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Hot Topics in U.S. Rare Coin Market Today
(August, 2000)

The following interview was conducted electronically with Michael De Falco of De Falco Numismatic Consulting. The interview style of information gathering appears to be quite useful in covering individual subjects in depth, while still providing the intended audience with a diverse range of topics in a condensed format. We hope you, the rare coin collector and investor, find these issues not only very timely in a rather fragmented numismatic market today, but also productive from a monetary standpoint. Your questions, comments, and/or suggestions are always welcome at: David@wexfordcoin.com

Wexford Capital: Michael, what are the 5 most costly mistakes that both experienced and novice U.S. rare coin collectors/ investors often make in approaching the purchase and sale of numismatic material?

I see people make so many different (costly) mistakes that it was difficult to limit my choices to five, but I’ve selected those that are among the most serious as far as I’m concerned. The following selections are not necessarily listed in order of importance, but rather in the order in which they came to me:

  1. Assuming that biggest is best in terms of the firm one chooses to purchase coins from. The fact is the largest retail firms also have the highest overhead, which often translates into higher prices and larger buy/sell spreads for their customers.
  2. Buying coins based upon ego rather than reason. By that, I mean acquisitions which are made solely because a particular coin is of an extraordinarily high numerical grade (i.e., MS/PR 68 or better), has a current population of one/none better for the date or type, or any combination thereof. Here’s what I mean. In 1987, one of my clients told me that he had been offered a PCGS MS65 1880-O Morgan dollar for $140,000 and wanted to know what I thought. I said that the asking price was absurd and he countered with – well, it’s the only one graded. I told him that based upon my experience I knew that more would be graded sooner or later and that the price would come down. To make a long story short, there are currently around fifteen MS65 examples of this date certified, which are now worth about $9,000 to $11,000 each. So much for the population one/none better scenario! A couple of years ago I had the good fortune to handle a superb original bag of 1885-O Morgan dollars, which after grading was completed, consisted of several hundred MS65 and MS66 specimens, over twenty MS67’s and a single MS68 (the first one graded)! I sold the MS68 to a knowledgeable silver dollar dealer for $12,000 and he resold it to a well-know collector (who had to have the best) for $16,000. Since then, two more pieces from the same bag were resubmitted and now grade MS68 with a current valuation of between $5,000 and $6,000 apiece. These two examples are not extreme or isolated incidents, I’ve seen the same kind of thing happen time and again. Ego can be, and often is, a very costly trait. Pride goes before the fall.
  3. Buying based upon pedigree. It never ceases to amaze me how many coins sell (at obscenely high prices) because they carry a pedigree from a famous collection. The buyer somehow believes that the pedigree itself makes the coin eminently more desirable and valuable. It may initially, but once the collection has been dispersed the coin will have to stand on it’s own, often with very disappointing results. Consider the following example: A few years ago, the famous Jack Lee Morgan dollar collection came onto the market amidst much fanfare and hype. The coins had been graded by PCGS and included the Jack Lee pedigree on the holder insert. A major dealer that employed me at the time happened to purchase four of these coins at a show. One of them was a 1900-O Morgan dollar graded MS66 DMPL, for which he paid $9,500. Quite frankly, I thought the coin was over graded and the price far too high. To be perfectly honest, I don’t know what happened to the coin at that time, although I assume he sold it to someone. However, it reappeared in the Bowers & Merena ANA Auction that took place in early August, wherein it realized $3,000 (a far cry from its previous selling price of $9,500). I’m not saying that a coin with a pedigree is automatically a bad deal; I’m simply saying that they are seldom worth the premium initially place upon them.
  4. Believing that it’s easier for a coin priced at $500 to double in value that it is for a $5,000 coin to do the same. This is simply a myth that has been perpetuated by the truckload numismatic dealers, those who would rather peddle abundant (cheap) generic issues, rather than expending the time and effort required locating truly scarce and rare coins for their customers. The only thing really easier about a $500 coin versus a $5,000 is availability! Common coins are just that -- COMMON! The real growth potential lies in the kind of coins that everyone is looking for, opposed to the type of coins everyone already has. A simple but reliable numismatic investment principal that has rewarded its practitioners with very respectable returns in the past, and one which I would expect to do likewise in the future.
  5. Not buying the book before the coin. In other words, purchasing coins strictly on the say so of a slick salesman, without taking the time to first do a little rudimentary research of your own. Unlike the coin market fifteen years ago, third party grading and certification has brought with it a veritable wealth of reliable statistical data and related information, which is readily available to everyone, so there’s no rationale excuse for being taken advantage of.

