News and Analysis on scarce coins, coin markets, and the collecting community #29
A Weekly Column by Greg Reynolds
I explain the PCGS SecurePlus program in part 1. Here in part 2, Don Willis, the president of the PCGS, responds to the explanation that I put forth in part 1, and I argue, with assistance from expert dealers, that the PCGS SecurePlus™ program should be reformed, not by reformulating the program, but by preventing dealers from submitting rare coins through the old “standard” process. The positions of John Albanese, Ira Goldberg and Mark Feld are featured.
I devoted last Wednesday's column to an explanation because I have found that many collectors and dealers do not really understand the PCGS SecurePlus™ program. For details of the PCGS SecurePlus™ program, and a discussion of its importance, please read part 1.
IV. Don Willis Responds
Don Willis has been the president of the PCGS since Oct. 2008. I knew him before then, when he was a coin dealer. Earlier, he had a very successful career in the field of information technology, including the founding of a large software company. I have found Don to be honest, willing to address controversial issues, and very concerned about the well being of collectors.
Willis graciously responds to the points put forth in last week's column and to questions I asked. Fortunately, Don found my explanation last week as to how grading procedures under the SecurePlus program differ from standard PCGS procedures to be “correct.”
“Today, in its early stages,” Willis says, “SecurePlus is being driven by the collector community.” My (this writer's) impression is that many collectors do not know or do not understand the benefits of the SecurePlus program. Moreover, not all collectors are familiar with the problems of grade-inflation and coin doctoring. Besides, the dealers who submit many coins to the PCGS are typically wholesalers, not dealers who sell directly to collectors. It would be illogical for the SecurePlus program to be steered by collector demands and collector feedback.
Willis continues, “We have seen many finest known and top quality sets submitted for SecurePlus grading.” I (this writer) find that this is certainly true. Several sets in the Simpson collection come to mind. “Most of these sets remain with their original owners and off the market,” Willis states. “One exception would be Dr. Steven Duckor's set of Barber Half Dollars which were submitted through SecurePlus and later sold at auction for record breaking prices.”
Dr. Duckor is a strong supporter of the SecurePlus program. Please see his remarks in my June 2nd column. (As always, clickable links are in blue.) Further, I wrote two articles on Dr. Duckor's halves (part 1, part 2). Also, I mention more of his halves in my column of Aug. 4th.
As Willis says, Duckor's halves sold for extremely strong prices at auction and many auction records were then set. It is not clear, though, to what extent PCGS Secure holders (as opposed to regular PCGS holders) played a role in the prices realized. Dr. Duckor is one of the leading living collectors, and he is certainly one of the most sophisticated collectors of all time. For a Barber Half Dollar, or an early 20th century gold coin, a Duckor pedigree often adds considerable value.
The SecurePlus program should not only be for the benefit of those advanced, knowledgeable collectors who understand the program. “SecurePlus is only six months old,” Willis replies. “Currently all coins valued over $100,000 must go through SecurePlus. This will change in the future as the market dictates.” Willis figures that “the pace of SecurePlus submissions and the expansion of SecurePlus services will be determined by collector demand just as original PCGS submissions were back in 1986.”
I find fault with Don's reasoning here. In the late 1980s, a very large percentage of PCGS certified coins were sold to investors or trading funds. It took time for collectors to be accepting of PCGS certified coins. Most collectors had to be persuaded; collectors were NOT then driving the demand for PCGS certified coins. There was a need then for the PCGS to aggressively market grading services. Now, more than 90% of all collectors of rare U.S. coins are accepting of the PCGS.
In the late 1980s and early 1990s, collectors were choosing between certified coins and not certified coins. This is different from choosing between PCGS certified coins in standard holders and those in 'Secure' holders. Much more explanation is required in regards to such a choice. Most collectors will never fully comprehend the importance of the technologies that underlie the SecurePlus program.
