Are rare coins likely to lose value?
DAM
Posts: 2,410 ✭✭
We've seen stocks lose trillions of dollars of value over the past couple of years. During that period, investers looked for other ways to put their money to work (at least those that have money left because they got out in time). 
Do you suspect the "rare", or at least "better", coin market might be the beneficiary of alternative investment stratigies, at least until stock prices begin to rebound? If that's the case, will the current rare/better coin market be a "bubble" that bursts when stock investing comes back into favor with investors. Or are we simply in a period of price adjustment for rare coins?
What do you think?
Do you suspect the "rare", or at least "better", coin market might be the beneficiary of alternative investment stratigies, at least until stock prices begin to rebound? If that's the case, will the current rare/better coin market be a "bubble" that bursts when stock investing comes back into favor with investors. Or are we simply in a period of price adjustment for rare coins?
What do you think?
Dan
0
Comments
<< <i>What do you think? >>
I think the market will fluctuate.
Russ, NCNE
As you know I sold my proof Washington registry set earlier this year. I felt it was time to sell for economic reasons -- that being that we were near the top of the price market. I also follow the strategy of not trying to pick a "top" in the market because picking a top is only for the very lucky. I was happy with the price I got.
I also believe we are near the top of THIS RALLY in the rare coin market. That is not to say that the bull market in coins is over -- I believe it is far from over. But I do believe that it is time for the market to finally react to other economic factors including damage to the stock market, the drop in consumer confidence, and the continuing strong housing market which is sucking in cash from all sources including stocks, bonds, collectibles and coins.
A pause to refresh the market will help the long term trend for market prices to continue their rise. The worst thing is for a market to go straight up, because like an arrow shot into the air it will come straight down.
The bottom line is to buy what you like because you just might be buying at what will be later called a "market peak."
cheers, alan mendelson
www.AlanBestBuys.com
www.VegasBestBuys.com
But I just can't seem to pass up some of the coins that are offered to me.
-KHayse
but
for me if you only buy great coins then i think you have little downside risk involved
and if you combine great with value and low pop then you might do really well
and if you add huge demand then i think you will do fantastic
sincerely michael
Try to control your spending and borrowing.
Stay disciplined, don't panic, just keep putting it in, and one day you will wake up and realize that you are rich.
Greg
Depends. Short term probably, long term-NO!
ALL collectables AND investments for the most part are cyclical. We had TWO major cycles in the past 40 years, 1980 and 1989. If you bought inthe last (which really was artifical due to speculation) you could be in a postion today to loose money. If you bought in 1980, there are many folks who have made money. It all depends.
One thing I can say for sure, is that if you look at EVERY major collection assembled OVER 25 years ago (the ones who bought the real and "right" coins), they are in HUGE profit postions. My favorite example is Pittman. Heck he paid $500.00 or so for an 1859 Proof set in 1960 that sold for $400,000.00+ in 1997. Even coins that were considered "junk" that he paid $5 for inthe laste 50's sold for THOUSANDS.
Most people don't make money in coins because they have the "stock market mentality". They buy high or whats hot and then they end up selling at a loss. Coins across the board increase in value over a LONG TERM period of time. The longer a coinis off the market, the better the chance of the demand and its value grow.
You do NOT have to be really rich to make money in coins. Right now there are some tremendous plays for under $1,000.00. You just need to use common sense as to why you are buying.
The stock and bond markets can have some effect on coins (and the economy as a whole), but are totally different vehicles. If either crash, duh, we're all in trouble anyway. Also, it doesn't matter if investment advisors yell buy coins or not. It a proven marketpalce that has existed for over 100 years. And now with the advent of the internet, I personally believe we still have unlimited growth in front of us. How else could you explain the strength of todays coins market in a sluggish economy?
Laura Sperber
lsperber1@hotmail.com
JUST SAY NO TO WANNABES! They lurk and prey on unwitting collectors in chatrooms!
"serious" collectors to replace the many who are approaching ages at which few
continue to collect. The present counts, and we still have some time. We are probably
in the middle of a significant correction in a major bull market.
cladking,
Just think, if you're right, when the boomers are in their 80's and 90's, the next generation of collectors will have less competition at auctions. Less sniping on Ebay and Teletrade.
