75 notes in PCGS red holders that resulted in PMG comment holders. PMG was harsher in numerical grades than PCGS for these notes. PCGS' median for these notes was 20, whereas PMG's median was 15 – about half a grade lower. For PMG no-comment notes, the PCGS and PMG median numerical grades were both 30.

In trying to decipher why so many PCGS red holders didn't result in PMG comments, we postulated that maybe it was a difference in TPG philosophy for Repaired and Restored (R&R) notes. After all, these aren't as negative as, say, a tear or stain, but they are changes to the note.

To some extent, this postulation turned out to be true, as the following table shows.

58 of the 162 notes were in PCGS red holders for repairs and restorations. PMG only commented on these R&R notes (negatively) 33% of the time – a much lower rate of negative comment than the 54% PMG comment rate for the 104 notes which PCGS red-holdered for reasons other than R&R. We conclude that PMG either didn’t catch as many repairs or restorations, or that PMG simply 'waives' the fixes in some cases.

The biggest conclusion we reached from this 162-note study is this: it is probably worthwhile to cut out notes from PCGS red holders, and re-submit them to PMG. While grading fees go up by doing so, the shift from red to green, and the decent likelihood of no PMG negative comments, probably drives up perceived value of the re-holdered notes.

What we'd most like to see, is for PCGS to eliminate the red holders completely. PCGS should adopt the green-only holder, using comments to raise flags like PMG does.

So we say – much like Hester Prynn of The Scarlet Letter – or simply like Visine - get the red out.