How to Become a Good Coin Collector

One of the oldest jokes in the book goes, "How do I get to Carnegie Hall? Practice, practice, practice." Hoary? Yes. Old when your grandpa was a kid? Sure. But oh so true and applicable to the subject of this blog which is, as you no doubt already know, "how to become a good numismatist." Because to become a good collector, you do need to practice. But what exactly do you need to practice most? I think the most important piece of advice I could give a new collector is to look at as many coins as possible. There are self-proclaimed numismatic experts who gain their knowledge from research but the truly savvy collectors that I have met have acquired their knowledge the same way that I have: they've looked at countless coins.

How do you get to look at coins? There are really only two ways that the average collector is going to be able to view significant numbers of important coins: at shows and at auctions. If you specialize in a specific sort of coin, make certain that you spend the limited amount of time you have at shows or at auctions looking at the coins you really need to be viewing; save the numismatic tourism for later.

One trick I suggest that collectors try at auction viewing is to cover the grade of the coin that they are looking at and guess what the grade actually is. Or, establish grade parameters and write if you think the coin is an "A" "B" or "C" quality example. After the sale is over and you analyze prices realized, you can get an idea of how accurate your precision grading really is.

I can't think of a better way to become a good collector than to buy, sell and trade coins. I'm not saying that you have to become a fledgling numismatic empire. But I think one of the best ways to become comfortable with any hobby is to be an active participant in both the buying and selling side.

One of the things that you learn from being a buyer and a seller is how to calculate your "upside/downside rate" with each purchase. It might be easy to justify paying $3,500 for a certain Dahlonega half eagle for your collection but what would it sell for if you placed it in the open market? $2,750? $3,000? $3,500? As they say, you can't play if you don't pay...

You've probably read a hundred times how important it is for a collector to learn how to grade. I haven't met that many collectors who know how to grade; at least outside of their realm of expertise. But the most successful collectors I've met all share at least one trait: they understand the aesthetics of numismatics. In other words, they may not be able to tell the difference between an MS62 and MS63 Charlotte quarter eagle but they know the difference between a below-average coin, an average coin and a high end coin.

The "aesthetics" of coins is probably the most important point I'm making in this blog. To be a good collector you really need to understand what constitutes a "good" coin in your series. If you collect St. Gaudens double eagles, the parameters will be much different than if you collect Type One double eagles.

And this is where having a good relationship with a dealer enters the picture. Behind every great collector there is a great dealer who acts as a conduit, providing information, guidance and coins. In this day of information overload it is tempting to think that the collector can go it alone and build a meaningful collection bidding in on-line auctions. If you are incredibly lucky, you'll only make an occasional mistake going the I-can-do-it-myself route. If you have average luck, you'll make a number of errors and some may prove costly.

One last thing: study and read all that you can about the coins that interest you and the market itself. It never ceases to amaze me when I hear stories about very successful businessmen who spend $1 million on generic gold and overpay by 40%. You would think they would spend thirty minutes on the web to compare prices and get a feel for the absolute basics of the market.

I've said this before and I'll say it again: the time that you put into numismatics will be doubly or triply rewarded as you wade further and further into the coin pool. This can be an infuriatingly complex hobby but there are ways to simplify it and this will only serve to give you more and more enjoyment.

The Numismatic Double Play

Say the words "double play" and most people think of Jeter to Cano to Texeira. But in the world of gold coins, the concept of the double play has another meaning altogether. Back in the 1980's and the 1990's it was common to see large-sized U.S. gold coins marketed with the "double play" strategy. What this meant was that these coins had two inherent factors that contributed to their price structure: their intrinsic gold value and their numismatic value.

The double play concept became stale over the course of time and marketers moved on to find other way to peddle their product. But I believe that this is an idea with merit and one that should be revisited in today's value-conscious market.

People who buy U.S. gold coins typically fall into two camps: those who are investors and those who are collectors. What if a third category became a factor in the market; an investor-collector hybrid who focused on semi-scarce to scarce issues that sold for relatively small premiums above their basal value(s)?

There are basically two denominations that are perfect for the investor-collector hybrid: the ten dollar gold piece (or "eagle") and the twenty dollar gold piece (or "double eagle"). If you're with me so far, I'm going to suggest that we narrow our focus to two specific issues: the With Motto Liberty Head eagle (produced from 1866 through 1907) and the Type Two Liberty Head double eagle (produced from 1866 through 1876).

Here are some basic facts about these issues. The With Motto Liberty Head eagle weighs 16.718 grams and it contains 90% gold. As I write this article (in mid-April 2010) gold is trading for a touch above $1156 per ounce. The trading levels for eagles are as follows:

MS60: $700 MS62: $740 MS63: $1,210

It doesn't take a numismatic genius to immediately note that MS62 appears to be the best value grade for this type. At just a $40 premium above MS60 coins, you are talking around a 5% increase for what is generally going to be a much nicer coin. So for the sake of convenience, let's stick with the MS62 grade for this denomination.

The "base line" date for Liberty Head with motto eagles is the 1894 as it has the highest PCGS population in Uncirculated and in MS62. There have been 18,116 examples graded by PCGS or which 6,013 are in MS62. These numbers are, of course, swollen by resubmissions but the ratio of around one-third of all 1894's graded being in MS62 seems correct based on my experience.

There are a host of dates that we can compare with the 1894 but, again for the sake of brevity, let's focus on three of them. The first is the 1883. This issue has an original mintage figure of 208,700 (compared to 2,470,735 for the 1894). It isn't a remarkably interesting date but it is extremely rare in higher grades (PCGS has never graded an MS65 and only four have been graded MS64 by this service; in MS62 they have graded 261) and there is a big price jump between MS62 (current Trends is $865) and MS63 (current Trends is $2,500). Given the fact that the 1883 is, in theory, around twenty to thirty times rarer than the base line 1894 in MS62, it seems that its current $100-150 premium in this grade is pretty reasonable.

Let's look at another date, the 1900-S. I have always liked this date and think its a real "sleeper" in higher grades. PCGS has a current population of 31 in MS62 with just 16 better than this including a single coin above MS64. Given this coin's relative scarcity in Uncirculated, you'd figure it would have a pretty decent premium above the 1894, right? In MS62, current Trends is $1,100 (it jumps to a comparatively high $5,650 in MS63) and I have purchased examples in the last year for around $1,000. Now I understand that an MS62 1900-S eagle isn't going to be the Poster Child for U.S. gold coins anytime soon but it seems like awfully good value to me, given that a common, boring old 1894 in MS62 is worth around $750.

