The NFL GM's Theory of Coin Buying

Is it possible that a strategy used by the General Manager of your favorite National Football League team can be applied to building your collection? This might not be as much of a stretch as you are, no doubt, thinking - and I invite you to read this blog and give my theory some thought. Have you ever wondered why some NFL teams select a linebacker in the first round of the draft even though they already have three excellent starters in their line-up and some good backups as well? What were they thinking? They were probably using the "draft the best available athlete" strategy and this can, in my opinion, be applied to your coin collection.

First, a little background is in order here. Some coin collectors have a very clearly defined focus to their set(s). They might collect something like Charlotte quarter eagles by date and they know exactly what they need to complete the set. But many other collectors are not this focused and I frequently get emails from collectors or calls from existing clients asking me "Doug, what set should I be focused on?"

The key word here is "focus" and I feel that focus is something that's very important for a new or advanced collector. Having a focus gives you a sense of purpose as a collector and allows you to see a beginning and an end of your endeavors.

But "focus" means one thing to one collector and another thing to another. Some collectors are exceptionally focused and are excited by the thought of collecting every known die variety and die state of 1798 half eagles; for others this would be torture. So how exactly can the "NFL theory" work for the collector who knows he needs some sort of direction to follow but who doesn't want to follow an overly-narrow course?

Remember what I said earlier about drafting the best available athlete? Well what if a collector's focus was the "best available coin?" This might mean that he wasn't buying a certain Charlotte quarter eagle because it fit into a date set but rather because it was scarce or had a great "crusty" look or it was low population (or a combination of all these factors).

Most collectors have laid some basic ground work for their collections. They might buy just gold coins, as opposed to coins in all metals. Taking this further, what if the collector then decides to specialize in gold coins struck between 1800 and 1900? There are a number of things this collector can now decide to become more focused without becoming too much of a specialist. Some examples might include the following:

-Buying coins priced between $2,500 and $5,000 -Buying coins with a certain sort of "look" -Buying coins with original mintages of less than 10,000 -Buying coins that are in the top 10% of all those graded for the date -Buying coins from branch mints -Buying coins not from branch mints

Its my belief that too many collectors worry about being over-specialized and that, in order to deal with DWN they have to be specialists. This isn't the case.

Coin collecting should be about buying what interests you and what makes sense for your budget. I know of many collectors who are, in a loose sense of the word "specialists" but not in the traditional sense.

"Cornering the Market" on Specific Gold Issues

Does it ever make sense to attempt to “corner the market” on a specific gold coin issue? I have seen a number of collectors and dealers do this over the years. Some of these attempts were spectacular successes while others failed miserably. Anyone who collects coins is probably a little eccentric in the first place. Deciding to focus on one or two specific dates and to hoard these isn’t necessarily more eccentric…just a bit, how should I say this, more “compulsive.”

Collectors decide to hoard a specific date for a number of reasons. A student of varieties like Harry Bass owned multiple examples of certain dates because each represented a specific variety or die state that he was researching. A speculator might find a date that he feels is undervalued, buy up all the pieces he is able and have price levels rise due to continually paying more at auction. An example of this was recently accomplished with 1843 quarter eagles in which a clever dealer accumulated a few dozen of these, made prices rise significantly and then sold into a stronger market. Other collectors just fall in love with a specific date, for whatever reason. I remember helping a collector assemble a hoard of 1888-O eagles in Uncirculated that grew to over 100 pieces before he passed away.

If I were going to hoard a specific issue, I would choose one that does not have an unlimited supply. The gentleman who decided to hoard 1888-O eagles eventually came to realize that he was going to have to buy hundreds of pieces to have an impact on the supply. His decision was made more difficult by the fact the fact that this wasn’t a hugely interesting issue.

I would also look to hoard an issue that was relatively cheap. The decision to hoard 1843 quarter eagles made sense because most of these were available in the $500-$2,500 range.

