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 Posted - 04/21/2007 : 10:05:35
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Found this doing some surf'n
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This article was first published (April 5, 2001)
Be forewarned: this article involves me climbing on my soapbox and warning those who are being propositioned by rare coin touts. The world is full of them, for one simple reason: the markups on numismatic coins are substantial. Lots of money is made from selling rare coins to non-collectors. The line of patter you hear from coin salespeople is carefully scripted, intentionally misleading, and, too often, devastatingly effective.
In the interest of full disclosure, let me mention here that I’ve been a coin collector and dealer for decades. Rare coins are a fascinating field to many of us. Collectors often derive a great deal of enjoyment from the study and acquisition of old coins. Coins represent history, art, national identity, and are a timeless expression of the culture that produced them. Not only is the study of numismatics enjoyable, but the bonus is that numismatists actually have something of real value when their collections are completed.
But somehow the popular view of coin collecting has come to be that rare coins are a private, money-making endeavor for shrewd rich people. This perception has opened the door to the popular marketing of rare coins as an investment. The potential buyer is generally pitched the idea that he’s being let in on the insider secrets and special deals of the coin market, opportunities normally available only to the select few.
This 'numismatic investment' scam has been going strong for over 30 years now, and hundred of millions of dollars have been extracted from tens of thousands of non-collector buyers, who usually find out much later how badly the odds were stacked against them when they made their purchase.
It always starts with a phone call.
The call came out of the blue from a financial advisor with a national firm we have worked with over the years. One of his clients had recently sold a business for several million dollars, and that client was interested in converting some small percentage of the proceeds into a gold position.
That client's main concern was to have an alternative form of insurance, to weather whatever the worst economic storm might bring - devaluation of the dollar, a depression, or the failure of our currency to maintain its viability as an exchangeable unit of value. The word 'barter' was even mentioned. In short, he was looking for gold, the oldest and most universally respected element of true value. The financial advisor asked me to bring him up to date on our gold recommendations.
After some conversation about the most prudent and risk-adverse portfolio of gold for his client, the advisor casually mentioned that he had been approached by one of the more prominent, nationally known dealers in rare coins, a published numismatic author and nationally recognized 'expert' in the rare coin field.
This dealer suggested that a particular rare coin he was offering at $20,000 was just the thing to own in case of an economic emergency. Which, coincidentally, was exactly what the client was concerned about.
Of course, the idea that a scarce collector’s item is going to be worth more than its melt-down value when there's blood in the streets is simply ridiculous. It's hard to imagine that in the unlikely event of total economic chaos, connoisseurs of high-quality rarities are going to look for choice specimens to add to their private collections
No, owning a rare coin, or a sketch by Picasso, or a Mickey Mantle rookie card, won’t help you much when everyone's scrambling for survival. So why did this rare coin dealer suggest that collectibles are a prudent disaster hedge?
For the simplest of reasons: the money.
The old saying is that ‘rare coins are sold, not bought.’ And it’s true. More rare coins are aggressively sold to “investors” by salespeople and tele-marketers, than are actually bought by members of the nearly extinct species known as ‘numismatists.’
Collectibles such as rare coins simply are not sold under the laws that protect investors.
Take pricing, for instance. When a stockbroker calls you with a recommendation, you can at least look in the newspaper or online to find the market price of the equity that he's trying to sell you. And it's relatively easy to find out the commission he might make on the sale.
But with coins, antiques, art, jewelry, stamps and collectibles of any stripe, the mark-ups, commissions, and differences between wholesale (the dealer's cost) and retail (what you will pay) are entirely hidden from view. You seldom have any idea what sort of profit is coming right off the top when you purchase an item based on an expert’s appraisal of its value.
Worse still, even assuming you can even determine the dealer's cost on a particular coin, you still don't know what it's worth in a pinch. You may be dealing with someone who bought the item off a standard pricelist and marked it up. Or it may be a multiple-broker deal, with the dealer having gotten it on consignment, perhaps from a different dealer who had it on consignment from a collector!