How about a date that actually has a degree of collector demand? Let's take a quick look at the 1901-O. It is one of the more available New Orleans eagles in higher grades but it has the appeal of being from a popular southern branch mint. The current PCGS population is 103 in MS62 with 61 better including just a single coin above MS64. I doubt if more than 125-150 properly graded MS62 examples exist yet current Trends is just $865 in MS62 (it jumps to $2,750 in MS63). Given the fact that a 1901-O eagle in MS62 is popular, reasonably scarce in this grade and is probably not a bad looking coin at this grade level, its very small premium above the common 1894 is fairly baffling to me.

What if someone were to promote the 1901-O in MS62? Given the fact that a year's worth of quiet, under-the-radar buying would probably only produce 40-50 coins, it hardly seems worth the effort. That said, it seems like an easy coin to promote up to the $1,250-1,500 level in MS62.

What are some of the MS62 Liberty Head eagles that I would recommend as good double-play issues? Some of the dates I like include the 1879, 1882-S, 1884, 1884-S, 1886, 1890, 1893-O, 1894-O, 1895-O, 1897-O, 1899-O, 1900-S, 1906-O, 1906-S and 1907-S.

The second type of U.S. gold coin that offers double play potential is the Type Two double eagle. But this series is different than the With Motto eagles that we discussed above. Type Two double eagles are more popular with collectors and they tend to be be rare to very rare in Uncirculated grades.

The base line issue for this type is the 1873 Open 3. It has an original mintage figure of over 1,000,000 and a high survival rate with probably more than 10,000 coins known in all grades. PCGS shows a current overall population of 4,027 of which 1,356 have been graded from AU50 to AU58.

The trading levels for AU55 to MS60 1873 Open 3 double eagles are as follows:

AU55: 1400-1500 AU58: 1500-1600 MS60: 1650-1750+

Let's look at two slightly better dates and see if the double play concept makes sense. The first is the 1867. This is a relatively popular issue with collectors that has an original mintage of just over 250,000. PCGS has graded 304 in all grades of which 131 are in the various AU grades and another 24 are in MS60. In grades above MS61 to MS62, the 1867 is extremely scarce, so nice AU's tend to be popular with specialists in the series.

The current Trends levels for the 1867 are $2,000 in AU55, $2,500 in AU58 and $4,000 in MS60. The premium in MS60 is high enough that it is not a good double-play issue. But in AU55, the premium is fairly low over the base line 1873 Open 3. My conclusion is that a nice AU55 to AU58 1867 double eagle in the $2,000-2,250 range is a great value for the double play investor-collector.

The second date is the 1872-S. This is a date that is regarded as semi-common; not quite at the level of the base line of the 1873 Open 3 but certainly nowhere as scarce as such earlier San Francisco issues as the 1866-S, 1867-S, 1869-S or 1870-S.

The mintage figure for the 1872-S is 720,000. The survival rate is quite low as most were melted over the years and I doubt if more than 2,500 pieces exist. PCGS has graded 551 in all grades including 343 in About Uncirculated. To give you an idea of this coin's rarity in higher grades, of the 52 that PCGS has graded in Uncirculated, only four are better than MS61 and none are higher than MS62.

You can buy a nice 1872-S in AU58 for around $2,000-2,250. As I mentioned above the base line for an AU58 Type Two double eagle is in the $1,500-1,600 range.

The Type Two double eagles in AU grades that I feel are good double play issues include the 1867, 1868-S, 1869, 1869-S, 1870-S, 1871, 1871-S, 1872, 1872-S and 1873-S Open 3.

The double play strategy may or may not prove to be fruitful for the hyrbrid investor-collector. But with the premiums for genuinely scarce issues like the ones mentioned above at very low levels (some of the lowest premiums that I can remeber, in fact) I think it is a strategy with minimal downside.

Numismatics and the Current Economy

If you follow economic news in even the most cursory fashion you are, no doubt, aware of the fact that the news has been pretty grim for the last few days. Lehman Brothers is gone, Merrill Lynch has been sold in a distress situation to Bank of America, AIG is looking perilous and the stock market yesterday had its single worst day since immediately after 9/11. How does this affect the rare coin market? The first thing to remember about the coin market is that no matter how “big” we’d like to say it is, in reality it is a tiny, tiny blip on the financial horizon. Most investors don’t know that there is a coin market, let alone understand the actual dynamics behind it. So from the “drag down” perspective I don’t think we have a lot to worry about. In other words, your set of Gold Dollars isn’t going to lose X% of its value because AIG stock is in the proverbial toilet.

It is pretty obvious to me that the short term affect of the meltdown of the financial sector is not good for the coin market. When the stock market loses close to 5% of its total value in one day and the economic picture looks painful (to say the least), many people’s focus turns away from pursuits like coins. By the same token, you could say that in these times, people turn to pleasurable pursuits like coins exactly because of the fact that it helps them forget about the Big Picture.

I think the medium to long term outlook for the coin market may be better than most realize. Once things settle down (at least until the next round of consolidation in the financial sector) people are going to be seeking new asset classes and markets like precious metals and coins may possibly prove appealing to a new wave of investors.

If you have read this blog over the last few years, you know how I feel about short-term investments in coins. I still do not like being short in any area of numismatics, but if gold continues to drop I would strongly consider buying something like generic double eagles to have a position. It seems to me that the long-term outlook for gold is rosy and given the scary things that we are seeing right now with banks and financial institutions, having something tangible like a little gold position might not be such a bad decision.

I do not expect to see really good coins getting cheaper any time soon. If you are a serious long-term collector, this is a good time to reflect on what your goals are. Hopefully, you didn’t expect to be in and out of the market in a year or two and, hopefully, you will not panic and decide to dump your coins.

I think this is an important point to address. Panic selling is never a smart thing to do and I think anyone who takes their collection to the next major show and announces that they “have to sell” is setting themselves up to get sliced and diced. Yes, the economy looks scary right now. But hopefully you haven’t been buying coins with funds you need for essentials (food, clothing, shelter, etc.). Just sit back, take and a deep breath and enjoy what you’ve got.

