Stocks Vs Coins - Let's Stop This Nonsense
Typetone
Posts: 1,621 ✭✭
Let's stop all the nonsense posts about stock investing. Here are the facts concerning annualized returns on the S&P 500 over past time periods.
1992 - 2002 8.97%
1982 - 2002 13.14%
1972 - 2002 10.60%
1962 - 2002 10.57%
1952 - 2002 11.06%
Get the picture! Stocks in the aggregate make about 10% per year over the long-term. What do I expect for the next ten years. About 10%!
Stop the silly stories about some stocks losing money and some winning more. We could tell stories all day. If you are trying to pick stock winners, good luck and I hope you have fun. But if you are talking about the market assume about 10% per year with a lot of risk.
Are coins a good investment? If you continue to ask whether coins are a better investment than stocks, you are missing the point of 30 years of financial theory. Almost certainly, in the aggregate, coins will not go up 10% per year. Yes, dealers can make more, but that is their job just like stock brokers can make more earning commissions. Don't confuse dealing with investing.
Broadly diversified coin investments made over time might earn a couple of percent per year after costs in the long term. So, why invest in coins. Simple, diversification! The coin market and stock market are likely to diverge. As such holding coins at some level (say 5% to 10% of your portfolio) is likely to be helpful if you can avoid the traps (overgrading, paying too much, selling for too little, etc). After all, who among us isn't glad we put some of our money into coins instead of stocks in the past two years!
So, coins are not an investment substitute for stocks and bonds. Rather they are a complement. Like any collectible, you have to be knowledgable to earn a return. That is our advantage, It is why we do coins and not rare art or diamonds.
However, beyond some % of your portfolio, coins cease to be an investment and instead become a hobby, and perhaps an expensive one. Once you exceed about 10% of your portfolio in coins, you are losing diversification and increasing your risk. For all but a few, this is likely to be a long-term loser financially. Do it if you want, but don't tell your wife it's an investment.
Personally, I started coin "investing" to get to about 10% of my portfolio. Of course, I am way over that now
. I guess that makes me a collector now!!!
To summarize the investment aspects of things
1. Invest in the stock market, preferable index or other well diversified funds.
2. Invest in bonds funds and bank accounts, and insurance policies.
3. If you have the money invest in real estate.
4. Invest in your own human capital.
5. If you know what you are doing put 10% of your investments into coins or other collectibles.
6. If more than 10% of your investments are in coins, stop fooling yourself about your motivation.
7. If you are Mitch Spivack, don't write call options, and find a cheaper place to buy golf pants.
Further affiant saith not!
Greg
1992 - 2002 8.97%
1982 - 2002 13.14%
1972 - 2002 10.60%
1962 - 2002 10.57%
1952 - 2002 11.06%
Get the picture! Stocks in the aggregate make about 10% per year over the long-term. What do I expect for the next ten years. About 10%!
Stop the silly stories about some stocks losing money and some winning more. We could tell stories all day. If you are trying to pick stock winners, good luck and I hope you have fun. But if you are talking about the market assume about 10% per year with a lot of risk.Are coins a good investment? If you continue to ask whether coins are a better investment than stocks, you are missing the point of 30 years of financial theory. Almost certainly, in the aggregate, coins will not go up 10% per year. Yes, dealers can make more, but that is their job just like stock brokers can make more earning commissions. Don't confuse dealing with investing.
Broadly diversified coin investments made over time might earn a couple of percent per year after costs in the long term. So, why invest in coins. Simple, diversification! The coin market and stock market are likely to diverge. As such holding coins at some level (say 5% to 10% of your portfolio) is likely to be helpful if you can avoid the traps (overgrading, paying too much, selling for too little, etc). After all, who among us isn't glad we put some of our money into coins instead of stocks in the past two years!
So, coins are not an investment substitute for stocks and bonds. Rather they are a complement. Like any collectible, you have to be knowledgable to earn a return. That is our advantage, It is why we do coins and not rare art or diamonds.
However, beyond some % of your portfolio, coins cease to be an investment and instead become a hobby, and perhaps an expensive one. Once you exceed about 10% of your portfolio in coins, you are losing diversification and increasing your risk. For all but a few, this is likely to be a long-term loser financially. Do it if you want, but don't tell your wife it's an investment.
Personally, I started coin "investing" to get to about 10% of my portfolio. Of course, I am way over that now
. I guess that makes me a collector now!!!To summarize the investment aspects of things
1. Invest in the stock market, preferable index or other well diversified funds.
2. Invest in bonds funds and bank accounts, and insurance policies.
3. If you have the money invest in real estate.
4. Invest in your own human capital.
5. If you know what you are doing put 10% of your investments into coins or other collectibles.
6. If more than 10% of your investments are in coins, stop fooling yourself about your motivation.
7. If you are Mitch Spivack, don't write call options, and find a cheaper place to buy golf pants.
Further affiant saith not!