Wexford Capital: Michael, I read with some amusement recently that a coin magazine editor suggested we incorporate the term "curated" into the numismatic lexicon to embrace this purported form of coin preservation. Personally, my opinion is that unless the "curator" has an electron microscope and a subatomic laser, he or she had better not claim their "curation" made no alterations to the coin's original surfaces. Your thoughts, Mike?

It’s simply a new (to numismatics) term, utilized I suppose, to market some of the SS Central America gold coins that exhibited an unattractive coating or corrosion of sorts due to long exposure to the undersea elements. In the early days of third party grading this anomaly would have instantly been categorized as "environmental damage" and the coin would have been returned immediately to its owner in a body bag (i.e., uncertified). Unfortunately it seems that the climate has changed and some people apparently find no problem utilizing a play-on-words to market a cleaned coin. As far as I’m concerned, removing this coating (to improve the appearance and salability of the coin) is tantamount to chemically covering hairlines on a proof gold piece (to improve its appearance), a practice referred to as "altered surfaces", and one which is clearly frowned upon by the grading services. Call it whatever you will, "curating" or "cleaning". In the final analysis, it’s one and the same to my way of thinking!

Wexford Capital: Michael, what is your opinion of the current craze for Modern coinage (post-1964), especially the State Quarters program and the Sacagawea Dollar? Do you feel than new collectors will ever reap financial gains from these purchases?

Actually, I think the State Quarter program and the Sacagawea Dollar may well serve to renew awareness of numismatics in general and create a great deal of interest in the hobby, which would be very beneficial over the long term. However, one should never expect to realize any meaningful gains from post-1964 U.S. coinage, particularly the super grade certified proof coins that seem to be the rage today. These coins were produced in enormous quantities with extraordinary care and were packaged in state-of-the-art containers, which will insure a steady supply of near perfect coins for the grading services well into the future. These issues (particularly in the highest-grade categories) are grossly over priced, and in my estimation and would make a very poor choice in terms of future capital appreciation.

Wexford Capital: Michael, do you think the internet will provide a more economical channel for rare coin buyers and sellers today and into the future, displacing to a greater degree the local retail coin store and give the high overhead traditional retailers a run for their money?

Without a doubt! As operating expenses continue to increase for many of the traditional (brick and mortar) high overhead retailers utilizing snail mail and expensive printed marketing materials, mark-ups or margins appear to be on the rise also. Whereas 20% to 25% was adequate a few years ago, I’ve noticed a few of these firms inching up their margins to the 30% to 40% or higher range (regardless of what they may tell you). In fact, one of these firms recently offered an active customer $1,200 for the identical date and grade coin that they were attempting to sell for $1,950! Conversely, many farsighted (lower overhead) dealers who have taken full advantage of the Internet will routinely offer coins at a 10% to 15% mark-up. As far as the dealer versus customer is concerned, the playing field has been leveled to some degree in terms of the actual spread, which is the differential between what a coin is worth wholesale and what it can be sold for retail. A dealer must be willing to work on a closer margin of profit than before to successfully compete in cyberspace. As the rare coin market presence continues to expand online, and as more people utilize this venue for rare coin purchases, the local coin shops and high overhead retailers will be left with two choices. (1) Redirect the majority of their efforts and capital toward the Internet and join the marketplace of the future, or (2) face extinction.

Wexford Capital: Michael, what is your opinion of the mega-coin or ultra-rarities coin market today after two years where money was literally throw at this numismatic sector?  Do you think some badly needed liquidity was drained from the overall market in this virtual feeding frenzy, not to mention what is happening currently to U.S. Generic Gold with the heavily promoted S.S. Central America hoard capable of absorbing $75 Million of additional purchasing power?

Without question the market for ultra-rarities, as well as proof and rare date gold has softened considerably. The Eliasberg, Pittman, Trompeter and Bass collections (loaded with this type of material) all came onto the market over a relatively short period of time. The sale of these collections alone absorbed more than $100 million and seriously began to drain liquidity from the marketplace. Add to this all the Y2K promotions, the infamous Wells Fargo 1908 No Motto Saint Gaudens hoard and the SS Central America promotion -- and another $100 million or more is sucked out of the market. Although price record after price record has been smashed over the past five years, culminating in the sale of a Proof 68 1804 silver dollar for $4.14 million in August, 1999, I envision a continuation of the cooling trend in this segment of the marketplace.