The unanswered question is: What could YOU sell it for? How liquid is a truly rare coin? Who is the next potential buyer? And if you have to sell on short notice, at what price can you sell this item back onto the wholesale market? And how do you find that market?
The truth about markets is that some are more liquid than others. A true market, such as that of commodities and listed securities, features narrow spreads and a completely transparent cost structure. You always know where you stand in a true market, as narrow bid/ask spreads are published constantly, and the costs of transactions are in plain view.
But in the unregulated and arcane world of collectibles, the general rule is ‘caveat emptor’ (let the buyer beware). The key word in collectibles is mark-up, not market.
BOTTOM LINE: When a non-collector purchases a collectors item as an ‘investment,’ a future loss of his or her capital is almost guaranteed.
- Richard Smith
Part 2
This article was first published (April 24, 2001)
Two weeks ago, we went on a rant about the rare coin investment scam, and the fact that it continues to claim new and unsuspecting victims. The truth is, most rare coin investors don’t understand what they’re buying, they don’t know the hidden costs involved, and they don’t know that there are ‘liquidity issues.’This week, we’ll focus on how rare coins actually have performed as investments in recent history.
The news isn’t good. Fundamentally, coin collectors are an aging group, and younger affluent collectors of old money are more likely to collect paper currency rather than coins.Simply put, to the younger generations, paper currency is money. Coins, to them, are tokens that you put in vending and game machines. Only the old-timers think of coins as money. Demographically, it’s no wonder that the hobby of coin collecting peaked out in the 1970’s. And it’s been pretty much downhill ever since.
For this exercise in price comparisons, we’re going to ignore all costs, commissions, markups and fees. We’ll compare wholesale ask prices in 1981 and 2001 for a broad range of investment-quality U.S. numismatic coins.In order to quantify the numismatic track record, we’ve come up with six areas where we can compare U.S. rare coin prices in 1981 prices versus 2001 prices. We focus on the accepted investment grades of Mint State-65 and Proof-65, totaling some 160+ different classic U.S. coins and coin types that comprise a large percentage of all copper, nickel, silver, and gold regular-issue and commemorative coins from the 1800-1942 era.1981 prices are the wholesale ‘ask’ prices from a tabulation of the December 25, 1981 edition of the Coin Dealer Newsletter, the authoritative weekly publication in the rare coin field, bylined as ‘A Monday morning report on the Coin Market." 2001 ‘ask’ prices are from the April 6th, 2001 edition of the same publication. (Published by CDN, Inc., 18807 Crenshaw Place, Torrance, CA, 90510)
These comparisons aren’t perfect. For one, grading standards have changed dramatically since 1981, and many rare coins that were sold as MS-65 quality (65 points on a 70-point grading scale) back then won’t meet today’s strict standards for that grade. Also, we have ignored, for the most part, the more common coins ($500 and less) which have performed poorly, and the high-price rarities ($100,000 and over) that sell too infrequently to establish reliable trading prices.
We have concentrated on true quality coins that are obtainable, but not museum-quality pieces that lack reliable pricing information.We are comparing here the performance of quality, investment grade coins – the ideal choices for investors. Unfortunately, what is sold is not usually genuinely rare, high-grade coins. Coin sales firms and brokers thrive by selling common, off-the-shelf stuff and ‘story’ coins that are hardly top-drawer numismatic material. We are ignoring the ‘sludge’ that many unknowledgeable coin investors are often sold – modern coins in high grade, obscure ‘mint errors’ and minor varieties, treasure and ‘hoard coins,’ rolls and bags of common coins, and the whole gamut of second-tier material that often gets foisted off on the unwary.We have tried to give rare coins a chance by focussing on quality type and commemorative coins in the whole range of U.S. coinage – gold, silver, copper, and nickel. Here are the price comparisons 1981-2001 for the ‘blue chips’ of numismatics.