Greg
0
Comments
Rich
And you don't have to worry who audited the books!
Wondercoin.
gradually over time- - they may have good and bad years but they rarely more than
quadruple in a year or lose more than 75% of their value. Coins are far more likely
to have very good and very bad years. A coin can increase many fold virtually overnight.
And it can lose 90% just as quickly. Stocks have many analysts and insiders watching
their every perturbation while people can ignore coins for generations. This isn't to say
that coins are a better investment by any means. I assure you these differences can
work against you as certainly as they can work for you.
His name was Alex
Thanks for that excellent analysis. People were getting silly with
their stories of how good coins do and how bad stocks do. I laughed
at the guy who said stocks have been horrible over the last 60 years
but I didn't have time to go and get the historical data.
Thanks much,
-KHayse
Over the last 60 years the S&P 500 has had an annualized return of just over 12%. If you go back and include the depression years to date you can drop the return below 10%. So, the 10% assumption is not sacrosanct, and I would view very long term as more like 7% to 8%.
Greg
<< <i>Thank God, let's just focus on the HOBBY. Rich >>
I thought we had all agreed it's really a "sport"?
His name was Timmy
He paid $10,500 for the 1804, $1,750 for the 70-S, $800 for the 1884 and $1,450 for the 1885. Compounded at 8% interest, these coins would have been worth $530k, $88k, $40k and $73k respectively in 1997. Instead they brought $1.8M, $264k, $396k and $908k.
This is not an isolated circumstance. Virtually EVERY classic rarity, held for years, outperforms the stock market. Why? Because they increase in value commensurate with the increase in net worth of the second most successful interested person. The second most successful interested person invariably beats the market average.
But here is the 60-year return on $1.00 invested in 1942 at a 12% annual rate:
1942 - $1.00
1943 - $1.12
1944 - $1.25
1945 - $1.40
1946 - $1.57
1947 - $1.76
1948 - $1.97
1949 - $2.21
1950 - $2.48
1951 - $2.77
1952 - $3.11
1953 - $3.48
1954 - $3.90
1955 - $4.36
1956 - $4.89
1957 - $5.47
1958 - $6.13
1959 - $6.87
1960 - $7.69
1961 - $8.61
1962 - $9.65
1963 - $10.80
1964 - $12.10
1965 - $13.55
1966 - $15.18
1967 - $17.00
1968 - $19.04
1969 - $21.32
1970 - $23.88
1971 - $26.75
1972 - $29.96
1973 - $33.56
1974 - $37.58
1975 - $42.09
1976 - $47.14
1977 - $52.80
1978 - $59.14
1979 - $66.23
1980 - $74.18
1981 - $83.08
1982 - $93.05
1983 - $104.22
1984 - $116.72
1985 - $130.73
1986 - $146.42
1987 - $163.99
1988 - $183.67
1989 - $205.71
1990 - $230.39
1991 - $258.04
1992 - $289.00
1993 - $323.68
1994 - $362.52
1995 - $406.03
1996 - $454.75
1997 - $509.32
1998 - $570.44
1999 - $638.89
2000 - $715.56
2001 - $801.43
2002 - $897.60
So about a 900X return in 60 years. For a broad market index -- not carefully selected stocks.
Note that even this broad index compares favorably to the specific exceptional Benson coins mentioned in another thread. Of course I think a more fair comparison to those coins would be specific stocks. Which would require a few more zeros.
Fun with spreadsheets! Plug in your favorite coin, and see how it measures up.
That's not a bad return.
What would the compounded rate of 8% be for another 50 years?
Again to Supercoin's point. These are after the fact selected examples. They do not represent what the coin market did as a whole. One can easily find counters. You might argue that the coin market you are talking about is the super rarities market only. However, I don't know that you would have said that back in the 1940s. For the next 20 years, if you put all your money in super rarities, I would be fairly certain that you would underperform a well diversified portfolio (which would of course include a small weight in super rarities).
Greg
That's an interesting theory, I didn't understand what you were saying the first time.
I'm not sure the second-most-interested person theory is terribly comforting versus selling a stock, where there are thousands of second-most-interested persons at only slightly lower price points. With an auction for a rarity, the old hit-by-the-bus scenario could wipe out half the price realized.
And of course, the increase in the net worth of the second-most-interested person almost certainly comes from... get ready... business ventures in which stock investors can participate indirectly.
Even if your numbers consistently hold true, another major problem for most individuals is that they cannot afford one "classic rarity", let alone a few, while still maintaining even a shred of diversity in their investments.
I was complying with Typetone's request Let's stop all the nonsense posts about stock investing and try another angle.