I’ve stated repeatedly that your coin collection needs to be viewed as a long-term work in progress. If the market goes up, that’s great. You’ll make some money on your purchases and everybody likes some paper or actual profits. If the market goes down, you might be able to buy the key date that seemed pricey a few months ago for 75 or 80 cents on the dollar. We’ve been in a bull market that’s lasted a long time and many new collectors are spoiled. Just ask a collector who was active in the 1980’s and 1990’s what it was like to slog through a seemingly unending bear market.

The bottom line is I’m not ready to call an end to the Good Times in the coin market. I think people will be more tentative in the next few weeks because of the financial crisis and the overall weakness in precious metals but we’ll continue to see strong prices for nice coins whether at auction or via private treaty sales. The 4th quarter of 2008 is certainly going to be interesting, to say the least.

The Five Year Hold

Back in the Old Days of coin collecting (say 1998...) we dealers continually preached the mantra of the Five Year Hold. What the Five Year Hold said was that in order for your coin purchases to have a chance to mature financially (a euphemism, of course, for making a little dough...) you needed to hold your coins at least five years. But in the Age of the Internet, this maxim seems to have gone the way of the numismatic fixed price list.Revisiting this maxim in 2008, perhaps our sage advice wasn’t so anachronistic after all. I personally believe that many collectors have been fed unrealistic expectations by auction companies and large retailers and that they honestly believe that a coin they purchase in 2008 can—and should—be flipped in 2009 for a profit.

It’s hard to argue with the auction companies when they show you results like the 1805 quarter dollar selling for $402,500 in 2008 after bringing $74,750 exactly a year earlier. I mean every coin in this market is going to show a 5 ½ fold increase in a year, right?

I would contend that for every one of the incredible grand slams like the aforementioned 1805 quarter, there are other coins that show minimal appreciation after a short holding period. In fact, it is more likely that the typical coin is actually worth less after a year than its purchase price. Which is why the Five Year Hold might not be such a bad strategy to (re)consider after all.

Let’s say that you decide to put together a set of Type One Liberty Head double eagles. If you came to a specialized dealer and said that you wanted to complete your set in a year my guess is that the answer you’d get would be somewhere along the line of “well, it could be done but you’d have to cut some corners.” But I’m willing to bet that there a number of less ethical dealers who figure “hey, the guy is going to spend his money with someone so it might as well be me.” And our new collector would probably then be off to the races.

A year later Mr. Double Eagle is done and, if form holds, he’s already bored and looking for something else to do. So he’s ready to sell. Overlooking the fact that he’s probably bought more than his share of dud coins because he was in such a rush, he’s likely to learn the hard way that his collection, while no doubt very valuable, might not bring him the insta-profit that he was promised.

When you hold coins for a very short period of time, you run into at least three problems:

1. Your collection isn’t fresh. The chances are good that at least some of your coins have come directly (or indirectly) from auctions and can easily be pedigreed from these sales. Other coins may have bounced around from dealer to dealer and have a “staleness factor” that only insiders in a specialized market area are aware of. By holding your coins for at least five years, suddenly they appear a lot fresher. Most coin collectors and dealers have relatively short memories and 2009’s stale set of , say, Indian Head half eagles could well be fresh and interesting in 2014.

2. You are paying fees coming and going as a collector that you have to recapture before you can make a profit. Let’s say you are a newbie and you are exceptionally lucky to have hooked up with an honest, knowledgeable dealer who sells you very nice coins at competitive prices. You are still likely to be buying coins at 10-20% above this dealers cost. And when you go to sell your coins, you are going to be paying anywhere from 5% (unlikely) to 20%. So even in a situation where the collector is dealing with someone very fair his in/out fees are at least 15-40%. That’s a big hit to make up in a year and this is another reason why longer terms holds make sense. And that’s not even taking into consideration the fact that most collectors never find these trustworthy, honest dealers and wind-up dealing with the big budget, big mark-up guys.

3. By going in and out of an area quickly you are not allowing a full market cycle to occur. Chances are, collectors who rush into a series are doing so because of a promotion and the series in question has already begun an upward climb. Unless this is a series with a strong collector base that can maintain an upward climb without external stimuli it is likely that by the time the collector is ready to sell, the train has already left the proverbial station.

The reason that #3 has not always held true to form in recent years has been the phenomenon of the Set Registry. I can think of a number of sets that have been assembled quickly and then sold for a good profit to Registry Set collectors. But what if your set was the dumping ground for other quickly-assembled sets and there is no one else waiting in the wings to clean up after your mess?

The bottom line is that serious, high level coin collecting is more complicated than most new collectors and investors think and it is extremely important to find a trusted professional to work with you when assembling a set.

Key Date Price Performance

At the end of my last blog, I mentioned that the price gains in the coin market that many collectors and investors have been seeing are somewhat misleading. My guess is that if you took a random sample of 100 miscellaneous coins and calculated their price appreciation since 2003, fewer than 20% would show plusses. Some would even show minuses. If you had asked me in 2003 which coins would have shown the greatest gains, I would have split my answer(s) in two: traditional “trophy” coins and popular key dates in the most avidly collected series. My answers have turned out to be partially right as key dates have performed exceptionally well. What has really surprised me, though, is that the traditional trophy coins that have inevitably led the way in past bull markets have not necessarily been the best performers this time around.

I consider traditional trophy coins to be things like Stellas, High Reliefs, Pan-Pac Round and Octagonal $50’s, Proof gold (especially high denominations), etc. In the past, rich guys who didn’t know much about coins tended to gravitate towards these categories because they were big and sexy.

But things have been different this time around and I attribute this mainly to a coin market that is far, far more information-driven than in the past. In 1998, the rich guy who wanted to buy a few neat coins for his portfolio had no easy way to figure out how rare something was. Additionally, he was likely to be dealing with a salesman (as opposed to a numismatist) at a large marketing-oriented firm who had little knowledge about coins. Since both parties tended to be dealing from ignorance, it made sense that the unsophisticated seller would focus on a big, shiny High Relief or a Stella as the unsophisticated buyer was most likely to relate to such a coin.

Fast forward to 2008 and the market has changed. Information about coins has spread virally on the Internet and now, with an investment of a few hours, people can read a lot of good information about a wide variety of topics. In addition, the person selling coins to the big money buyers is likely to be more sophisticated as well. He needs a more interesting product to set himself apart from his competitors and the Old School Trophy Coins of the 1990’s suddenly seem passé. Just as importantly, the new breed of buyers can go on-line and see the population figures for coins like Stellas and High Reliefs. Due to significant resubmissions, these former rarities now seem common. The new buyers want exceedingly rare coins that no one else can have.