Most importantly, I would choose an issue that had numismatic significance. Back in my collecting days, I was attracted to 1822 Dimes. I thought this date was much undervalued given its rarity and price structure. It was a key date in a reasonably popular series; another important factor to consider. I eventually owned fifteen or so examples but my relatively small budget meant that most of these were in the Good to Fine grade range.

If I were going to focus on a specific issue today, I might look at something like the 1845-O quarter eagle, a coin with a very low mintage figure, a relatively high level of collector demand and its marketability as the key issue in the short, highly collectible New Orleans quarter eagle series. Or, I might focus on the 1841-O eagle, a date with a very small mintage figure and the numismatic significance of being the first Liberty Head eagle produced at the New Orleans mint.

You can also own a couple of examples of one of your favorite issues without being a hoarder in the classic sense of the word. If I owned a nice 1861-D gold dollar and I had the chance to buy another that was equally nice, I might consider salting it away. This coin could be used as an interesting piece of trade bait at some point in the future.

One final suggestion. If you are hoarding a specific issue (or issues) have an intelligent exit strategy. An investor who put together a very large position of circulated 1893-S dollars recently decided to sell them. The good news was that he ran prices up considerably and that, at least on paper, he made a lot of money. The bad news is that he basically decided to dump them all at once and there are now dozens and dozens of examples on the market. This will probably erode a good portion of his profits.

Advantages of Using Auction Representation

If you bid sight unseen on coins at auction there is a better than average chance that you will buy an overgraded, low end item. I recently spoke with a collector who was new to the rare gold coin market. He purchased a few books from me and we chatted about various branch mint issues for around thirty minutes.

The next thing I knew, he called me and told me that he had entered bids on around fifty lots in a major firm’s auction. I didn’t know this person well enough to yell at him (plus he was way too nice a person for me to raise my voice at) but, after talking for a few minutes, I found out that he had literally looked through a Heritage catalog like it was the latest offering from a clothing retailer and ordered one of this and one of that; like it was pants, shirts and ties.

Here’s the problem with blindly bidding at a coin auction. Despite what you might think, it is IMPOSSIBLE to accurately grade or determine the appearance of any coin based solely on an image. To see the fine nuances of a coin, such as luster and the quality of the surfaces, you absolutely must see it in person and view it in three dimensions.

When I mentioned this to the collector, he stated that the descriptions in the catalog told him most of what he needed to know. I, in turn, mentioned that these descriptions are written by employees of the auction company and while interesting to read, they tend to dwell on the positives of a coin rather than the negatives.

It is a huge disadvantage to a bidder to not see a coin. He is bidding against experts such as myself who are not only more knowledgeable about gold coins than he is but have had a chance to see the coins in person, view them in good lighting and use a magnifying glass if necessary. With these advantages, there is just no way that a sight-unseen bidder stands a chance against me.

Unless there is something wrong with the coin. Here’s a good rule of thumb for coin auctions: the worst lots in the sale—the ones that dealers pass between themselves during pre-sale viewing and giggle about—are the ones that ALWAYS wind up selling to “smart” collectors who bid sight unseen.

The collector has a few options in his arsenal. He can hire an agent to view the coins for him. He can establish a relationship with the auction company and have lots sent to him for pre-inspection. Or if he’s really lucky, he can find someone he trusts at the auction company to look at the coins for him and give him judgments.

Auction companies have dome a masterful marketing job convincing the new collector that the auction experience is totally without pitfalls and the fact that there is an underbidder for every coin means that no purchase has more than 5 to 10% downside. Wrong! What if the other bidder(s) on a certain lots is also uninformed and the smart bidders (i.e., those who had actually seen the coin) dropped out at 30 or 40% lower?

Bidding at auction is a great way to add rare coins to your collection but just remember that if you are bidding based solely on images, flowery descriptions and price histories from other auctions you are setting yourself up for a potential disaster.