UNCIRCULATED U.S. TYPE COINS { Copper, nickel, and silver}
From the Uncirculated Type Coins section of the December 25, 1981Coin Dealer Newsletter, we totaled wholesale "ask" prices in Mint State-65 grade of the 55 different coins, going back to about the year 1800.
The 1981 prices add up to
$186,085 *
The year 2001prices
$226,985
*Investing that sum of $186,085 at 1% for 20 years, produces the same result as this holding:= $226,998
UNCIRCULATED U.S. TYPE COINS, GOLD
Page one of the CDNL has always featured the popular gold U.S. type coins from the late 1800s and early 1900s. The eleven coins with a listed MS65 wholesale ‘ask’ price in 1981 totaled
$39,500 *
By 2001 a slight loss had been incurred, and they were worth
$37,525
* Or invest $39,500 at 5% over 20 years, and today you would have $104,805 -or- $67,280 improvement over the return on this holding.
PROOF U.S. TYPE COINS, Copper, nickel, and silver
We find 33 coins on page 4 listed under Proof Type Coins that show MS65 ask prices in 1981. At that time, the total wholesale asking price was
$108,145
2001 prices on the same coins total
$125,233
This holding produced for a miserly annual yield of less than 1% (3/4 of 1%}
CLASSIC ERA 20TH CENTURY PROOF SETS, 1936 – 1942
Some would say these are the most attractive U.S. coins of the 20th Century, featuring high-quality, mirror surface presentation versions of classic coins such as the Buffalo nickel, Walking Liberty half dollar, and Winged Liberty ("Mercury") dime. In 1981 the seven sets cost wholesale
$13,375
By 2001 the list price had gone down to
$ 9,750
This modest investment cost you $186 a year for the joy of ownership.
SILVER COMMEMORATIVE COINS
The 50-piece type set of the different commemorative designs from 1892-1954, in MS65 condition, were available in 1981 for a total of
$35,000
In 2001 those coins total
$48,272 *
* This holding produced a 1.62% annual yield.
GOLD COMMEMORATIVE COINS
The complete commemorative set of gold dollars and $2 ½ coins, issued from 1903 to 1926, total 11 pieces, and the MS65 wholesale ‘ask’ price in 1981 was
$28,500
By 2001, this series would cost you
$86,275 *
* This is a spectacular performance among rare coins in the past 20 years! - Works out to a whopping 5.69% annual return!
ALL SIX ABOVE GROUPS TAKEN TOGETHER
Had you decided to buy all of the above-mentioned coins in 1981, you would have a very impressive collection of rare investment-grade U.S. numismatic coins. The wholesale asking prices back then was
$410,605
Today they list for
$534,040
To own this coin collection as your pride and joy would of course set you back the original out-of-pocket 1981 expense of $410,605.
But imagine that you had not taken up this costly hobby, and had invested the money at 5% annually instead. Twenty years later, you would have $1,089,457 -or- $555,417 more than produced by this holding.
Which means this numismatic indulgence translates into over half a million dollars in lost opportunity costs.
LET’S DO THE UGLY NUMBERS
Initial investment amount in 1981
$410,605
What you could have earned at 5% interest 1981-2001
$678,852
Giving you a total holding value in 2001 of
$1,089,457
Value of the coin collection in 2001
$534,040
Lost opportunity cost at 5% in owning these coins for 20 years
$554,417
Or at 8% you could have turned your money into
$1,913,788
That’s one expensive hobby, isn’t it?