Could you share your ideas for the ten best buys under $1,000.
Greg
<< <i>Laura:
Could you share your ideas for the ten best buys under $1,000.
Greg >>
I would vote for a weekend in Vegas
Since it was already in the works, I can tell you the topics to be covered are:
My top 10 picks of solid values UNDER $2,500.00
And some really great series that can be collected for surprisingly affordable amounts. Unfortuately, most of my picks would only amount to "low end" on the registry scales-but I know I trust my market analysis vs. market hype anyday.
Check my site around noon Friday. NOTE: ALL of my slections are based upon my experiences and research I believe will hold true. I do NOT make recommendations just to sell coins.
Laura Sperber
www.legendcoin.com
JUST SAY NO TO WANNABES! They lurk and prey on unwitting collectors in chatrooms!
However, try not to buy what is "hot." It is too easy to buy into a coin that has already seen it's price run and also buy into the excitement of a price rise. Buy for the long term (5 years or longer). Better yet buy for the ultra long term 10 years or more.
Example.... I bought a 1934-D quarter (later graded by PCGS MS-66) for $53.50 in 1971. That coin has been held 30 years. That coin price probably rose more in price in the last 5 years alone as compared to the previous 25 YEARS!! The longer you wait the better it gets!!!
I have learned from experience that you buy what you like and then once you decide what you like... do a bit of due diligence to make sure that there are no negatives. But you need a game plan! Once you think about making profits you are doomed!! Better to think about what coins to buy now because you will not be able to replace them easily later on at the same price.
Even today, I asked Laura about a coin I saw in her inventory. It was not a big dollar item at all. She said point blank..."this is not the coin for you oreville." She described the single fault of the coin and that was that. She knows what kind of quality I like. It was still a nice coin but it did not fit what I wanted. This is the way it should be. A seller saying it like it is and calming the "nervous twitch" of a coin collector dying to buy more stuff.
There was a likeable coin that Mark Feld had for sale on his site. I really liked it...their 1926-S cent in MS-64 red. But right now with a kid going to College next year I am watching my budget much more carefully as I do not want to sell any of my coins for College tuition. If there is big time graduate school or medical school in my kid's future then all bets may be off.
Dealers often point to the fantastic historical performance of a theoretical coin portfolio. But if you examine the claims more closely, they fall apart.
Often the time period is so long, that what initially looks like great performance is really worse than you'd get buying government guaranteed bonds.
Other times the coins did in fact produce impressive gains, but they are a carefully post-selected group. To make that comparison fair, compre it to a group of post-selected stocks. The coins will lose that game every time.
And I've never seen anyone making a claim of coins being a good investment also point out all the ancillary costs of coin purchasing and ownership -- like the time involved, the comparitively huge buy/sell spreads, the risk of deterioration over time, and the ongoing cost of storage and insurance. All of that represents money that could instead be compounding in a traditional investment.
But, as I always say, coins are prettier to look at than stocks.
Money can be made in coins, of course. But 99% of it is made in short time frames, not long-term investing. Contrary to what is usually preached.
<< <i>Money can be made in coins, of course. But 99% of it is made in short time frames, not long-term investing. Contrary to what is usually preached. >>
I simply do not agree.
Sure coins can and do shoot up in values in very short spurts
however, collectors cannot and should not think in terms of short time frames. Once they do they cease to become long term collectors in the classic sense and they go on the road to disaster.
Yes, coins as a whole indeed do act more like low interest rate savings account in the long haul since it is a store of value. Not every coin goes up like a 1934-D 25c in MS-66 yet the point of of explaining that coin was the show that for the first 25 years after I bought it, the coin sluggishly moved up in value.
But even with collectors, I stand by the gist of that statement. Collectors who make the most money are those who cherry-pick rare varieties, or find undergraded coins and have them certified in the correct grade, or find an ugly coin that benefits from a dip, that kind of thing.
Or... in rare cases... through careful evaluation of markets and/or luck buy underappreciated coins in a series that is quickly followed by a sharp increase in buying interest large enough to overcome the associated costs and buy/sell spreads involved. (Whew!)
Those activities are not what most would call investing, even the last one I would think is better described as speculation. Not that there's anything wrong with any of that.