And this is where the New Right Coins come into play. If you follow auctions, you’ll note that in the last year or so, the types of coins that have been bringing jaw-dropping money are things like 1804 Dimes in AU55 and 1850 Quarters in PR68 and 1920-S Eagles in MS67. All three of these are truly great coins but they are not coins that, five years ago, I would have expected collectors or investors to have paid record-shattering prices for. In the old coin market these coins were “really neat but really exotic.” Today, they are the Right Coins.

Not everyone, of course, can afford to spend $632,500 on an 1804 Dime or $480,000 on a Proof 1850 Quarter. And, interestingly enough, lower grade examples of these same issues are not necessarily going to drive big money new collectors into a feeding frenzy (my guess is that the collector who paid $480,000 for his PR68 1850 quarter would have been A LOT less interested in a PR64 example of this date).

So what are the right coins for those of us who don’t have an extra $480,000 lying around to buy a Proof 1850 quarter? (and, by the way, I don’t mean to “pick” on Mr. 1850 Quarter as I think this is a great coin...just not one I expected to see sell for nearly half a million bucks...)

In this market, I would look to be a value-oriented collector or investor and would stick with coins that are very scarce to very rare, “interesting” from the standpoint of history, aesthetically appealing and old.

In the realm of rare date gold, some of the coins that I think will continue to perform well in spite of the vicissitudes of the market include the following:

-Virtually any 18th century issue

-Virtually any Liberty Head coin that is either the finest known or solidly in the Condition Census

-Any very low mintage coin (for business strikes, this is generally 2,500 or lower; for Proofs this is generally 50 or lower)

-Any coin pedigreed to a great collection (Bass, Garrett, Norweb, Eliasberg and a few others are great collections. The Rainy Day collection of CC Double Eagles IS NOT a great collection...)

-Virtually any coin that is historically significant (1861-D gold dollar, 1838-C and 1838-D half eagles, 1854-D three dollar gold, 1879-O double eagle, etc.)

-Coins that have original skin and a great, original appearance

-Any coin in a popular series that is rare and in demand. This is a huge range; from Rarity-7 Bust Half Dollar die varieties to key date Morgans in perfect, original AU55 to important one-year type coins like the 1808 quarter eagle to rare date Saints in MS63 and better with CAC stickers.

Advice for Long-Term Collectors

There is no doubt that we are currently experiencing a very good coin market. Many areas have increased exponentially in price in the last three to five years with the top end of the market now out of reach for most collectors. And this has created a market that has proven very frustrating to long-term collectors. Let’s say that you are a collector who has focused on early gold for the last decade. In the past, your biggest worry was probably finding coins. If you collected, say, early half eagles, you were able to find the more common issues pretty easily and had steeled yourself to waiting quietly for your chance to buy the rare issues.

But in this very strong market, there is an “X” factor. New, well-heeled collectors have come into the upper echelon of many series and made life difficult for more established collectors. The early half eagle collector who had been waiting three years to buy an 1827 in nice Uncirculated all of a sudden has a number of loose cannons to compete against who may take the attitude “I don’t care what it sells for, I want it.”

This has to be frustrating. I was speaking to a collector the other day whose area of specialization has gone crazy (price-wise) seemingly overnight. He had been able to pretty much have his way in his series for a few years but now he’s frustrated because the coins he needs are either going to sell for more than he can afford or these new Mega Collectors are going to be offered the coins privately before he is.

As I told him, this isn’t necessarily a totally bad problem to have. In theory, the rare coins he already owns should be worth more money. But he’s frustrated because he doesn’t want to sell; he’d rather complete his chosen set and then worry about what to do with it.

This tale of woe got me to thinking: what are some gold series right now that a collector whose isn’t a Zillionaire could still be the Master of His Domain and collect very high quality coins without having to pay insane prices?

One series that comes to mind is business strike Type Three gold dollars. I personally love the series and if I were a collector looking for a challenge, I’d work on a date set of Philadelphia issues from 1856 through 1889. All of these can be obtained in Uncirculated and a wide variety of collecting budgets can be accommodated. One of the real beauties of these coins is that nearly all of the dates exist in Gem Uncirculated and if you haven’t seen an MS66 or MS67 gold dollar from the 1860’s or 1870’s, you are in for an aesthetic treat.

Another series that I think would be very challenging but a lot of fun would be the San Francisco quarter eagles struck from 1856 through 1878 (I’m not including the extremely rare 1854-S in this set since I’m assuming that most collectors are not going to be able to spring for the six-figure price that it would take to procure an example). The rarest collectible issues in this series are the 1862-S and 1863-S. Neither is incredibly hard to find in nice AU grades but if this set were going to be assembled in Uncirculated, both issues are extremely rare. What really intrigues me about these coins is the fact that they are genuinely rare in Uncirculated and they seem like pretty good values in comparison to the southern branch mint coins. I’m not so certain that they will ever become popular but the good news is that if you decide to work on a high grade set, you are not likely to be confronted by the dreaded Zillionaire Collector Who Has To Have It.

If a collector with a decent-sized budget wants to have his way in the Three Dollar gold series, he has an opportunity right now to buy some pretty interesting coins. I’ve seen some interesting dates in the MS63 and MS64 range sell for approximately 20-30% less than what they were bringing a few years ago and I’ve found the grading standards of these coins to be—of late—pretty tight in comparison to a few years ago. I would contend that the Three Dollar series is more popular right now than generally believed but it is not the Darling of Telemarketers that it was for a brief and shining moment in 2005-2006.

One other area that the prudent gold coin collector could do some serious damage in right now is No Motto half eagles and eagles from Philadelphia. You don’t see a ton of these on the market but when you do they generally do not incite Auction Frenzy like some of the Seated Liberty silver coins from this era. I have bought some really interesting No Motto Philadelphia eagles from the 1840’s and 1850’s in the last 90 days for less than $20,000 and even some very pleasing pieces in the $2,500-5,000 range. I’ll let you in on a little secret: these are some of the final gold coins of this era that have not been destroyed by coin doctors and if you like pretty, original pieces you are far likely to see a great looking 1847 Philadelphia half eagle than one from the branch mints.