Well, maybe 1981-2001 is a statistical fluke. How about the more recent price history of rare coins, such as during the booming 1990s? The most widely used price guide for the certified coin market, the Certified Coin Dealer Newsletter (also published by CDN Inc., 18807 Crenshaw Place, Torrance, CA 90510) tracks thousands of coin prices in various series from a January, 1990 price baseline. Some recent results:
CCDN Market Index 1990 baseline = 1000
March 30, 2001 = 724.79
CCDN Buffalo Nickel Index 1990 baseline = 1000
March 30, 2001 = 906.48
CCDN Proof Singles Index 1990 baseline = 1000
March 30, 2001 = 626.77
CCDN Silver Commemorative Index 1990 baseline = 1000
March 16, 2001 = 502.45
CCDN Gold Commemorative Index 1990 baseline = 1000
March 16, 2001 = 517.72
CCDN Mint Gold Type Index 1990 baseline = 1000
March 9, 2001 = 469.47
Mark Twain once referred to "Lies, damned lies, and statistics." And we are sure some will quibble with our analyses of rare coin price performance. Although we compared prices on a broad spectrum of U.S. coins in top grades, other choices will yield different results. Looking back with perfect hindsight, you can always select specific issues to bolster your case for or against investing in rare coins.Our intent is not to knock coin collecting – we indulge in it ourselves, and enjoy it. But when you invest your money safely at 5%, over 20 years every $1,000 turns into $2650.
If you can make 8%, then $1,000 becomes $4660 in 20 years. That’s the miracle of compound annual interest. Financially, it would be foolish to ignore the cost of lost opportunity when considering the purchase of coins as an investment.You can call it investing when you buy these shiny little bits of history, but coin collecting, like many enjoyable pastimes in life, is actually going to cost you money. So why do people think that buying rare coins is a form of investing?
Because for years, that’s what they’ve been told.
The 1970’s saw the beginning of the aggressive marketing of rare coins as investments. At that time, the track record of U.S. numismatic coins was very good. Rare coin prices had stagnated during the Depression and the early 1940s, but started to rise soon after World War II. The booming 1950’s and 1960’s brought higher prices for rare coins as disposable income increased and millions of people took up the hobby of coin collecting. When the last silver coins were struck for circulation in 1964, everyday people became aware of their pocket change, giving the surge in coin collecting yet another boost.By the 1970’s, all these factors had combined to give rare coin prices an unprecedented 30-year long bull market. Much was made of the prices increases in numismatic coins, and the coin investing boom that began in the 1960’s became institutionalized.
Of course, the seeds for the end of coin collecting as a viable hobby for most people had already been sown. Demographically, the hobby faced the problem of an aging group of participants. Popular coin collecting was rapidly fading in popularity.In stock market terms, numismatic coins were undergoing a period of ‘distribution.’The stage was set for investors to come along and take collector coins out of the hands of an aging collector population. Investing in rare coins became all the rage among those who were not numismatists, history buffs, or even coin collectors at all, but just wanted to participate in the boom in rare coin prices. Telemarketers took to coin sales like a duck to water.
Coin dealers started to hold themselves out as investment advisors, and many formed alliances with financial planners, to market U.S. collector coins to the non-collecting investment public.Investment interest in coins was further stimulated during the 1970’s and 1980’s by the annual publication of Salomon Brother’s list of best-performing assets. This list covered stocks, bonds, art, gold, Chinese porcelains, stamps, coins, and other fields. The results consistently showed rare coins as a top performer among all these assets.
This study was extensively quoted by marketers of rare coin to their clients, even though the coins in the Salomon Brothers study were expensive and rare coins that most victims of the coin investing fad would never own the likes of.No, what was marketed to the public was mostly the more common or ‘generic’ coins that were available in sufficient quantity to keep teams of salespeople busy selling to unwary ‘investors.’ Large coin firms had to be able to offer hundreds or thousands of virtually identical portfolios for their sales teams.
That’s only possible if the material being sold is actually so common that calling them ‘rare coins’ is misleading.Was that type of marketing consumer fraud or securities fraud? Neither, and that’s one of the peculiar thing about numismatic coins. Although many marketers sell coins as investments, coins are not regulated securities such as stocks, options, or bonds. Because of the lack of regulations protecting the coin investor, pretty much anyone can call themselves a numismatic expert and sell to the public.And as to consumer fraud, there is no law against charging high prices for your merchandise.