But if you are taking a traditional buy-n-hold strategy with coins, such as you describe, I think the performance is uniformly poor compared to a more traditional investment over a long time period. Coins simply do not sustain a compounding of value over a long time period to the same degree as other investments... which makes sense, because after all they are just little chunks of metal whose value is totally dependent upon us crazies who collect them. They are not generating income or creating new value like companies do, for example (recent Enron's excepted).
And, in your example, you're picking a specific coin. So I get to pick a stock. Wanna bet?
I'm in no way suggesting coin collectors should turn into crazed speculators. Long-term collecting is a great hobby -- nice coins take a long time to find, and should be enjoyed!
And if you purchase carefully, getting good quality for your money... you'll get a bunch of money back when you sell. From that standpoint, coin collecting as a hobby compares very favorably to other hobbies. In golfing, you don't get your green fees back, and used golf clubs aren't in much demand either. And forget about the plaid pants.
And, yes, quality coins purchased at reasonable prices likely will rise in value over the long-term (mostly due to inflation). It's just that more traditional investments generally do much better than the general coin market. And specific investments do much better than specific coins.
The short-term can be a different story. A variety cherry-picked for $10 and flipped to a dealer the same day for $1000 is a superb return. But it's not investing.
Every time there is a discussion about profits and collectibles, the "Greater Fool Theory" comes to mind. It says, "for the price to go up, it takes a greater fool to come along to buy what the previous fool bought," or something like that.
Okay, I admit I've been a fool and a greater fool.
cheers, alan mendelson
www.AlanBestBuys.com
www.VegasBestBuys.com
I get to pick the one coin? Ok here goes.
In August 1972, I found 6 mint state 1972 doubled die cents and 1 circulated one at 1 cent each.
OK lets take the average one...(all MS-66 reds) one I found is now in a PCGS MS-66 red holder. Cost is 1 cent plus the cost of holdering which was $16....5 years ago.
You're on!!!!!
Starting date, August 1972.
Hey, not everyone makes money in the stock market. To compare coins to stocks, bonds, or a compunding checking account, is wrong. If you have that kind of mentality you will NOT make money buying coins.
While there is no guarantee of making money, the longer you hold the safer you are. There is no guarantee in stocks or bonds. Right now a bank account is only guaranteed at a platry 4%. I'll bet if you put $10,000.00 in each of them today (but you'd have to buy smart coins), in 10 years the coins should be at least tied with the leader (providing all economic conditions remain stable).
Unless someone got ripped off, show me someone who bought QUALITY coins in the early 70's who isn't making money today. Back them GEM DMPL Morgans were $25.00, Proof Barber Quarters in GEM we $100.00, heck I remember buying an incredible 1869 H.10C GEM Proof for $150.00 in 1977.
The reason why we dealers like to go back in time is becuase we understand what it takes for collectors to make profits in coins. Sadly, most collectors not only don't get it, but they don'thave the patience to wait for it.
Laura Sperber
lsperber1@hotmail.com
JUST SAY NO TO WANNABES! They lurk and prey on unwitting collectors in chatrooms!
This is an oxy-moron as coins are not rare
Are coins likely to lose value...No ...A cent will always be worth a cent,o nickel will always be worth a nickel and a quarter will always be worth a quarter
Is paintings or sculpture rare? No, artists will continue to paint and sculpt more work.
Will coin collecting remain popular? Presently there is a Renaissance in coin collecting that has shown coin collecting to be more popular than ever.
Will a 1909 s vdb lose value.Probably not because it has and is one of the most popular US coins and has been one of the most popular coins since it was minted.
Coin collecting is a recreational hobby and should be enjoyed.If you don't like or love coin collecting don't buy coins.Remember when you can't pay the mortgage on the home,you can't take your Liberty Seated Quarter to the bank
Stewart
That's very different than buying a coin that's already correctly attributed and priced as an investment and holding onto it for 30 years.
Depends on what you mean by "safer" I guess, but if you're going to compare with what else you could do with the money, I think it is just the opposite.
I believe the evidence shows that the longer you hold coins, the more likely you are to lose compared to a traditional investment.
There is no guarantee in stocks or bonds. Right now a bank account is only guaranteed at a platry 4%. I'll bet if you put $10,000.00 in each of them today (but you'd have to buy smart coins), in 10 years the coins should be at least tied with the leader (providing all economic conditions remain stable).
