Unless you are Bill Gates, the chances are good that you have a coin buying budget. It is my contention that every United States coin has a price point above which it no longer makes economic sense to purchase it; unless you are an avid specialist within a series or you are totally compelled to have the best of every coin and/or type you collect. I refer to this price point as the "Best Value Grade." There are a number of applications of the Best Value Grade theory (heretofore referred to as the BVG) and these are directly related to the classification in which a specific coin falls.
In my opinion, coins can be classified in two distinct classes: absolute rarities (coins that are rare and desirable in all grades) and condition rarities (coins whose rarity is predicated solely on a high level of preservation). Using Type Three double eagles as the series to examine some coins, we find a number of perfect examples.
The 1891 double eagle is an absolute rarity. Fewer than 50 examples are known from the original mintage of just 1,390 business strikes. This is truly a coin that can be described as rare and desirable in any grade. Coin World Trends (dated 2/28/00) shows the following price information for this date:
EF-40: $4000 EF-45: $5000 AU-50: $7750 AU-55: $11750 No Trends values are listed for this date in any grade above AU-55.
Population data on this date is interesting as well. As of 2/00, PCGS had seen a total of just 25 examples in all grades (quickly confirming that it is a true rarity) with the breakdown as follows:
EF-40: 2 coins EF-45: 1 coin AU-50: 7 coins AU-55: 5 coins Five coins have been graded higher than AU-55 (all AU-58) with none in Mint State.
This data shows that the 1891 double eagle is seldom available and when it does come up for sale, it is most likely to be found in the AU-50 to AU-55 range. Assuming that your budget allows for a purchase in the $7500-15,000 range, the question you must now ask is: "at what point does the 1891 double eagle become overpriced?"
It could be said that there is no real point that the 1891 becomes overvalued as this is a truly rare coin that seems quite undervalued when compared to other more famous but less rare double eagles. But let's say that a collector has a choice between an AU-50 example at $6500 and an AU-55 at $10,000. In my opinion, I think the higher grade coin makes sense. It is priced at less than double the level of an AU-50 but is considerably scarcer, quite close to being the finest available quality (remember that the highest recorded grade level for this date at PCGS is only AU-58) and, from a cosmetic standpoint, a nice AU-55 should be considerably more appealing than an AU-50.
The 1891-S double eagle is a good example of a condition rarity. Nearly 1.3 million were struck and thousands of examples exist in the lower to medium levels of Uncirculated. Coin Dealer Newsletter bids for this date, as of 12/99, are as follows:
MS-60: $390 MS-63: $2,040 MS-64: $6,100 MS-65: No Bid (Note: While there is no published bid for this date in MS-65, we can establish a hypothetical value level of $15,000-17,500, based on other comparable issues of this era).
The 2/00 PCGS Population report shows that 1,840 1891-S double eagles have been graded in all grades with the majority of these in the MS-60 to MS-63 range. The breakdown is as follows:
MS-60: 164 MS-61: 459 MS-62: 784 MS-63: 217 MS-64: 23 MS-65: 0
This data shows that the 1891-S is easily obtainable in MS-63, somewhat scarce in MS-64 and extremely rare in MS-65.
If a collector were to ask my advice what the BVG is for the 1891-S I would unhesitatingly advise him to pursue a nice, high end MS-63.
To my way of thinking, there is nothing especially exciting about this date. If you are collecting Type Three double eagles by date, you need an 1891-S to complete your set but it is unlikely that I will be called by a single collector this year who just happens to be looking for an example. So, right off the bat, this issue lacks the "sex appeal" factor that the 1891 double eagle has.
A look at the price levels for this date are interesting. An MS-63 can probably be bought in the $1750-2000 range, an MS-64 would be at least three times that amount and an MS-65 (if available) might cost ten times the amount of an MS-63.
The population data above tells me that this coin is available enough in MS-64 that I would not want to pay $6000+ for one. And the possibility always exists that one or more of the coins currently graded MS-64 could be upgraded to MS-65. The first PCGS MS-65 example that is graded will, no doubt, command a strong price from a collector or investor who is sold on its status as a "finest known" piece. But what happens to the value level of this coin when two or three other MS-65's are graded?
I also believe that there are certain coins which it always makes sense to stretch for. A good friend of mine has a theory that the most desirable issues are those whose essence can be summed up in fifteen words or less.
An example of this is the 1861-O double eagle. Here's how I would distill the essence of this coin to a new collector: "A rare, historic issue with a strong possibility of having been struck by the Confederacy."
A little background research shows that the 1861-O double eagle is rare in all grades with an original mintage figure of just 5,000. It is probably unknown in Mint State and very scarce in all AU grades. Most interestingly, a number were produced by the Confederacy in the Spring of 1861, after the New Orleans mint had been seized.
According to the 2/28/00 issue of Coin World Trends, the price levels for better quality 1861-O $20's are as follows:
AU-50: $6,500 AU-55: $13,800 No trends value is listed for any grade higher
As of 2/00, PCGS had graded seven examples of this date in AU-50, seven in AU-53, three in AU-55, two in AU-58 and none better.
Now let's say a collector of this series is suddenly offered the chance to purchase two really nice 1861-O double eagles. One is an AU-55 that is priced at $12,000 while the other is an AU-58 that is priced at $17,500. Which coin is the better value?
In this case, I would strongly advise him to purchase the AU-58. To me, this is an easy choice. The price spread between the AU-55 and the AU-58 is not unreasonable. There should be a discernible difference in quality between the two coins. The AU-58 would be tied with just one other coin as the finest graded by PCGS. And, this is a very desirable, truly rare issue with a level of demand that extends beyond specialists within the series. All of these factors combine to make this a logical purchase.
What if the same collector were suddenly confronted with a fantastic, newly discovered 1861-O double eagle that had been graded MS-62 by PCGS and was clearly the finest known by a mile? Would this be a coin that he should stretch for?
It is always very hard to determine a value for coin such as this. But let's say that after careful reasoning, the collector and the dealer who owned the coin agreed that it should be priced at $45,000.
Clearly, $45,000 is a lot of money to pay for an 1861-O double eagle. It would represent a world record price for this date. In my opinion, this would be an instance where a stretch would make sense.
As discussed above, the 1861-O is an issue that passes the "fifteen word test" with flying colors. The finest known example of this date would be a coin that would appeal not only to specialists but to any collector of rarities as well. The price level of $45,000 is not way out of line with the value for an AU-58. And, presumably, this MS-62 coin would be vastly more attractive than the aforementioned AU-58.
There are circumstances that might make this coin a bad deal. For example, its overzealous owner might originally price it at $85,000. At five times the price of an AU-58, this would not make sense. Or, the coin in question might be unappealing and, in the opinion of the collector, not all that much better than the AU-58 he already owned. In this case, the coin should be passed on at the inflated price and maybe even at the more realistic price of $45,000.
The Best Value Grade theory can be applied to all issues of United States coins. Every time I purchase a coin for my inventory, I do a quick BVG calculation. The immediate questions I ask myself are: does the value that this specific coin make sense to me and does this coin offer good value for my clients? I would strongly suggest that before you decide to specialize in an area of make any significant coin purchase that you make your own BVG calculations.
If this theory intrigues you and you'd like to know my thoughts on the Best Value Grade for the coins that you collect, please e-mail me at firstname.lastname@example.org.