The Coin Analyst: Coins are Not Investments; They are Assets and Collectibles to Be Enjoyed
by Louis Golino for CoinWeek ………
Charles Morgan and Hubert Walker, in their recent “Open Letter to Wayne Homren ,” drew attention to wildly inflated predictions of future prices of classic U.S. commemoratives by Anthony Swiatek in his major reference book on the field, which was updated last year.
I strongly agree that far too many coin dealers and other involved in selling U.S. coins make exaggerated claims about the future price potential of the items they are selling. This was, in fact, at the heart of recent lawsuits stemming from hard sale tactics by certain coin companies that resulted in multi-million dollar settlements and new FTC regulations on coin buying last year. And the conflict of interest inherent in recommending the very same type of products they sell is troubling indeed, and as Mr. Morgan explains, would not be tolerated in any other industry. In my view, the fact that it is tolerated is something that limits the coin market from reaching its full potential and from being taken as seriously as other industries.
I believe that this same phenomenon played a key role in the creation and collapse of the great coin bubble of the late 1980’s. As it happens, I was taking a break from collecting coins at the time, while pursuing academic and other interests. But I have studied that period, and I believe it offers important lessons and cautionary tales for those looking to become so-called coin investors.
What led to the hugely unrealistic run-up in market values of numismatic coins at the time, and their subsequent collapse, from which many prices for higher-end and even common-date coins have never recovered to this day, was the notion that took hold among wealthy people looking to diversify their assets that all they had to do was throw some money at nice coins, and they would make a bundle.
All kinds of coin investment funds sprouted up, and to be sure those funds play a major role in promoting coins and pushing market values higher. But by the time Wall Street got involved, and people with little or no knowledge in coins were bidding up prices for common generic silver dollars to levels they will probably never reach again, something was clearly way out of whack.
During the period, all kinds of coin investment books were published too, and while they can be useful, they also contributed to the problem in many cases by creating unrealistic expectations. People jumping into the market failed to understand you need deep knowledge of what you are buying in coins, or the solid advice of an experienced and honest dealer. And you need time, often lots of it.
And even then, there are no guarantees. Because when you get right down to it, coins are a hobby, and they are assets that sometimes appreciate and sometimes depreciate just like all other assets. What they are not is investments. An investment pays a return, a dividend, generates income, etc. apart from the underlying principal.
And, of course, the same principal applies to gold or your home. They are assets, but not investments in the traditional meaning of the word. Look at all the problems in the American economy that grew in part out of the view that one’s home is an investment, or as some have put it, a “piggy bank,” that fueled a lot of short-term consumerism high until the housing bubble collapsed.
This leads to my personal philosophy of coin collecting, which is “buy only what you really like and that which gives you pleasure to own,” and “periodically sell some of your coins,” or you will be in for a major shock when you do sell.
Needless to say, if there were not people trying to make a buck with their coins and those concerned about future values of their purchases, there would not be much of a coin market. Speculators make the world go round, and I have often argued that it only makes sense to buy coins that you think will go up in value.
But numismatic coins, with the exception of major rarities most people cannot afford, are a risky way to make money in my view. Even those with substantial experience and knowledge can far more easily lose than make money with coins apart from changes in their melt value.
Part of the problem is differences of opinion about the grades of coins that have not been professionally graded, and even then arguments about whether a coin is solid for the grade, and the tendency of coin dealers to use valuations that are vastly different from what collectors use, even after factoring in that they are in business and have expenses.
Recently I was giving some advice to a gentleman who had collected coins as a boy and then, like many people, left them aside for decades, who wanted to know how to determine their worth and sell them.
So I recommended getting a Red Book, consulting some web sites like this one, and looking for a local dealer who has been in business a long time and who is an ANA or PNG member. And I stressed that he should only expect to receive around 60% of Red Book prices, and that if he mainly has common silver coins, their melt value will be roughly what he gets from a dealer and should serve as a base value in his calculations. He also has some gold Pandas from the 1980’s, and I told him to research their values carefully before selling, as some of them are worth several times their melt value, and an unscrupulous dealer would try to take advantage of him with those by only paying melt value.
But as I discovered today at my local dealer, who has been in business for around 40 years, even a widely-traded graded coin may only bring half of the retail price most dealers are selling the coin for. I showed him a 1996 American silver eagle, the key date of the regular strike series, graded MS69 by NGC, which sells on e-Bay for about $100, and from dealers for about $120, and he offered me $55. I decided to sell the coin myself on e-Bay where even after fees I could do a lot better than $55, which is only a few dollars above what a raw coin sells for wholesale.
And this anecdote illustrates why most average people will lose, not make money on most numismatic coins, especially if they buy classic American coins that are not high grade or particularly scarce, coins which are in the doldrums anyway these days while everyone chases bullion. Unless you sell the coins retail on a venue like e-Bay, you are selling to someone who is going to wholesale your coin to another wholesaler, which will eliminate any possible profit for you.
To be sure, there are always some low mintage modern coins that do well, which can be flipped for a decent profit if sold at the right moment. And lots of extremely wealthy doctors, lawyers, etc., who can afford to spend tens of thousands or more on a really high grade and scarce coin will do well with those assets.
But millions of people who buy numismatic coins from web sites, coin shows, and advertisements in major numismatic publications will never recover what they put in. That is just the cold, hard truth, and less experienced buyers should learn it sooner, rather than later. And this is true even if they are buying graded higher-value coins like better-date silver dollars, unless they hold on to them for a very long time, and the market happens to be in the right cycle for those items when they sell, not an easy combination.
My purpose is not to discourage people from collecting or buying coins. Just be realistic about your expectations. Have fun with coins you like, buy what you can afford, but don’t tie up money you may need on short notice unless you are buying bullion, which is very liquid. Most numismatic coins are just not that liquid. It takes time and effort to dispose of them. It’s not like hitting the “sell” button when you get rid of some stocks or bonds.
Finally, if you are trying to sell your numismatic coins, don’t take the first offer. Bullion is one thing, but when it comes to collectible coins, you will get substantially different prices from different dealers. Look for one that does a lot of business in the type of coins you are selling. The differences in offers can be startling.
So enjoy the hobby of kings, just don’t think you are going to become one by being a “coin investor.”
In the meantime, until there is greater transparency of information in the numismatic world, coins will always be basically a niche market, and their appeal will remain somewhat limited. And publications like this one should continue to work to promote more openness about the inner workings of this industry to the benefit of all.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.