There are no guarantees in coins either! Comparing a government-insured bank account to coins is not a valid comparison, because the coins have far higher risk (though I think even there history has shown that the bank account wins in most cases).
Modifying your statement to a more fair comparison, if you were to say instead:
I'll bet if you put $10,000.00 each in stocks and coins today (but you'd have to buy smart stocks and coins), in 10 years the coins should be at least tied with the stocks.
Then I'd take the other side of that bet in a heartbeat.
Unless someone got ripped off, show me someone who bought QUALITY coins in the early 70's who isn't making money today. Back them GEM DMPL Morgans were $25.00, Proof Barber Quarters in GEM we $100.00, heck I remember buying an incredible 1869 H.10C GEM Proof for $150.00 in 1977.
Yes, there are always specific examples over a specific time period that did exceptionally well. Just as there are examples that did terrible -- what happened to the guy who bought QUALITY coins during the 80's frenzy? Prices haven't recovered yet, approaching two decades later.
But using your exceptional examples -- for a fair comparison, I'll choose some exceptional stocks held for a 30 year period. Want to place a bet on that one too?
The reason why we dealers like to go back in time is becuase we understand what it takes for collectors to make profits in coins. Sadly, most collectors not only don't get it, but they don'thave the patience to wait for it.
Well, a cynic might say that that the reason many dealers (perhaps yourself excepted) like to look back is that it is slightly easier to pick winners after the fact.
Strangely, it's far more rare for a dealer to point out some terrible calls he/she made in the past. This strange dichotomy is shared with stock analysts too.
The fact is that just about any decent coin looks good -- at first blush -- after 30 years. But stick the numbers in a spreadsheet compared to more traditional investments and a very different story emerges.
Did anybody read the biographies of the three collectors profiled in the latest B&M auction catalogue? These guys collected for many, many years. They enjoyed learning and researching their hobby. They enjoyed the company of like minded folks. And they had something left for their estate. I'd say that is not a bad return for a hobby. Compare that to buying a sailboat or skiing in Europe! I guess to each his own.
The thing to remember is that coins are a HOBBY. I like to tell my golfing friends that at the end of the year they have three broken tees, some worn cardboard scores and lots of expensive new equipment and clothes. But it is their HOBBY.
So if I spend approximately the same amount of money on coins, I may actually have more value one day. Coins are NOT an investement vehicle. On the other hand, there are professionals who make a living at it. Just like golf, we cannot all be professionals and make lots of money.
However, with some judicious purchasing we may actually come out ahead. Coins are a great place to have fun, but a terrible place to try and make money for the amateur.
All that said, I do believe that quality coins are not sitting on a major bubble. I cannot speak to the stratosphere as I do not buy $50,000 coins. However, for the average collector who buys the best they can afford in their series and is accumlating for the long term, I dont think they will get hurt financially. Just MHO.
Stewart - why can't you take that quarter to the bank....don't they accept seated liberty quarters anymore??
Tom
I have to side with Laura on this one. Get some serious advice or do some serious research and then pick the top coins at the right time. The opportunities have been there all along. But you have to be buying the very best quality....for instance finest knowns of particular dates, key dates, popular dates, etc. For those that bought top quality in the 1980 craziness, they could easily be at a break even or profit position today (neglecting lost interest of course). Those who took a bath bought overgraded coins or relatively common ones, such as gem BU MS65 Barber quarters for $3,000. The James Stack 1901-s Barber 25c in Gem brought $5,000 in 1975 and then $90,000 in 1980. It's still worth far more than what it brought in 1980. The same can be said of most popular
coins.
roadrunner
Sure not too many wheaties left anymore but with a little peserverance it can still be done for a youngster. Also pulling out nice uncirculated cents and making rolls of them is still do-able.
Heck, I found a 1961-D red BU cent in change just the other day. A lucky kid is going to get it next week. These kids can have lots of fun too with this using their math skills and learning to deal with banks, etc.
I know of a kid who recently found a 1983 DDR cent in VF-EF condition. You would not believe the look I saw on his face when I confirmed that it was the real thing. It was a combination of utter joy, greed, and intense pride. The pride part is what these kids need more of today.
