Rare Coin Investing
The 9 Things You Need To Know about Rare Coin Investing and the Value of Rare Coins
President, David Hall Numismatics
Part 3: The 9 Things You Need To Know about Rare Coin Investing and the Value of Rare Coins
I've been in the coin business for over 40 years. Here are some of the most important lessons I've learned in my professional experience that you should apply to your rare coin investing pursuits:
#1: Rare Coin Investing Allows No Bargains…There Are None.
Bargains ("rips" in the lexicon of the numismatic insiders) are a seldom-encountered exception to the day-to-day reality of the rare coin marketplace. I'm defining a bargain as a purchase that can be immediately resold for a profit of more than 20%. I'll use myself as an example. Throughout the 1970s, I attended most major coin shows. I was usually among the first to hit the bourse floor, which I faithfully scoured for "rips."
Even though I knew rare coin values just about as well as anyone else did, and even though I was a very aggressive buyer, I was lucky if I found one or two "bargains" per show! In other words, once or twice per show I bought a coin for $200 and sold it for, say, $300. Most of my dealer-to-dealer coin show sales consisted of buying a coin for $200 and selling it for $225. I concentrated on investing in rare coins at slightly under fair market prices and selling them for a little more than I paid.
Now compare your situation with mine. You probably have neither my expertise nor my exposure to the marketplace. If it's difficult for me to find bargains, it's probably impossible for you to "rip" one. You will have enough trouble receiving fair value, i.e. buying a $100 coin for around $100. If you are offered a $100 coin for considerably under $100, there is a good chance the coin is being misrepresented (possibly counterfeit, but most likely overgraded). Just remember: rare coin investing allows for no bargains.
#2: Value of Rare Coins: Expect Them To Be Often Overgraded.
Misrepresentation is a problem in most collectible fields (coins, stamps, art, antiques, baseball cards, etc.). In the rare coin field the two basic forms of misrepresentation are counterfeiting and overgrading. Counterfeiting is a fringe problem. "Reputable" dealers do not knowingly sell counterfeit coins. Unfortunately, some of them do knowingly overgrade. The quality of a coin has a tremendous bearing on its price. Very minute differences in quality often mean large differences in price. Many dealers yield to the temptation to grade optimistically. The problem is particularly acute in the area of Mint State (uncirculated) coins. As far as the 'represented' value of rare coins go, I estimate that more than 50% of all coins represented as Mint State in advertisements and auctions are overgraded.
Your best protection against buying overgraded coins in your rare coin investing pursuits is to learn to grade accurately. However, grading is a difficult skill to master. Still, you can be aware of the basic grading concepts. Carefully examine every coin you purchase. Notice how sharply the details of the design stand out. Take note of all major and minor marks. Now compare the coin with another, preferably of the same type. The coin with the greatest detail and fewest marks is logically the better coin. Consult with friends. But also seek professional assistance because… rare coins are often overgraded.
#3: Most Dealers Have a Limited Knowledge of Rare Coin Values.
When I first started traveling the coin show circuit, one of my most startling revelations was that many of my "idols" weren't all that sharp. They were good businessmen, tough negotiators, and many had great marketing expertise.
However, as I began doing business with the major dealers, I soon realized that many of them could not grade accurately, and even more of them could not tell you what a particular coin was worth without reaching for the latest copy of the Greysheet (Coin Dealer Newsletter).
I would say there are about 100 people in this country that truly know U.S. rare coin values. The other dealers are limited by their own prejudices, narrow perspective and/or lack of knowledge. All of their limited points of view are reflected in their advertising, both printed and spoken. So be wary of all you read and hear. Remember, most dealers have a limited knowledge of the value of rare coins, so trust your own instincts and arm yourself with as much knowledge as you can.
#4: Auctions Are a Good Deal for Auction Companies.
Auction companies offer you an avenue to buy and sell rare coins. After looking at a couple hundred thousand auction lots, sitting through countless hours of auction sessions, and consigning coins to most of the major auction houses, I've come to the conclusion that there are better ways to buys and sell coins and prosper from rare coin investing. Below are some of my key recommendations.
On the buying end of rare coin investing:
- Buying coins at an auction is incredibly time consuming. You can probably do better on the bourse floor or on the telephone, if you are a dealer, or by paying for someone else's time and expertise, if you are an investor.
- With the rare exception of catching a "sleeper" bought at auction, you will probably pay absolute top dollar for your rare coin investment. You'll certainly pay more than any dealer, collector, or investor in attendance would pay.
- If you are not 100% sure of the value of a rare coin, there are several traps awaiting you, including: dealers who consign coins to auctions and then bid them up themselves, and coins owned by the auction company that have high opening bids.