A very large percentage of PCGS submissions come from dealers, not collectors. There are dealers who engage in unethical or otherwise problematic practices relating to submissions to grading services. It is unrealistic to expect most collectors to be knowledgeable about the variables that relate to coin grading and submissions to the PCGS. Besides, it would be unreasonable to expect most dealers to tell collectors that coins in PCGS Secure holders are less likely to have been doctored than coins in standard PCGS holders. It makes more sense for the PCGS to expand the SecurePlus program now, for the benefit of collectors and the coin collecting community at large, as well as for the benefit of the PCGS itself.
V. Secure All PCGS Submissions?
John Albanese suggests that the PCGS mandate the SecurePlus program for all submissions of coins to be graded. “If they can solve the grade-inflation problem, they should use this [CoinAnalyzer] technology for all submissions, not just one tier.” Furthermore, Albanese declares that the PCGS “should use the sniffer for everything, not just for coins sent under one tier. Why discriminate for the benefit of the higher end coins? A $600 coin may be more dear to some collectors than a $100,000 coin is to others. It would not be fair for PCGS to only use this technology on expensive coins. I hope that they use it for all coins” that are submitted for PCGS grading. They should protect all coin collectors, not just wealthy collectors,” Albanese concludes.
Mark Feld puts forth a similar view. “I [Mark] hope that eventually, PCGS will use the scanner, the sniffer, and whatever else they have available, for each coin, regardless of the value.” Feld adds that, if the PCGS will not use these 'Secure' technologies on every single coin that is submitted to the PCGS, then these technologies should be used “on the vast majority of coins” submitted. “The current loophole, which allows submitters to use non-Secure options, severely diminishes the potential effectiveness and benefits of the SecurePlus tier. I [Mark] think that is most unfortunate, as I am vehemently against coin doctoring and its impact on the entire hobby and industry.”
Some information about Mark Feld's qualifications and perspectives may be found in my column of Nov. 17. Feld clearly believes that the SecurePlus™ program is more successful at filtering doctored coins than the PCGS standard submission programs. Ira Goldberg agrees. Ira and his cousin, Larry, own a leading auction firm.
Ira finds that there are “very few doctored coins in PCGS Secure holders. They are tighter, and they have become too tough, calling genuine [and refusing to grade] a lot of coins that are perfectly fine to be graded.” Goldberg concludes that the PCGS SecurePlus program has resulted in “fewer errors in terms of grading doctored coins and more errors in rejecting coins that should be graded.” In my (this writer's) opinion, it is much better to reject a coin that maybe should have been graded, and can always be graded at a later time, than to grade a coin that has been doctored. The PCGS grading of a doctored coin will result in at least one coin buyer being seriously hurt.
It is interesting that Feld and Albanese both suggest that the PCGS should require that all coins sent to the PCGS for grading be under the SecurePlus™ program. Similarly, Jeff Garrett is concerned that “the PCGS SecurePlus [program] is like a parallel grading service. I [Jeff] would have liked it better if all PCGS submissions were treated the same.” The two tiers are “a bit confusing for the public,” Garrett believes.
Ira Goldberg is largely in agreement with Albanese, Feld and Garrett. “Yes, all rare coins, not generics,” should be sent under the PCGS SecurePlus program, “if the fees are reasonable. It would be best for all” PCGS graded rare coins “to be in the Secure holders,” Goldberg states. “It would not make sense for common date Morgans or Double Eagles. For coins with much numismatic value, to fight grade-inflation and stop doctoring, it would be better if PCGS put all of them in Secure holders. It would be better if the fees were only a little higher than the current [standard] fees, less than the current SecurePlus fees,” Ira emphasizes. I (this writer) suggest that, if all submissions of rare coins to the PCGS were under the SecurePlus program, then the costs of the SecurePlus program could be averaged out over many more coins and thus the cost per coin (of the new technologies) would become substantially smaller over time.