The rate of return on investment for these kids? PRICELESS!!!
I know.......why? I felt the same sense of pride and accomplishment when I found great coins as a kid too. Feeling those emotions is something I never want to lose or forget which is why I still collect the coins.
It is not just the money!!!!!!!!
There is, however, one point I would be curious to get people's input on. In my own personal experience, as it regards equities, I have never been terribly successful at market timing. With regard to coins, my gut feeling in 1980 and 1989 that coins had been bid up to absurd levels was more or less proven correct. My feeling in 1996-1997 that coins seemed cheap also seems to have been correct. Notwithstanding the internet bubble, coin price bubbles seem to occur more rapidly than they do in the equities markets, perhaps because the coin market is so thinly capitalized, and market timing seems more plausible in the coin market than it does in equities markets.
My current gut feeling is as follows -- (a) the high end of the market will come down over the next couple of years, (b) any coin that has appreciated more than 100 % since 1997 is at risk of a correction, and (c) the balance of the market will correlate positively with the real estate market -- a drop in real estate is likely to correlate with a larger drop in coin prices.
When other investment classes are shaky, people naturally look at alternatives to diversify their holdings. With the down stock markets investors have been moving into real estate, bond funds, and yes even into coins. So the market for coins has improved since 96.
If no one has money, coins will drop. With the dramatic market drop, who has money? Well, this recession has been a business led recession not a consumer led one. Why? Simple, with the drop interest rates, people have discovered that mortgage refinancing can increase their income dramatically. This effect in my view has offset the negative affect of the stock market for consumers. Of course, holders of mortgages like pension plans, banks, S&Ls, and life insurance companies are on the losing side, but they are businesses not consumers (hence the business led recession). So, both effects have worked for coins this time around.
My thinking does support the view of Higashiyama. Should interest rates increase because of business improvement, refinancings will drop, and house sales will slow. The stock market might continue its recovery. So, a slowdown in the housing market might then correlate with a slow down in coins. On the other hand we might all get jobs then, so who knows
Greg
Um, yes, that was my point.
If he instead wants to pick a broad mix of 500 expensive coins, then I'll go with a broad market index like the S&P 500. And I'll still take any and all bets.
Wallstreet removes stocks from their indexes once the company goes bellyup or they no longer think the stock should be in the index. For example Microsoft was added to the DJIA while some loser was kicked off. Net return now looks better on paper when in reality nothing happened. None of us (or very very few) bought Microsoft in 1986-1988.
I'm not sure what you mean by "nothing happened". Investors can -- and do -- buy into the Dow Jones Industrial Average any time they want. An excellent way to do this is by buying into the "Dow Diamonds" exchange-traded fund (symbol DIA). The performance of DIA will mirror that of the Dow Jones index, including any changes in composition of the underlying stocks used in the average, with no effort on the investor's part.
As to the rest of your post, you're back to picking specific coins again. And perhaps those coins will perform very well compared to the broad market group. But financially you will likely be far behind what you could have accomplished by devoting the same amount of time and money to carefully picking stocks, for example.
oreville, on your last post we are in complete agreement. Coin collecting done keeping in mind all the intangible rewards -- with the excellent side-benefit that you'll actually get some money back when you sell as a bonus... is a completely different story.
Interesting that so many people chose the golf example, I had that in one of my posts and must have chopped it out. But yes, if you're an avid golfer, try getting a refund on your annual country club or green fees. Or anything but a fraction of your money back on used golf clubs and shoes. And the plaid pants -- forget it!
Somebody, somewhere, sometime came up with the bright idea of "investing" in coins.
Maybe it was a dealer trying to justify the absurd prices of these little pieces of metal. Or a collector trying to justify the same to his spouse -- or, even, to himself. After all there is little rational explanation for the prices paid for these things.
And of course, some coins do rise spectacularly in value, so the ever-present allure of hitting it big is there.
But ever since then... problems have arisen.
If you buy a coin for $100 as an investment, and decide to get out that same day, maybe you'd get $80 for it. Now, an investment coin dealer can't very well then say, sorry, $20 is what I need to make a living, after all I'm selling low-turnover goods in a retail shop and trying to make a living. Just like the guy selling paintings next door.