If the coins are described accurately, and delivered in a timely manner, then consumer protection laws are of no avail. For the unknowledgeable consumer, then, rare coins represent the worst of both worlds.But for the marketers of rare coins as an investment, life was good. They were selling an unregulated product, backed by the performance study of a prestigious financial institution, to buyers who had no way of knowing what the true market was on what they were buying.For the buyers of rare coins as an investment, life was, well, good. They had been assured that their coins were a fantastic investment.
Better still, they were buying items that, unlike stocks or commodities, didn’t have their values printed in the newspaper every day. Since they couldn’t check on the prices, they didn’t worry about them. The broker or salesman who sold them the coins was very reassuring ("The market is strong. You’ve made money already on your last purchase!") over the phone, and often he had a special deal on even more numismatic coins for their portfolios.
Sales techniques in rare coin marketing today are ever more sophisticated, but the principle is the same: convince the customer he’s getting the inside track from an expert to whom special opportunities are available. The customer gets a great story, something pretty to look at, and he doesn’t know he’s underwater unless he tries to sell.Numismatic coins are like any merchandise: you seldom make money buying at retail and selling at wholesale.
And the markups on collectibles, whether coins, art, stamps, jewelry, or baseball cards, is so high that it generally takes decades before the ‘investor’ breaks even. Meanwhile, money in the bank draws a sure, steady, insured rate of interest.
Everyone agrees that you can make a small fortune in the rare coin field. But the fact is that it’ll cost you a large fortune.
"To the uninformed, pocket change.
To the informed, an investment."
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Gresham
Penny Pincher Member
184 Posts |
Posted - 04/21/2007 : 13:22:43
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I'd like to know why the authors decided that 1981-2001 was a good set of years to look at the performace of the rare coin market? Is it because 1981 was a relative max and 2001 a relative min in the market?
Also they realy didn't mention that the price of gold, silver, and pretty much every commidity on the face of the planet performed terribly during the years 1981-2001.
However they did mention some valid points, such as rare coins not being a good thing to have if TSHT fan. However they didn't convince me that if I'm a very affluent guy that I can't have a collection of rare and unusual coins next to my Picasso or Rembrant. On the other hand all of these investors pretty much priced the common collector out of the market in the 1970's and that is why the price went lower for 20 years. This is likely the real reason that bill collecting became more fashionable. It looks like the investors are at it again too, driving up the prices that I have to pay! It could be that coin collecting became less fashionable about the time that the mint started mass producing an ever increasing array of the cheap overpriced junk that they sell, but the mint keeps cranking it out, so someone must be buying.
There are some fundamental reasons that rare coin collecting should not be treated as an investment, and that is that the dealer is not a broker that orders coins for you, but has overhead and every other cost that goes with keeping a store. The dealer must profit period. Even if the rare coin market was onfire and outperformed every investment for the last thirty years it still would have this fundamental problem. |
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 04/21/2007 : 17:34:49
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For those who may not know, a dealer sells from his or her own stock. A broker acts as a go-between the person who owns the item and the buyer.
For example: If I sell copper pennies that I own I'm acting as a dealer. If I put together a deal between a buyer and let's say, Canadian Nickle who has pure nickels for sale, I'm acting as a broker.
Both ways of doing business are respectable in my opinion if one remains honest.
I'm more of a bullion investor than a numismatic investor. But I'm not above being on the look-out for coins or paper money that I might be able to turn a profit on. I don't go in for the very rare coins in particular because of some of the reasons that the above article stated. However, I own many rolls of walking liberty half dollars. I can see the day in the future when a lot of people will want to own a piece of history and will be willing to pay a more than silver bullion price for it. If not, I still have my silver value in them.