So if you are being driven crazy by Insane Zillionaire Collectors who are making the top end of your series go nuts don’t despair. I’m guessing that 90% of these guys will go away in a few years and your series will go back to less frothy days when they leave. In the meantime, look at this as a good time to take a break, find a new series and once again become The Man.

Winter's Law of Numismatics

I was recently having a conversation with a long-time client about coin investing and our discussion turned to one of Winter’s Laws of Numismatics. Which basically says that the typical coin investor almost never makes money while the typical collector, often in spite of himself, tends to do just fine from a financial standpoint. At DWN, I tend to regard “investing” with a raised eyebrow. If someone who I do not know calls me up out of the blue and starts talking about coin investment, I give him a lecture which basically states that coins are not good investments and that if he insists on looking at coins strictly as investments, he probably should be dealing with XYZ Coins instead of my firm.

But this isn’t totally true. Coins CAN be a good investment. Let’s say that as a knowledgeable collector you went to the Pittman sale in 1997 and spent $50,000 on some nice lots. The chances are pretty good that you would have done just fine from a financial standpoint.

Before we go further, I suggest you re-read the last paragraph. Notice that I said if you had “gone to the Pittman sale in 1997.” This presumes at least three important points. First, that you knew enough about the coin market that you (or an advisor) were able to determine that the Pittman sale contained good coins. Second, you were able to hold on to your coins for a long period of time (hard to believe that the Pittman sale was ten years ago, isn’t it?). And thirdly that you were able to select nice enough coins for them to be “investment quality.”

The trouble with coin investing is that virtually all coin investors buy the wrong coins from the wrong people at the wrong point in time.

When I look at the typical “rare coin portfolio,” I am usually struck by a few things. The coins tend to be very common and very boring; things like common date Walkers in MS66 or common Saints in MS65. Coins like this will never be good investments because they are too common. The second thing I am struck by is that the coins in these portfolios (the very word “portfolio”, when it comes to coins, makes me cringe...) are invariably overpriced. Even coins like MS66 common date Walkers or MS65 common date Saints which have a well-known buy/sell spreads tend to be dramatically overvalued in these portfolios. Another thing I notice is that these common coins are usually bought at exactly the wrong time; usually when a common series is in the midst of a promotion.

Getting back to the point I was making earlier, collectors often make excellent investment decisions even though, many times, they don’t really know they are making them. The smartest things collectors can do are to buy coins that are pretty, coins that are rare and coins that are in demand. An investor is not likely to know which coins qualify as such and the “advisor” that he speaking to likely does not know either.

So as an investor, what can you do to improve the chances that you will actually make some money? My answer is simple: learn to think like a collector. Learn something about the coin market. Realize that coin collecting involves a lot more than checking “past performance” charts and analyzing statistics.

2007 Crystal Ball Survey

I was recently asked to participate in the annual Crystal Ball survey published by Maurice Rosen. Although some of these questions are not totally pertinent to the area of rare gold coinage, I think there is quite a bit of interesting reading here. 1. We had a great market till May, then a slump. What's your outlook for 2007/2008? Please explain in detail.

I think the coin market is going to be very two-tiered in the next year. I think that really good/really interesting coins will continue to show strong demand while average quality/uninteresting coins will be very soft. We’ve had a great run the past few years but it seems inevitable to me that certain areas will slow down. I think the market weakness that we saw in 2006 reflected the fact that many areas which had performed well the past few years were strong because of dealer promotions. When the promotions stopped or the dealers decided to take profits, the demand for these series dropped quickly.

I think the price of gold will fluctuate between $500 and $600 throughout the year and we will see occasional run-ups in generic prices but nothing spectacular.

I’ve noticed that coin buyers are becoming more sophisticated and I think that choice, original coins will be strong in 2007. As an example, if you have two MS65 Bust Halves for sale at an auction and one is a true Gem with nice color while the other is dark and shows obvious rub on the high spots, the nicer of the two might bring 50%+ more. This schism between true quality and junk will be more graphically illustrated in 2007 (and beyond).

2. What areas of the market look to be the best performers for 2007/2008? Please explain why.

I think better date Seated Liberty coinage in Mint State will do well in 2007. There are still some really good values in this area, especially in the quarter and half dollar series. I love just about any No Motto Seated coin in MS64 or better. Attractive, properly graded examples of many of the so-called common dates are much, much harder to locate than people realize.

Early gold will continue to be strong but buyers are becoming more selective in this area. I really like pre-1834 quarter eagles. They are many, many times rarer than comparable half eagles and eagles yet are often priced at considerably lower levels.

Proof gold will continue to be a strong performer, especially larger denominations. My favorite coins are the pre-1890 issues with mintages of 50 coins or less in PR64 to PR66. These coins are really rare and they are very appealing to wealthy investors.

I really like the potential of New Orleans gold coinage, especially No Motto half eagles and eagles. People have finally realized how rare these issues are in higher grades and they like the fact that Condition Census coins can often be acquired for less than $10,000.

It seems that Commemorative Gold is about due for a promotion and this looks like a good area right now for speculators. I like most of the issues in MS65 and MS66.

Variety collecting has really become popular and I think that very rare varieties in popular series will do quite well in 2007. It always impresses me to see what serious collectors will pay for very rare Sheldon or Overton varieties in specialist auctions.

3. What areas of the market look to be the worst performers for 2007/2008? Please explain why.

Small sized type coins like Three Cent Nickels, Shield Nickels and Liberty Nickels are cheap right now but for a good reason. These coins are boring. No one really collects these series any more (except as type coins) and I can’t see any real reason for these series gaining in popularity.

With certain exceptions, I think that Barber coinage will remain soft as well. There are not many collectors working on complete sets of Barber coins and unless a very rare, very low population piece is offered (or a nice mid-grade circulated example of a rare date) most issues show little demand.

I think many key date 20th century (and late 19th century) coins are overvalued. Issues like 1901-S quarters and 1916 Standing Liberty quarters have dramatically increased in value and I think they are now very overpriced.

Common date Bust Dollars in Fine-Extremely Fine have gotten pretty pricey in the last few years and I would not be surprised if this market shows some correction. Lots of the pieces I see in this grade range are very overgraded. That said, I still like nice AU and better Bust Dollars as long as they are original and attractive.

It seems like you just can’t give slightly off-quality Silver Commemoratives away and I think this market will stay soft unless some large marketing firm decides to promote Commemoratives. If a Commemorative isn’t gorgeous, it is very hard to sell.

