The question repeatedly arises whether a new entrant to the world
of U.S. rare coins should operate strictly as a collector enjoying
an age-old hobby deeply enriched with history, or should he or she
approach this tangible asset strictly as an investor seeking
reasonable annual appreciation on an investment.
I think many dealers in U.S. rare coins shun the thought of
investment returns being a primary goal of an acquirer of truly
rare U.S. coins since they do not want to assume the potential
liability of the client not making a profit or actually losing
money when they decide to sell.
Furthermore, very few coin dealers are familiar with U.S.
securities regulations at the Federal and State levels pertaining
to investment recommendations to consumers.
So the path of least resistance is to avoid any treatment
of numismatics that analyses past versus recent price
performances, and compares true rarity both from population
reports and direct market experience to existing prices levels for
any specific coin. This
perpetual question of hobby versus investment will persist forever
in my view, but there are many arguments why the most productive
approach incorporates key elements of both approaches.
The two goals of completing a collection or a numismatic
goal, and making money in the process are not mutually exclusive.
And for very practical reasons also.
the average liquid assets of us middle-aged baby boomers is in the
$300,000 area, which statistics support, excluding real estate and
including 401k plans, then a registered investment advisor would
recommend no more than 10% to 15% of total liquid assets be
allocated to tangible assets such as U.S. rare coins.
And don't consider retirement plans as unavailable for
spending or illiquid! Americans, unfortunately, are
borrowing from these retirement accounts in increasing frequency
and amounts. This
would equate to a $30,000 to $45,000 total dollar commitment on
behalf of the consumer. Now this rule-of-thumb would not necessarily apply to a pure
collector, but a prudent person, and this is the viewpoint taken
in all regulated markets, would still apply a pre-determined limit
on his or her exposure to any given area of expenditure.
Of course, we are not referring to the Bill Gates or Tiger
Woods class of individuals where money is no object.
We are referring to the average participant. I am using Baby Boomers only as an example, but regardless of
our infamy and future crushing burden on Social Security, we
command purchasing power as a demographic group that probably will
have the greatest effect on U.S. rare coin prices for many years
to come. Just the
when the purists suggest or demand that you should only approach
numismatics as a collector and not as an investor, there is a
little bit of high-priced snobbery or elitism going on.
Thirty Thousand Smackers Plus is no drop in the bucket, and
no matter how excited you are about picking up that last bobble
for your collection or set, you as an Average Man (politically
correct: "Person") have to be accountable to someone for
the total chips you have put on the table.
If it is not to your spouse or heirs, it could be to the
endowment you may be leaving for your church or university.
Scarce resources such as dollars, and liquid ones at that,
must be treated accordingly.
I hate to be the one to say it, but part of the reason some coin
dealers consistently take this "Collector Only" stance
is that their margins and pricing may not allow you to make a
profit on the coin they just sold you anytime soon.
If their markups over what you, the Average Man or Person,
could readily sell the coin for the next minute after purchase is
the likely 30% plus so common today, it could be four years before
you get into the black. And
this assumes a rising rare coin market. You are a
much happier customer vis a vis this dealer when you are thinking
strictly as a collector and future price does not matter in
relation to the intrinsic value of the piece. We're talking
value to you and no one else.
However, I find it hard to believe that anyone with the
discipline and resources to acquire a "collector" rare
coin in the first place is not someone very conscious of what he
or she pays for the item and what the next owner will pay for the
privilege of ownership. I
would like to think that we coin enthusiasts, no matter what our
motivation, are above-average intellects.
Or am I being elitist now?
a collector only, won't you be more productive and acquire a finer
collection if you employ some of the disciplines of an investor?!
Once again, remember that we have limited, not unlimited
resources to pursue our goals.
By studying the last 10 to 20 years of price behavior of a
given type and series of U.S. rare coin, you have the leverage
through knowledge not to overpay for any given acquisition.
Now of course this argument also assumes that you are not buying
an overgraded coin, but LET'S NOT GO THERE!!! And by
not overpaying, you at least have a better than 50% chance of
upgrading individual pieces in your collection by selling those
less rare coins for even finer examples.