Wexford Capital: Michael, in today's rather fragmented rare coin bull market, would your professional preference be for Proof Silver type coins over Mint State Silver type or vice versa, and why?

The fact is many of the post-1858 Mint State 65 or better silver type coins are much rarer than their proof counterparts. However, I would put my money on the proofs in terms of current profit potential for the following simplistic reasons:

Proof coinage was made specifically with the collector in mind and was produced with a great deal of finesse and care. Moreover, they were struck on highly polished, specially prepared coin planchets that rendered an exceptional quality product. For the most part they were put away and were not subject to the abuse suffered by circulation (business) strikes.

Mint state coins were intended solely for use in commerce, therefore care in striking and handling was not a primary consideration. Consequently even the high-grade MS65/66 specimens may exhibit obvious contact marks, while their proof counterpart may exhibit no-so-obvious (to most collectors and investors) light hairlines. Given a choice, most will choose the coin without obvious imperfections.

In the final analysis, proof silver type is a much easier sell to the majority of people than are the mint state pieces, rendering them more desirable to most, and thus more in demand.

Wexford Capital: Michael, as a numismatic expert for over 30 years now, what are your 3 all-time favorite U.S. rare coin series, and do you feel they are undervalued or overvalued today?

  1. Morgan Dollars are my all-time favorite series. They’re big, beautiful, flashy pieces of American history. In terms of future appreciation, I feel that the Deep Mirror Prooflike subcategory has the most potential. Even the most common dates (i.e., 1880-S and 1881-S) are scarce as true DMPL’s. In regard to relative rarity, the rest of the dates range from legitimately scarce to exceedingly rare. As far as the other two subcategories are concerned (prooflike and plain old mint state), I’m not very enthusiastic in regard to prooflikes in general and a number of better date mint states have been over-promoted. It’s really a mixed bag and an area that investors should not make substantial purchases in without expert professional guidance.
  2. Peace Dollars are also one of my favorites. In fact, I started to assemble an amazing set in the mid-seventies, which I completed and sold for (then) world record prices in the R.C Matthews Sale in 1980 amidst gasps from the crowd. I feel that a real MS65 set is currently undervalued – with an emphasis on REAL! Unless you really have a grasp of the intricacies of grading this series, avoid it, or seek the assistance of a qualified expert of proven ability.
  3. Silver Commemoratives may be my favorite series right now from the standpoint of capital appreciation based upon certain criteria being met. To begin with, buy only the issues that comprise the fifty-piece type set. Avoid the scarcer date PDS sets! Concentrate on MS65 and MS66 examples with an emphasis on extraordinary eye appeal. By that I mean focus your efforts upon those coins that exhibit exceptional luster and vibrant, colorful original toning. Nondescript (dipped-out) white coins are not in demand by those to whom you’ll want to sell your coins in the future. If you want to make money, silver commemoratives are strictly an awesome color/amazing eye appeal game. Don’t sit at the table with a bunch of white chips – you’ll lose!

Wexford Capital: Michael, and we will save some burning questions for the next article, do you think we are close to a bottom in U.S. Generic Gold, and is there any series within this type category that you find a screaming buy right now?

I don’t think we are near a bottom yet, and we may not be for sometime (barring a raging gold bullion market). There’s a lot of generic gold out there, with more coming into the market all the time. Most investors have lost their shirts and are not interested in the concept of dollar cost averaging any longer. Unfortunately, most generic gold coins were over-promoted and over-hyped and now it’s time to pay the piper. Moreover, a well-known retailer just won a multi-million dollar judgement against a major generic gold wholesaler, which may ultimately impart more of a negative impact upon this area of the marketplace. For the time being I would stand aside until the fog lifts and a clear market direction is established.

Peace Silver Dollars a beautiful, yet undervalued series today

I want to thank Michael De Falco of De Falco Numismatic Consulting for taking the time from his busy schedule to answer these numismatic questions for Wexford Capital Management and our visitors and ezine subscribers. Both Michael and I invite readers to submit related or new topic questions at either Michael's email address at  coingame2000@aol.com or through the WCM Tangible Asset Program's general email at David@wexfordcoin.com

KNOWLEDGE IS POWER WHEN YOUR HARD-EARNED MONEY IS AT STAKE.

 



WCM Note:  The coin broker has conducted considerable business with Mr. De Falco based upon his expertise and integrity, and looks forward to having De Falco Numismatic Consulting as one of Wexford Capital Management's critically-selected rare coin brokers.




 

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