He can't admit that, because, obviously, a 20% spread makes for a terrible investment. So instead of admitting to the investment sham, he might say, "well, I don't agree with the grade". Which leads to the well known phenomenon where a collector buy as gem BU, and sells at AU.
Even dealers who honestly explain the necessity of the high buy/sell spreads are often viewed as crooks, because the "investment" mentality is so ingrained throughout the hobby.
And of course collectors who believe that coins are a good investment are likely to commit more money to them than they probably should. So when they get burned, they can be burned badly.
On the other hand... viewing coins as a hobby, and paid for with discretionary funds, avoids all those problems. And when you sell your coins and get some money back, it's all gravy.
Too tricky for me. I'm going to keep my collector mentality and sell when I'm done, unless I pass them on. Maybe I'll sell some to upgrade my collection. Will I make money in the end, yes. Better than if I'd invested it in the stock market, probably not. But you know what, I don't care! (That's a little white lie
It's a collecting "hobby" I'll never know everything about, and never be able to complete. Unless I hit a VERY HUGH 200 million dollar lottery to help me along.
I think Wallstreet has made it pretty clear that buying stocks is not investing either....it's purely speculative like anything else you buy in anticipation of higher prices. The market index gains since 1987 have been sort of a paper charade fueled by printing paper money and easy credit for anyone. The the end result (or final accounting) has still not been played out.
Much the same thing was done with that hokey Salmon Brothers survey back in the 80's where they tracked a gold type set in 65. Yet all along the standards for what was "65" was constantly changing. Same thing when someone calculated what Pittman or Bareford made on their auction material over several decades. But what about all the stuff they owned that wasn't auctioned? You can be sure the % gains on those lots was far far less than what made it to auction. Sellers often invent more hype to help sell. I mentioned in an earlier thread about dealers who keep refering to how much particular coins sold for in 1989. At that time, standards were so tight that 67's didn't exist for the most part in many series.
And because the services were so new, the supply of graded coins was still fairly small. Mercury dimes in PCGS MS67 FB were "rare" in June of 1989 with only 250 or so graded. Barely enough to go around. Today......try over 4000. Proof walkers in 67 only numbered 148 in mid-1989. Today......1075 pieces. It's no surprise that prices have come down dramatically. It's been a combination of weakening grading standards and more coins being graded.
It doesn't take a genius to know "great" or even "good" coins and when it's a good time to buy them (when the market is down: 1974-76, 1982, 1995-97, etc). Same thing when markets are topped out.
But it does take GREAT fortitude to be patient, not follow the herd and the hype, and settle only for the best. And then having the opportunity to be able to buy those coins too. Unfortunately nearly all of us fall prey to the weaknesses and "settle" for average. I wish there was a pill for it.
roadrunner
Regarding the DJIA -- the big difference between the Dow and the hokey Salmon Brothers gold coin portfolio is that the the average investor could have easily matched the performance of the Dow, despite the changing "standard", by simply adjusting his portfolio to match the changing composition of the Dow. And today, that can be done very cost-efficiently, and completely automatically, by simply buying into a Dow tracking fund.
By the way, just about everything else in your post applies directly to stocks too -- you should be a stock trader.
A recent stock analogy to Mercury dimes in PCGS MS67 FB in the late 80's would be Internet IPOs in the late 90's. Both a case of too many people wanting too few things, with demand temporarily overwhelming supply. You couldn't short-sell the dimes, but you sure could have shorted Internet stocks. And now you'd be writing to us from your Hawaiin villa.
I own some General Motors stock and remembered my father buiying me one share at $96 a share in 1964 and it did very little for 15 years then it spun off lots smaller companies (Hughes, EDS, etc) so by now I haven't a clue what my real ROR is on that original 1 share of stock. I do recall that it was not such a good performer over the years.
The one thing I do like about coins is the ability to buy and hold and then upgrade over time with trades all legitimately tax deferred whereas with stock that is generally not possible.
You got me on that one! Though with coins, if/when you do realize gains I believe they are taxed at 28% as collectibles, whereas long-term capital gains on stocks can be significantly less.