************************
For good times to come or bad times to come, now is the time to save your copper or nickel coins. |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 04/21/2007 : 18:52:50
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I thank pre-82 for finding this article and yes, the price of numismatic coins, especially gold coins, will not perform as well as stocks and interest earned in the bank, however:
The author of the piece failed to mention that with the rise of e-bay, the market for anything numismatic (especially gold) improves a coin owner's chances of making a profit.
The author of the piece failed to mention that if a coin is sold to an interested party face to face, and cash is used to buy said coin, no paper trail is left, so reporting the profits of the sale on one's federal and state tax returns may or may not happen, not so with interest or dividends. (I of course don't advocate doing this, but each of us is ruled by our own conscience and each of us will do as we see fit.)
The author of the piece seems to believe that stocks and banks gaurantee a 5% interest rate at all times. Reality dictates otherwise. Even if 5% dividends/interest can be found, inflation is usually running much higher so the 5% is more like 1/2% afterwards (not including taxes payable)
Back in 2001 not only numismatic prices were bad, but the going rate of gold was at an all time low! If a person bought gold at 1981 prices and sold at 2001 prices, they would have lost money too. So much for the theory gold in bullion form is better than numismatics.
Paper money the investment of the next generation? I have visited many a coin shop and I have seen kids buy dimes and quarters (clad and silver) leaving the paper money to collect dust. Even kids today know good money from bad and what is worth keeping.
Numismatic values for the period chosen (1981-2001) does not necessarily prove that collecting rare coins is the wrong thing to do. One collects coins because they are attractive, desirable, and will hold their value as paper investments fall apart. While it can be argued that during times of financial disaster a numismatic gold coin will be worth only as much as a bullion coin when things really fall apart, it is better to own some kind of gold to buy a ticket on the last boat ride out than to be stuck on the dock with a bundle of unacceptable paper bills no one will take except to wall paper a room.
Besides, if the WTSHTF is delayed for a few years, the numismatic coin's collectalbe value might increase whaile a bullion coin's vlaue will be locked at the going rate of gold.
Numismatic investing, like investing in stocks, requires study, examination, and care before spending the first dollar.
Those succesful in investing in both stocks, bonds and coins will attest to this.
The attitude that numismatic fraudsters are out there everywhere seems to believe that pump and dump artist do not exist in the realm of stocks or banking (at one bank they now have a financial planner offering annuities, no FDIC insurance, no gaurantees, but since it is sold in the bank it 'seems' legitimate. )
There are crooks in every profession, even with the SEC monitoring the companies, shareholders still get burned at times. (Enron, Worlcom, Lucent, etc.)
That is part of the reason I posted "Buying Old Gold Coins Wisely", to give buyers of numismatic gold a heads up on the realm of gold coins and what to buy. Careful buying is the key in any investment.
One last parting shot, the author of the piece works for a company that sells (suprise) mostly bullion coins. I never heard of Pepsi speaking well of Coca Cola, so I would not expect a bullion seller to speak well of numismatic coins.
I should have chosen "Cut-n-Paste" as a forum name, since that is what I do, mostly. |
Edited by - pencilvanian on 04/21/2007 18:58:32 |
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just carl
Penny Hoarding Member
USA
601 Posts |
Posted - 06/28/2007 : 19:53:13
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I'm to old to read long articles anymore. I get bored and fall asleep. I always think that when people start dragging out a subject, they are trying to hide something. I am old and have seen many hobbies used as an investment. I saw the rise and fall of Beanie Babies, stamps, Hot Wheel and Matchbox Cars, lamps, guns, knives and even the convertible cars that were supposed to be stopped at one time. Oddly enough For the well over 60 years I've been collecting coins I've never seen them fall in prices, only upward. Of course who knows about the future. I'm to old to worry about the prices of coins in a hundred years or so but I'll bet they will be up.
Carl |
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Numismatic Investments Horrible Mistake ?
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