Besides, it will be necessary to curtail grade-inflation, sooner or later. If more and more AU-55 and -58 grade coins receive MS-61 or MS-62 grades, and more and more previously 64 graded coins graduate to 65 or 66 grades, the system would then gradually lose credibility and may eventually collapse. Under the current two-tier PCGS submission system, dealers have an incentive to submit the same coins over and over again, to the detriment of the collectors who eventually buy doctored, mistakenly overgraded, or otherwise 'low end' coins.
Willis responds with the point that collectors may demand coins in Secure holders and not be concerned with those coins in other holders. I (this writer) find this point to be problematic. I care about discouraging the doctoring of all rare coins, not just the ones I may possibly own. Also, the values of coins in PCGS standard holders affect the values of coins in PCGS Secure holders.
Given the nature of markets in rare coins, it would be unusual for a PCGS graded MS-65 (or 65+) coin in a Secure holder to be worth more than a PCGS graded MS-66 coin, of the same type and date, in a standard holder. Under the two-tier PCGS submission system, dealers have an incentive to crackout many 65 grade coins and re-submit them to the PCGS with the aim of getting a 66 grade. If the PCGS required all rare coins to be submitted under the SecurePlus program, upgrades would still occur, but upgrades would be much less frequent. There would be a marked increase in grading stability, which benefits most all collectors.
It is not beneficial to the coin collecting community that there are wholesalers, including some leading grading experts, who spend most of their time cracking coins out of holders for the purpose of re-submitting the same coins over and over again. One expert dealer recently told me that he spends around $25,000 per month on grading fees and eighty percent of his income stems from “getting upgrades.”
“The market works like a perfect machine, just follow the money,” Willis publicly declares. This is not true. In economics courses, students learn that markets only work perfectly in theory, when all buyers and sellers have total knowledge, in the present and of the future, regarding the goods and services being transacted. It is just impossible for most collectors to fully understand grade-inflation and coin doctoring, and most collectors will not become expert graders. Besides, most dealers, even those with the best of intentions, are never going to be both WILLING AND ABLE to explain the PCGS SecurePlus program to collector-buyers. Indeed, it required numerous words here, and in last week's column, for me to explain and suggest reform of the PCGS SecurePlus program.
VI. The Future of SecurePlus
The problems of grade-inflation and coin doctoring are very damaging and, if unchecked, will severely harm the coin business. I strongly believe that both problems are containable, and the SecurePlus program can play a central role in containing them.
Of course, I realize that David Hall and Don Willis are very much aware of these problems and I applaud their efforts in 2010 to address them. They have done more to address these problems than I thought officials at either of the two leading grading services ever would. Richard Haddock also deserves credit for developing and implementing the CoinAnalyzer brand, coin scanning and identification technology. The importance and potential of coin identification and 'coin sniffer' technologies cannot be overstated.
“At the upcoming FUN show in January,” Willis informs, leaders of the “PCGS will be making several very important announcements relating to SecurePlus at the PCGS Registry luncheon on Friday,” Jan. 7, 2011. “Those who will be attending the Registry luncheon will see the latest innovations to combat coin doctoring and counterfeiting, which will only be available through the SecurePlus” program,” Willis adds.
I thank Don for inviting me to attend. I hope that at least one of these announcements will lead to a shift in PCGS submissions from standard to SecurePlus. The value of each rare coin in a PCGS Secure holder, and the success of the whole program, is positively correlated with the number of other rare coins in PCGS Secure holders and with the relative importance of the other such coins.
The management of the PCGS should choose to make less profit in the short run by lowering fees and applying these new technologies to most all submissions of scarce or rare coins; I predict that the PCGS would then be much more profitable over the long run. It is fair to suggest that coin collectors and the PCGS would then benefit more and more from the SecurePlus program, as time passes. Also, I hope that the NGC adopts scanning and sniffing technologies as well.
©2010 Greg Reynolds