But of course, people rarely report gains on coins -- even when they do make money. Chalk one up for coins if you don't mind being a criminal.
wondercoin, I can't speak to your specific call options, but for stocks anyone can easily buy/sell $100,000 worth of an actively traded stock through readily available discount brokers for maybe $50 including commissions and spreads -- coins just can't measure up to that.
As far as stocks having a 10% spread in a minute, I assume you mean due to fluctuating prices. Which is true. But they could also go up 10% in that same minute, which is somewhat less likely with a coin.
FYI, if your stock portfolio is fairly diverse, a much more efficient way to hedge it may be to sell some S&P futures. They are extremely liquid and you can trade with about 15:1 leverage. Even better is that there is no loan involved for that leverage, so there is no margin interest.
Supercoin: I was referring to any options on stocks (and there are volumes of 10,000's of them daily). Say I wanted the right to buy GE stock 6 months from now at some target price (I don't have the newspaper handly) - say strike price 35. You know this is done every day with hundreds of blue chip stocks. Now, as you know, the option might be quoted at 1/4 bid, 5/16 ask. Say I buy 100 of them at 5/16. Now, let's assume the option does not move at all, but the next day (or the next minute), I suddenly change my mind and want to sell my stock investment. I lose 1/16 or about 20% of my investment, plus commissions instantly - right?
Hey, I am not saying option writing or buying is sound investing or terrible investing. I am just saying investors spend billions of dollars each day playing stock options and on cheaper options the "spread" can easily be 20% - right? I have even seen the 1/8 - 3/16 buy-sell spreads, which is a 33% spread. My point being, if one is foolish enough to buy an option and want to sell it the next day, he could lose 20%, even if the underlying stock has not moved 1 cent.
Anyway, no need to "pound this into the ground". I just have seen (firsthand) 15%-20% spreads even with regard to stock "investing". Wondercoin
For another thing buying stock options is quite different than stock investing. The reason stock options have higher spreads than the stocks themselves is due to (I'm guessing) lower liquidity and higher uncertainty in pricing.
And I'd bet if you could buy options on coins, the spreads would be even higher.
I'm doing a lot of proposed betting, hopefully you don't all take me up on it at once!
oreville, that's absolutely true. However, as you point out, there are index funds such as Vanguard's, or exchange-traded funds like DIA, that are extremely low-load. Or of course you can simply buy a portfolio of individual stocks and pay no ongoing costs. But by way of comparison, ALL coins suffer from ongoing storage and insurance costs (or risks).
Coins just flat out suck as long-term investments. Shorter-term, for the astute speculator catching a trend, maybe. But if you buy and hold them for many years as conventional wisdom suggests, forget it... they simply can't keep up with the power of compounding found in traditional investments. I don't think anyone can put together a fair comparison of past performance that shows otherwise.
I would happily be proven wrong, I'm always interested in alternative investments. And as mentioned, they sure are perty.
In other words and to summarize, you say "I lose 1/16 or about 20% of my investment, plus commissions instantly - right?". If someone decides to sell their coin and they need the money right away, they would often consider themselves darn lucky to only lose 20%
Way To Go Angels!!!!!!
JJacks
Edited for small typo
JJacks: I guess, for the same reason someone buys a $100 coin today and sells it tomorrow for $80.
Wondercoin
Wondercoin - that is my point exactly. It is incorrect to say that people risk 20% of their money in one day with stock options but have no such risk with coins. If you need the money fast, would you rather have it in your brokerage account or in your safe? I guess it really does depend - holding stocks or options overnight can be risky, but coins are usually fairly stable. Either one you can lose 20% or more in one day if you don't know what you are doing.
JJacks
JJacks: Yes, yes. We are in full agreement. That was exactly my point of mentioning option trading (which, as you know is done every day involving hundreds of millions of dollars, if not billions). Supercoin was pointing out a reason why coins made lousy "investments" as compared to stocks, etc. My point was simply that many things make lousy investments if you act impulsively and without forethought.
Even real estate - if you bought a house today and sold tomorrow could result in a 15%-20% loss when you add on a second 6% commission and closing costs to the mix. And, of course, the fool in this example wouldn't know to ask his broker for a discount and would sell the house below market as well
"Wallstreet" figure is you can be certain it is "massaged" much like the Feds do with the CPI. They conveniently toss out any item that could contribute to an increasing CPI. I think the price of a can of tuna fish is one of the major items in the CPI. It has hardly changed in decades.