You are using price appreciation to increase your
acquisition power, and increasingly rare and well-preserved coins
require increased expenditures. Find a coin dealer that will tell you otherwise! Unless
of course you have a Cherry Pickers trained eye to crack out a
coin and obtain a value boosting upgrade on a consistent basis. But once again, you are the Average Man, no offense meant.
forbid, chart the CDN bid prices for any rare coin or series you
currently collect or plan to collect (or invest in!), and observe
the price pattern and behavior as you would a stock or equity
mutual fund. Don't
forget that these latter asset classes comprised of paper promises
currently aren't setting the world on fire (except in the Crash
and Burn Mode), and you
want to avoid mimicking their recent behavior. An
asset is an asset is an asset.
Markets operate differently
in their efficiency and pricing mechanisms, but buyers and sellers
are guided by the same human emotions that designed a wheel in a
cave. A thorough study of history shows that human
psychology has changed little in over two thousand years. Never
forget this when you spend your hard earned money. Increased
demand with constant supply will always, in a free market, lead to
the Coin Dealer Newsletter (or competitors) has not joined the New
Millennium and packaged their databases of U.S. rare coins for
sale in CD format is beyond me.
Loading a specific series of coins into a spreadsheet
program would then be a snap, and you would have analytical
information at your fingertips for assisting you in negotiating an
acquisition or sale. I
currently track my favorite series by manually inputting the
weekly and monthly and quarterly CDN data, but I would rather go
fishing. What a
duplication of effort! However, the resultant
information is well worth the effort. Many dealers will tell you that this data is more retail than
wholesale, and that the methodology and discipline involved in its
collection is flawed, but we are trying to find relative value
here based on price trends, not necessarily absolute value.
There are too many variables between say 1882-O Morgan
DMPL's in MS65 to suggest there is one price for all of these
rarities preserved at this level.
The price is only as accurate as that for which a willing
buyer is actually releasing Dollars.
Dealer bids are a fuzzy
form of price, but we have to utilize what we have available in an
imperfect world. And we don't know what that coin looked
like either. A weak MS65 or a strong
MS64? A sale must have transpired to establish an
accurate price for anything.
But don't forget that we are also trying to discover a
trend in addition to relative value.
Where has it been?
How does today's price
compare with recent or all-time highs? Does it appear
to be gaining strength or weakening further?
Has it just corrected after a rapid price rise?
of me spoon-feeding you with what I have discovered over several
years at the expense of my fishing hobby, get ahold of the first
week of January CDN prices for the $3 Gold in MS63 starting with
January, 1997, and observe the price behavior either graphically
or on a percentage year-to-year change basis to May, 2001.
I will give you a clue.
This is a rare coin series that I currently recommend and
historically have recommended.
Truly rare, especially prior to 1874 with the exceptions of
1854 and 1855. By
truly rare, I mean the combined PCGS and NGC populations are less
than 40 with about 20% of that number representing re-submissions
or double counting. When
you think of the almost 300 Million people we have in this
country, and if only 5 Million or less than 2% are serious
collectors (or investors!), a survival of 40 pieces per date and
mint mark won't satisfy many want lists.
And try to find a problem-free MS63 in a certified holder
of a coin that was not very popular to begin with and melted down
at will during the Civil War.
This is just one example of turning an
"investors" analytical mind to the art of collecting.
it only makes sense that a rare coin "collector" should
be an "investor" also.
Regardless of the primary motivation behind an acquisition,
for the pride of ownership in a collection, the historic merit, or
the investment potential of a given coin, the data gathering and
analysis that should go into any "investment" of time,
effort, and money is infinitely applicable. The goals of either type of coin enthusiast are not mutually
exclusive, but are complementary and integral to the success of
either pursuit. Pure
collectors have a tendency to be more knowledgeable of numismatics
than pure investors (unfortunately), but investor shrewdness and
analysis must be constantly employed to guarantee long-term
success at collecting. Whether
today's U.S. rare coin collector wants to admit it or not, he or
she is effectively an investor in a highly collectible tangible
asset that in most cases is increasingly rare due to the ravages
of time and mishandling. And
the interested base, both collectors and investors, is increasing
with world population and diminishing alternatives. Enough said.
IS POWER WHEN YOUR HARD-EARNED MONEY IS AT STAKE.