In nearly all series, I think low-end, marginal coins will be harder to sell in 2007. Even in really popular areas like early Type, coins that are clearly ugly for the grade just aren’t going to be as liquid s they were back in 2005 or early 2006.

4. Since the lows of 2001, gold almost tripled, but rare coin performance severely lagged gold. Some indices show gains of 20%-40% from 2001 to the highs of 2006! (A) What accounts for the disparity? (B) What does this portend for the future?

I think the weakness in generic gold has to do with the fact that many of the older telemarketing firms who used to promote these coins are no longer actively supporting the market. They’ve moved on to other areas with larger profit margins and that’s why the demand for bread and butter generics like MS65 Saints is nowhere what it used to be. If there is no real level of demand for generic gold, then I expect levels to continue to lag the performance of gold.

5. (A) Do you think that "Ohiogate" had a detrimental impact on the market? If yes, how so and why. If not, why not? (B) What lasting effects can we expect from "Ohiogate?"

I originally thought it would have a very detrimental short-term effect, given the fact that a huge amount of coins were being dumped on the market under the direction of a liquidator who had no clue how to properly market them. I was surprised that the market was, for the most part, able to absorb the Fund’s coins. However, I do not think the full ramifications from the scandal have been clearly felt yet. The Fund was a huge entity in the market with their fingers in a lot of pies. It will be very interesting to see what happens in the next year or two.

I think the biggest lasting effect we might see from Ohiogate is that larger intuitional investors who might have previously toyed with the idea of getting into coins might not be as anxious after they hear the gory details from this story.

6. (A) What will it take for a large financial institution to make a commitment to the coin market? (B) What specific sectors of the market would be most likely emphasized in the portfolio of a large coin fund?

I’ve spoken with clients of mine who are involved in hedge funds or private equity groups and most of them won’t do a coin deal because the numbers are just too small. These guys are looking at doing $250 million+ deals (in many cases more than this) and a little $25 million to $50 million coin deal is just too small for them. That said, there is always the chance that a hedge fund guy who loves coins might do a fund as sort of a lark. But every time we’ve seen large funds in the coin market, the results have not been good.

If a fund were to be established, it needs to be run by someone like John Albanese who is very smart and very ethical. I assume that a fund run by someone like John would focus on really rare coins like Proof gold, early type (silver and gold), classic rarities and popular individual issues like High Reliefs, Pan-Pac Octagonal and Round $50’s, etc. This is essentially what the Ohio Fund was focusing on and I think they did a very good job in terms of buying coins and focusing on specific market areas.

7. As we close 2006, how do you assess the state of coin grading? This is a broad question. I leave it to you to comment any way you want.

My complaints about the services today are the same as they were ten years ago. I do not think that either of the majors rewards originality and I see lots of coins in holders that I think are very, very marginal at best. In my area of specialization (rare date gold), I think both services have really diminished the market’s expectation of what an AU58 should look like. Coins with little or no original mint luster are graded AU55 or AU58 and this has lessened the price premium for certain dates in these grades.

On a related note, kudos to NGC for having the best customer service I’ve ever seen in a company that I do business with on a regular basis.

8.(A) How important are Modern Coins becoming to the market? Despite many people deriding them, many coins bring high prices in super-grades. (B) What are your overall views and recommendations for investors?

I’m sure every answer you’ll get about modern coins is that they are horrible, the market is totally one-way, the coins are ugly, etc. Although I basically agree with these points, I can’t completely denounce the modern coin market. I don’t like the coins and I can’t see why anyone would want to collect them but, by the same token, I can see how someone might not be as turned-on by 18th or 19th century classics as I am. I take a “live and let live” attitude with moderns. I do not plan to ever deal in them but if someone chooses to collect these coins, more power to them. They are affordable, easy to buy and, hopefully, are a good stepping-stone to more sophisticated market areas.

That said, I would NEVER recommend any modern coin as an investment. As far as collecting these coins, I think at $50 or $100 per coin, moderns are just fine. But I would caution the investor to avoid expensive PR70 and MS70 moderns as they have lots of downside risk, in my opinion.

9. Two sophisticated investors come to you to invest for the long-term. One has $25,000, the other $250,000. Each investor wants only a few coins. What do you recommend to each and why? Please state the upside potential for your picks.

For a $25,000 package, I would suggest the following. I would choose an interesting No Motto Seated quarter or half dollar in MS64 or MS65 in the $7500-10,000 range. I’d try to find a coin with a population of fewer than ten coins with relatively few higher and a piece that was original and very attractive. Then, I’d find a New Orleans half eagle or eagle in the AU58 to MS62 range that was Condition Census quality in the $7,500 to 10,000 range. With the remaining money, I would find a piece of Proof gold that was relatively affordable (around $10,000) but which had a lower mintage figure than a “common” date. I think this would be a small but neat group of coins.

For a larger budget collection, I would start with two pieces of early gold. I’d try and find a rare Fat Head half eagle struck in the 1820’s or 1830’s in Uncirculated in the $25,000-35,000 range and a quarter eagle from this era in MS62 or above in the same price range. I would then look for a really neat piece of Proof gold; something like a PR65 quarter eagle from the 1870’s or a high end PR64 half eagle from this decade. I’d figure to spend another $25,000-30,000 on this piece. Then, I would look for a Gem Large Size Bust quarter in the $15,000-20,000 range or a killer MS66 Bust half dollar. After this, I would try and buy one great early copper coin; something like a 1794 cent in Uncirculated with a great 100+ year pedigree. I’d budget around $20,000 for this coin. Next, I’d buy a sexy $10,000 Colonial coin with a Ford pedigree. The Ford sales have been a little under the radar to those who don’t specialize in Colonials but this is easily the greatest offering of early Americana in our lifetime. I’d look for a high grade example of a popular issue like a Pine Tree shilling or maybe a New Jersey or Massachusetts or Connecticut copper. I would finish off this collection with a few great 19th century gold coins; maybe a couple of very high grade Carson City or Dahlonega pieces or some killer New Orleans coins. I would be highly selective here and focus on really nice, really high end coins. If I had another $5000-10,000 left I would buy a few great plated Chapman auction catalogs. These are rare, undervalued and incredibly neat.

If I had a chance to buy an 1838-O half dollar or an 1876-CC twenty cent piece I’d choose one of these two classic rarities as my $250k portfolio and punt the group of coins listed in the paragraph(s) above. I’ve always felt that these were the two “Great American Rarities” that were truly undervalued, even though they have appreciated significantly in the past few years.