If you wrote your analysis of the stock market back in 1987 or even 1990 it would be a totally different tune. I owned quite a few stocks from the 60's to the later 80's. Those 20 years just plain stunk. The next 20 years in stocks could stink too. Tacking on the past 15 years BAILS out the stock market performance curve for the past 70 years. Prior to 1990, a whole different viewpoint. The 90's introduced something never seen before. The average guy getting into stocks and buying into the hype. How it lasted for so long is really remarkable. That's why it's going to take a long time to sort it all out. I very much doubt that the next 5-10 years of stock gains will outperform tangibles and other commodities like coins. That is unless we experience hyper-deflation from all the contrived fiscal policies that have been in force since the early 1980's. It will take many years to clean up the mess of the 90's caused by greedy bankers and brokers and cheap money. It's just really only begun. Let's revisit this scenario in 2010. I'll set my watch and we can discuss it then. It's sort of silly that past market trends (stocks and coins too) are used for forecasting the future but in hindsight, the forecasting is usually out to lunch.
roadrunner
I'll tell you something else (anyone else feel this way?). I was going through my safety deposit box of coins on Friday afternoon and came across a coin I had paid around $1000 for a couple years ago that is probably worth around 50% today. I shook my head, thought about it for a minute and put it back in the box. OK - so the coin cost me around a half dozen pairs of plaid golfing pants
On the other hand, I look at the stocks that have dropped 50% or more in the past couple years in my portfolio and it DRIVES ME CRAZY!! I get slightly mad that my INTEL is now at $16.50/share!! And, AOL - let's not go there!!
Wondercoin.
I was in complete control of what I bought and what I kept.
Stocks? Well, I had 5000 shares of stock in the company I work for
(no, not Enron) that is worth 2 cents or so per share now. While I thought I knew something about my company, there were lots of hidden liabilities outside our core businesses that dragged us down. Regaining faith in stocks is going to take a very long time for me. Playing the bull in the stock market at this time is a real leap of faith. The real bull is believing in the "long term holding" approach to stocks. This is what the brokers have to have from the masses to
make money. Stocks and coins are cyclical plays these days (2-5 years for example) I don't consider either long, long term holds.
roadrunner
Now I finally understand where Mitch is coming from. For $1,000 he gets 6 pairs of golfing pants. When I buy golfing pants they cost about $30 a pair. and that's when I pay full price. OK maybe I pay $40 a pair for the plaid ones. BTW, why is one golfing pant called a pair?
Equities. I will claim expertise there, unlike coins. I'm both a professional equities manager for world-class institutions, and a part-time academic. Here are some points about stocks and coins which I believe are not arguable.
1. Coins and othe collectibles are less liquid than stocks. If you have to sell coins fast the transaction cost is higher than for stocks. I hope no one is surprised to hear that. BTW, real estate has the same liquidity concerns.
2. You can make money short term in coins. If you are lucky (like me with IKES), or smart and pick off stuff at wholesale or better and sell at retail of better (this is what dealers try to do). Collectors can do the smart stuff as well but unless they are full time, not as often.
3. Supercoin is right on when he claims after the fact analysis. Any idiot can figure out after the fact what should have been bought or sold, or cite selected examples. Before the fact it is not so easy. Was it easy to figure out in 2000 that stocks were going down. I think not. If you think it is so easy, what is the easy answer to where stocks are going from here?
4. Long term coins can generate a return. My guess is the long-term return will be lower than equities, somewhat less risky when considered as an entire market, and less than perfectly correlated with equities. Not unlike real estate, and not a bad asset to hold at some level.
5. Do not over estimate expected equity returns. About 8% to 10% per year is a reasonable expectation. In that context coins returns long-term fit in.
6. The best way to increase your returns is to diversigy broadly, stocks (U.S. and international), bonds, real estate, your own human capital, and collectibles.
7. Mitch, do not do covered writes. It is a waste of money in the form of spreads and commissions. If you want that payoff, simply write puts naked. With one trade you get the same structure as the stock plus short calls. Don't recommend either, but they are equivalent. Give me a call if you would like to discuss this in detail.
Greg