On the selling end of a rare coin investment:
- You have no control over prices realized.
- All auction companies charge a 10% to 20% commission on your rare coin investment, though some of them disguise part of the commission by calling it a "buyer's charge."
- Dealer collusion is blatantly practiced at most major auctions.
- It takes too long to sell your coins - three to six months from the time you consign them until you receive your settlement check. Many firms offer cash advances, but they usually charge interest on the money advanced.
- It is much faster and more efficient to sell your coins yourself by offering them to a willing buyer.
In short, auctions are a good deal for auction companies, but probably not for you.
#5: Value is Relative in Rare Coin Investing.
Coins do not have absolute values. Coins have relative values that are constantly changing. Consider the following stumbling blocks to accurately assess the value of rare coins:
- Price guides do not buy or sell coins. The common mistake is to say, "This coin is worth $500," when all you are really saying is, "This coin catalogues for $500."
- Mintage is not always relevant. The number of coins supposedly made of a particular issue (mint records are sometimes inaccurate) often has little bearing on its value. The number of surviving specimens is the important consideration. Disregard mintage and concentrate on availability.
- Prices can be determined only when coins are on the market. It is very difficult to pinpoint prices of unavailable coins. This lack of accurate pricing information is often reflected in price guides and dealer, collector, and coin investor thinking. Often, the coins that are more common are priced higher than ones that are more rare, because recent transactions provide a frame of reference.
Look for coins that are difficult to purchase at current prices. Compare relative prices within a series. In the rare coin investing market, value is relative.
#6: Pretzel Logic is the Predominant Mode of Thinking Among Rare Coin Buyers.
Most coin buyers, both dealers and public, buy high and sell low. The gold bullion market offers a perfect example of this "pretzel logic." At $250 an ounce, everybody wanted to buy gold. At $200 an ounce it didn't look as good, and the people who bought at $250 became sellers. Common date BU Walking Liberty half dollar rolls were available at $275 for two years. Then they got hot and went to $600 in about six months. I started to get calls along the lines of, "What do you think of these Walking Liberties? They seem like a good rare coin investment."
I'm not saying that BU Walkers are a bad deal at $600* per roll. I'm just wondering where these people were when Walkers were at $275 a roll. Fight the psychological forces that keep you from buying underpriced coins and from selling overpriced ones. Remember, pretzel logic is the predominant mode of thinking among rare coin investors.
*Note that the pricing time frame was January 1979.
#7: High-Quality Coins Increase In Value Faster Than Off-Quality Coins.
1915S Barber Half Dollar
Now this certainly seems logical. The best quality is in the greatest demand; therefore, prices of high-quality coins increase more rapidly. So, buy the best quality.
If you cannot afford to buy Gem gold, buy Gem Mercury dimes. If you cannot afford to buy Gem Mercs, buy Gem Roosevelt dimes. Do not settle for less than the best. It will be much easier for you to confront fact # 8 if you remember: High-quality coins increase in value faster than off-quality coins.
#8: Rare Coin Investing Fact: You Must Sell Your Coins.
When a coin reaches its full price potential, it should be sold. Two stock market sayings help illustrate this fact:
- "Bulls make money, bears make money, pigs don't."
- "The only people that buy at the bottom and sell at the top are liars."
Consider the following advantages of occasionally selling. You will be able to convert paper profits into real profits. Plus, you will become familiar with the mechanics of the selling side of the rare coin investing market. This could be a great help should you ever need to sell quickly. You will also find out for sure who has been selling you properly-graded coins at fair market prices. Once or twice a year you can weed out the weak parts of your portfolio. Don't be afraid to take losses on mistakes - consider it tuition. Move into areas with more potential. Learn about the selling side of the rare coin investment market, because the fact is, eventually, you must sell your coins.
#9: The Secret to Successful Rare Coin Investing is Paying a Fair Price for Properly Graded Coins.
The easiest thing to do in the rare coin market is spend money. It's not quite as easy to receive fair value. If you are lucky, you are buying coins from a dealer who marks his coins up 15% to 30% above his cost. Many dealers mark coins up 50% to 100% above their cost. Some telemarketing firms use mark-ups of 200% to 300%, even 500%! The following coin investing tips will help soften the blow of excessive dealer mark-ups:
- Be aware of the price you are paying for coins. Study and compare coin prices.
- Ask for buy-backs. Find out at what price a dealer would buy his coin back. Get it in writing.
- Learn how to grade or get a grading guarantee that is very specific about the buy-back process and price.
To participate in all the fabulous rare coin profits you read about, you must realize: the most guarded secret to successful rare coin investing is paying a fair price for properly graded coins.
Originally published in A Mercenary's Guide to the Rare Coin Market.