10. Increasing government regulations, further losses of privacy, more taxes, these are all likely to impact our lives in the years ahead. (A) How might they impact the coin market? (B) What specific advice do you have for today's investors?

I don’t really feel qualified to answer this question so I am not going to delve into it…except for one quick comment. I’m going to assume that a big issue in the coming years for the coin business will be an Internet sales tax. My business has grown exponentially over the years due to the Web and I think that an Internet VAT-type tax could really hurt the growth of the coin market.

11. Your Best Buys for Type Coins in MS and Proof.

As I mentioned above, I love No Motto Seated quarters and halves in properly graded MS64 and above. These coins are really rare and really good deals. New Orleans half dollars from the 1840’s in MS63 and above seem to be one of the best values in the market right now. It’s hard to find these coins but when they are available you can purchase some legitimately great coins for under $7,500. I’ve always had a soft spot for Flying Eagle cents in Gem Uncirculated. If you can find coins that are well struck, free of mint-made defects and which are not dark, they are great values at current levels. For many years, I’ve thought that Proof Braided Hair half cents in 64RB and better are really cheap at current levels. I’m not saying that they are great “investments” but they seem like a lot of coin for the money.

I think that very pretty type coins in MS65/PR65 and better are, in general, good value right now. By this, I mean coins that have very pretty (but not too deep) multi-colored toning. I would avoid ultra-high grade coins that have a high premium over the next grade down and I would avoid coins that have a huge premium for Cameo/Ultra Cameo designation. I think a lot of low population Ultra Cameo coins run the risk of growing populations when coins graded a number of years ago are resubmitted.

12. Your Best Buys in the Gold Coin sector.

In early gold coins, I love the quarter eagles struck from 1821 through 1834. They are extremely well priced in comparison to early half eagles and eagles. I have a few clients right now who are assembling date sets and I am amazed at how hard it is to find a number of these early quarter eagles.

In the Liberty Head series, I think New Orleans coins offer unbeatable value. My new book has created a number of new collectors and I’d say that high grade New Orleans gold from the 1840’s and 1850’s tends to be, in most cases, many times rarer than Charlotte and Dahlonega issues from this era—at lower price levels!

An esoteric but much undervalued series of coins is the Philadelphia eagles from the 1840’s. There are a few dates (such as the 1844, 1845 and 1846) that are almost impossible to find in any grade above AU50 but which are still relatively affordable. And unlike most mintmarked coins, not all of the Philadelphia pieces have been dipped-n-stripped.

If I were a rich guy who liked 20th century gold, I think I’d focus on Indian Head half eagles. These are by far the rarest 20th century gold pieces in Gem Uncirculated and a number of dates in this series (1909-O, 1911-D, 1912-S, 1913-S, 1914-S and 1915-S) are excessively rare in Gem. If you started a high grade set, you’d have less competition than in the Indian eagle and St. Gaudens double eagle series, so you might actually have a shot at the really great coins if and when they become available.

13. Your Best Buys in Silver Dollars.

I’ve always thought that Gem Trade Dollars were one of the rarest and most undervalued mid-19th century types.

I personally hate Morgan Dollars so I’m probably not that the best person to ask about “best buys” in this series.

I’m amazed that more people don’t try and assemble Peace Dollar sets. These coins are such great deals compared to Morgans. The series is short, completable and not terribly expensive in Gem. If someone was to write a really good guide to collecting Peace Dollars and a few of the larger retailers actively promoted this series, I think prices could rise dramatically. That said, I doubt this will happen anytime soon.

14. Your Best Buys in the U.S. Commemorative series.

Every time I’ve been asked this question, I always give the same answer: I like Gem examples of the pre-1928 silver half dollars. I don’t look at that many commemoratives but when I do, I find most of the issues like the Maine, Missouri, Alabama, Grant, Vancouver, Pilgrim, etc. to be washed out and “yucky.” I think undipped, lightly toned MS65 and MS66 examples of these early issues are cheap at current levels.

15. Your Best Buys among 20th Century Series coinage.

Superbly toned Proof 1936-1942 coinage seems to have disappeared as most of these coins have been dipped. I’ve always liked coins with lightly toned centers that become deeper in hue towards the edges. In PR66 and PR67, the silver issues from this era are very favorably priced right now.

16. Your Best Buys in any other sector of your choice.

In my primary area of the market (branch mint gold) I’d have to say that nice quality Charlotte gold is a good contrarian play right now. $20,000+ Charlotte coinage is a hard sale but it is inevitable that one or two new deep-pocketed collectors will want to create great sets of these coins in the coming years.

Three Dollar gold pieces were certainly due a correction after the great run they had in 2005 and 2006 but I think the market overcorrected. I like the low mintage dates from the 1880’s (like the 1881, 1883, 1884, 1885 and 1886) in Mint State and nice AU and better examples of the San Francisco issues. A great time to buy coins like this is when all of the “geniuses” who became Instant Experts on Threes last year have now moved on to greener pastures.

Nice New Orleans gold is a terrific value right now. In most cases, you can buy a scarce No Motto half eagle or eagle from this mint at a significant discount in comparison to a more available piece from Charlotte or New Orleans.

As I’ve mentioned about ten times, I really like No Motto Seated coinage in MS64 and better, especially New Orleans pieces.

I think, in general, that in nearly any series, “best buys” are always nice, original coins. It’s become so hard to find pieces that haven’t been messed with. I think down the road that really fresh coins will begin to bring huge premiums over the typical run-of-the-mill junk that you see most of the time.

17. What changes or innovations are needed to make the pricing of coins a better deal for investors? Just as reduced commissions (even the elimination of commissions!), plus much narrower spreads between bids and asks, have dramatically lowered trading costs for stock traders, what can be done to make our market more efficient and a better deal for investors?

The Heritage auction archive is an amazing tool. It enables a collector to see the price performance of nearly any coin over the past few years. If Heritage (or someone else) were to take this idea and include all of the major numismatic auction companies, this would be an incredible resource for collectors and investors. The ability to quickly and accurately track pricing is something that increases a new investor’s confidence level; especially in thinly traded market areas.

The advent of the Internet has increased the amount of transparency in the coin market in the past few years. I think the coin market is far, far more transparent than most any other collectible and, again, that is a good boost for investor confidence.

