ValueQuest 2009

I have the feeling that the Numismatic Buzzword for 2009 is going to be “value.” If you are like most collectors, your purchases in the coming year(s) are not going to be as extensive as they were in the past. If you are buying fewer coins, you’ll want to stretch your coin purchasing dollars and look for pieces that offer the biggest bang for the buck. I have a few suggestions, which are mainly conceptual in nature, to guide you along the Value Trail. Regardless of series, date or mint, coins that have a nice, original appearance are very rare. My definition of “original” is a coin that appears to not have been cleaned, dipped, processed or otherwise enhanced in recent generations. In many series, especially ones like early gold and southern branch mint gold, truly original coins probably represent less than 5% of the available population. If you don’t believe me, take a look sometime at a large auction that is held in conjunction with a major convention. Assuming that you know what you are looking for, my guess is that you’ll see coin after coin that is too bright or bleached out or bedecked with “unusual” coloration. In some sales there may be thirty or forty early gold coins and only a small handful that fit my criteria of originality.

It makes sense to me that if you are going to buy fewer coins in 2009 (or, who knows, maybe you won’t buy fewer coins, just less expensive ones...) you should be buying prettier, more aesthetically appealing ones. And one of the things that I am continually amazed about in the rare date gold market is that, when they are available, choice, original pieces tend to only bring a small percentage (10-20% at most) over the typical “schlock” that is usually offered.

Another important point to consider when purchasing coins with a newfound appreciation for value is current market price versus prices in 2002-2003. I use 2003 as the point in time that prices in many gold series began to rise significantly. As an example, many early gold coins that were worth $6,000-8,000 in 2002-2003 had been at that level for quite a few years. Today, these same coins may be worth $10,000-12,000 or even more in some cases.

If you own stocks, you are probably well aware of the fact that the drops in the market since early September have basically eroded all stock profits achieved in the last five years. While the coin market has, so far, held its value far better than I would have expected, it is certainly a possibility that today’s $10,000 coin could certainly drop to $6,000 in a fairly short period of time. By studying the past history of specific subsections of the market, the value- conscious collector should have a clearer idea of potential downside.

There are actually a number of rare date gold coins that are worth the same today as they were in 2002-2003. Examples include very high grade Charlotte and Dahlonega issues (in this case MS63 and above), many San Francisco issues from the 1850’s, 1860’s and 1870’s and even a number of New Orleans gold coins. The reasons for this range from the market being damaged by too many overgraded coins in holders (in the case of Charlotte and Dahlonega pieces) to collector indifference (in the case of the San Francisco coinage) to poor reporting of prices by Trends and CDN (in the case of New Orleans issues).

Just because a coin was worth $5,000 in 2003 and it is worth the same today does not mean that it offers the “best” value to a buyer in 2009. But, it is interesting to ponder if coins such as this might have less downside than areas of the market that have shot up considerably.

Which brings us to the third and final point to consider in our Valuequest 2009. Liquidity is likely to be a huge factor in the coin market in the coming year(s). This is probably no time to be “cute” when it comes to your coin purchases. My guess is that coins that had limited appeal and liquidity issues in the good market of 2003-2008 might have virtually no appeal and liquidity in the potentially-not-so-good market of 2009 and beyond. In other words, key dates may drop in price somewhat but they are still likely to have a lot of collector demand. And to use an analogy from the non-gold coin market, series such as Three Cent Nickels, Shield Nickels and Liberty Nickels have and will probably always be also-rans because they are just not especially interesting in the opinion of most collectors.

So, in summary, I believe that three of the key elements that will drive the market in 2009 are originality, current price levels versus pre-bull market prices and liquidity/popularity. These were obviously key elements in years past but with the market euphoria of the past not likely to be seen for awhile, I think they will be more important than ever.

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.

How Often Should You Sell Your Coins?

As a coin collector, how often should you be selling your coins? One of the great things about being a collector in a strong market such as this is the possibility of selling coins after a fairly short holding period and either making money or, at the very least, breaking even. In my opinion, understanding the selling process is every bit as important—if not even more important—then figuring out how to properly buy coins. Back in the Bad Old Days of the 1990’s, if you tried to sell a coin you bought within a year or two of its purchase, the chances were excellent that it would cost you dearly. Assuming you paid the then-typical 20-30% dealer markup, your decision to sell quickly was likely to cost you as much as 35-40%. Ouch!

In 2006, coins are more liquid than I can ever remember. Unless you grossly overpay for something that you probably had no business buying in the first place, you are likely to be able to sell your albatross-in-the-making for a number that doesn’t make you want to cry.

This is both good and bad. It has enabled collectors to look at certain pieces as rent-a-coins that they know they are only going to have around for a short period of time; not unlike a baseball team trading for a potential free agent knowing that this player will help them during a pennant run but will probably be gone the next year. In my opinion, I think it’s great that collectors buy certain coins knowing that they will not be putting them away forever. As I stated above, it familiarizes them with the selling process and it helps to recycle coins that might otherwise not sell.

But there can be a downside to this process as well. Collectors who are new to the market have been spoiled by the seeming boundless strength of the past two or three years. They have a mentality that says “if I buy this coin at auction I really can’t overpay. And even if I do, someone else will come along in the next auction and pay even more than I did.” For the last few years they have been right. But when the market slows down, collectors with this attitude are likely to be left holding coins that will radically decline in value.

I think the perfect compromise is to have two segments to your collection. Have a core collection which amounts to, say, 75% of the dollar value of your holdings. These are the coins that are your specialty and the ones you are likely to keep through the next few market cycles; both up and down. In addition, have a non-core holding of coins that you think are interesting and appealing but which you know are not going to remain in your collection for more than a year or two.