Something that has long hurt the coin market is that a decent number of neophyte investors are still making their first trades with brokers who are either taking advantage of them or are not providing them with the tools to turn them into long-term market participants. As an industry we still need to shed the last vestiges of the Wild West mentality of the 1970’s and the 1980’s and treat potential new investors with the attitude that the coin market is a great place to place some discretionary income in for the long term.

18. Since PCGS and NGC began, we've seen a general loosening of grading standards. (A) Could standards in the future become stricter, thus reversing the trend of the last 20 years? (B) If yes, what event or events would cause this to take place. If you disagree, please explain why. I doubt very much that either PCGS or NGC is going to admit that standards have changed, let alone reverse them back to where they were in 1986/87. I think it’s more important, at this point, for collectors to keep up on current standards so that they can grade by the standards of 2007 and not by the standards of 1987. Wishing for grading standards to revert to where they were 20 years ago is sort of like someone wishing that you could buy an apartment in Manhattan tomorrow at 1987 prices.

19. What 1, 2, or 3 coins are your favorite "sleepers," coins you know to be much scarcer than generally perceived and, as a result, undervalued. Anything from the 1700's to date, your picks. Please explain why you picked them and tell us their potential.

Here are three coins that I regard as true “sleepers:”

1. 1845-O Quarter Eagle: With only 4,000 struck, this is a very scarce coin in all grades. Any original piece grading EF45 or better is really rare, yet you can still buy a very presentable example for under $10,000. This is the key issue in the New Orleans quarter eagle series, which is short, completable and getting popular.

2. 1847-O Half Eagle: Few non-specialists realize just how rare this date is in nearly any grade. It is the hardest New Orleans half eagle to find and it is nearly impossible to obtain in properly graded AU50 or better. I recently sold a very nice AU55 example of this date for $15,000. If this were a Dahlonega coin of comparable rarity, it would have been worth $25,000++.

3. 1841-O Eagle: I love this issue. It has a low mintage figure (2,500), it is the first No Motto eagle struck at the New Orleans mint and it is nearly impossible to find above EF45. Despite this fact, it is priced at a fraction of the second-tier double eagle rarities from the New Orleans mint (i.e., the 1855-O, 1859-O, 1860-O and 1879-O).

Which Coins Are the Best Investment?

A potential new client recently asked me a basic but interesting question: which gold coins are the best investments? As those of you who know me realize, I don’t really tout coins as an “investment.” But I want my customers to make money on the coins that they purchase from me and I try to steer them towards pieces that I think will appreciate in value over the course of time. In my opinion, there are a few factors that make specific coins a good investment and which should perform well. Some of these factors are as follows:

1. Liquidity: Does a specific type of coin sell very quickly when I list it on my website or does it tend to languish for an interminable period of time? I notice that certain coins are consistently good sellers. Generally speaking, they fall in the “sweet spot” pricing range of $2,500 to $7,500. They are usually coins with an interesting history and pieces with good aesthetic appeal. As a rule of thumb, the more expensive a coin is the less liquid it becomes (although, in the last three to five years, very expensive coins and ultra-rarities have been remarkably liquid). As I told the gentleman who inquired about coins as investments, the pieces that are the most liquid are the best to own.

The “quality of liquidity” is important as well. Will the person most likely to buy your coin(s) be a specialized collector or a dealer? I personally like coins that I can sell to end-users as opposed to dealers who will look at them primarily as commodities and be more conscious of price than quality.

2. Popularity: Popularity and liquidity are not the same thing. A coin can be liquid but be a part of a not especially popular series (an 1838-C half eagle is an example of coin that is very popular but it is from a series—Charlotte half eagles—that I would not describe as being immensely popular) while a popular coin can be relatively illiquid (an example of this would be an unappealing, lower grade High Relief which most collectors would probably pass on and spend a bit more money to acquire a nice piece). An excellent collection could be created out of nothing but very popular coins—pieces like 1861-D gold dollars, 1839-O quarter eagles, 1838-C and 1839-D half eagles, 1838-D and 1839-D half eagles, 1838 eagles, 1861-O double eagles, etc. I refer to issues like this as the “Krugerrands of Rare Date Gold” as they are coins that are almost like cash.

In the same vein, I am an advocate of “absolute rarity” as opposed to “condition rarity.” A coin like an 1841-O eagle is rare in all grades and I will buy any example I can find, unless it has been harshly cleaned or damaged. An 1843-O eagle is not a rare coin in lower grades and I will generally not purchase a piece unless it grades at least AU55. Give the choice of owning a nice EF40 1841-O eagle or an AU55 1843-O eagle, I would personally rather have the former.

3. Rarity: It would seem obvious that the rarer the coin, the better the investment it is. This is actually not always the case. If a coin is very rare but it is part of a series that is not popular and/or readily liquid, then it may not necessarily be a good investment. An 1846 eagle is a genuinely rare coin that is nearly impossible to find in any grade higher than EF45 to AU50. If I were offered a nice, original AU55 I would certainly purchase it. But this is a coin that I would not expect to sell quickly and it might actually take me a number of months to move it. The problem with this coin is that it is a member of a series (Liberty Head eagles) that does not have many specialists and it is a Philadelphia issue.

The perfect “investment quality” coin is one that is not only rare but which is popular and liquid. A coin that scores highly on all three of these fronts is one that should perform well.

4. Historic Price Performance: With the advances in price dissemination available to collectors, it is easier than ever to track how coins have performed over the past three to five years. We have been in the midst of what is ostensibly the greatest sustained bull market in numismatic history and if a specific coin hasn’t done well since the early 2000’s, than the chances are good it isn’t going to do very well when this market finally cools off.

By the same token, an investor wants to avoid a coin that is currently at an all-time high in price. If you look at the price levels for a coin like a 1911-D quarter eagle in Uncirculated, you can see that it was selling for considerably more money by the beginning of 2006 than it had at any time since the halcyon days of the late 1980’s. It didn’t take a rocket scientist to figure that the 1911-D had probably risen to the point where it was no longer a good value. And this is exactly what has happened, as the value of this issue has dropped 10-20% in the past few months.

If you are a bottom-line oriented coin buyer, avoid issues which appear to be at a market peak. Conversely, being a total contrarian might not be a great idea either. The perfect coins to buy are those that have shown some price increases in recent years but whose price levels still make sense, considering their rarity and grade.