I kinda like it. I was going to chime in regarding options, but didn't get a chance. I'll save that one for later.
TDN, $10,500 for the 1804 ... in 1997 ... brought $1.8M
Using the 12% figure again (don't know if that's correct for 1946-1997, little help Greg?), then for the S&P:
1946 - $10,500
1997 - $3.4 million
And no "less auction fees" disclaimer needed.
Remember, figures don't lie, but liars figure
Greg
Five year return on the S&P = 0%
Five year return on Eliasberg 1870-S = 200%
Five year return on all the Eliasberg classic rarities = ???? But it's damn well positive! Give me the classic rarities over stocks any day.
ANY example selected is an "after the fact" example. Supercoin's examples are "after the fact" examples. Examples may be broad or narrow in scope, but they are ALL after the fact. That's a spurious arguement!
For the next 20 years, if you put all your money in super rarities, I would be fairly certain that you would underperform a well diversified portfolio (which would of course include a small weight in super rarities
Well, we're gonna find out - because that's where I'm gonna put all my money for the next 15 years (it's already served me well for the past 5). I'll let you whiz kids diversify (result = average returns) and I'll sell my coins to some lucky bloke who put all his eggs in the right basket and hit the jackpot!
The point is they are complements not substitutes. That is the purpose of this post. You just made the case. From 46 to 97 S&P 500 stocks kicked the behind of even the 1804. So, why buy coins. Just look at the last five years. Diversification saved you.
DON'T BUY STOCKS
DON'T BUY COINS
BUY BOTH!!!!!!
Greg
BTW, TDN I would like to agree with you totally since buying high end coins is much more satisfying than buying stocks. Problem is that it doesn't work. Even if your rarities outperform, it will be easy to show you are taking more risk since you aren't diversifying. At the same level of risk you are taking a well-diversified portfolio will outperform.
1804 Bust Dollar realized: $1.8 million (less auction fees I believe)
Same amount in S&P: $5.4 million
THREE TIMES the return in a broad market stock index (that anyone could have easily participated in) versus a super-rarity coin (by definition, limited to only a very few even if money is no object).
I must admit, this sounds much more appealing to me than a basket of stocks and bonds.
The "whiz kids" will get 8% annual returns for their clients and those clients will, undoubtedly, be very happy overall. I'll buy the same basket of rarities as TDN (only difference will be many of my "rarities" will be one century apart).
In the end, if I am wrong and my coin basket underperforms the stock and bond basket, I will likely never regret a single day of owning the coins I buy and have bought.
OK, I'm going to invest in the S&P500 for the next 15 years.
Please send me the pieces you are going to invest in and what
you pay for them so I can track this independently. Also I'll
buy today so the clock starts now even though you'll need some
time (months, years, who knows) to track down your super rarities.
-KHayse
Now there is an answer I agree with. Beyond a point, coins are not an investment but a consumption good.
Greg
However, I did invest $1000 in Budweiser, drank it all, had a few good moments, recyled all the cans for $127 so I figure I made 12.7% on my investment.
Still like turtles and parakeets.
Dick
I'm the "joker" who didn't bother to check the returns of the S&P before stating that they have done lousy from 1929-1987. I won't check the facts this time either but I held stocks on the last 20 years of this time frame and they did stink. Granted I did not have index funds but had a selection of solid value companies like oil, insurance, etc. I'll bet the return during this time frame was not 10% and probably under 8%. If you throw in the 1990 market you radically skew the results for something that WAS a fad and will likely never be duplicated in another 30-50 years. And from 1967 to 1987 I doubt the returns were all that super. If you have to wait over 20 years to get a good return that is not reasonable in my opinion. How many of you boomers would be satisfied with a down 10-20 years because you know the following 20-30 years will be good?
The crux of all your arguments is investing in index funds for the past 50 years. How many of the total investors acutually did this?
Very few I bet. When did index funds become a popular word? How about in the 90's? And this has become even more popular as single stocks have gotten battered. That's hindsight. My dad and his father were very big into stocks. They were probably typical Americans and bought what they felt were solid companies offering value. Not index funds. Once everyone is thinking about buying index funds (like now) you can rest assured that it is not the place to be. Maybe to be into selected midcaps or small caps now.
I'm with TDN and Wondercoin on this one. Look for stock indexes to offer 4-5% at best over the next 5-10 years. Just because the average for the previous 60 years was one thing it doesn't predict the next 10 years. Averages are just that. History. They almost never accurately predict the short term future. I will concede that over the next 50 years we'll see that 8-10% on average. Unfortunately I can't wait that long. TDN, how about cryogenics?
roadrunner
Didn't it take nearly 30-40 years for the DOW to recover from its 1929 high? Where's the 12% per annum gain there? That's not factored in the analysis because it was too long ago I guess. Doesn't count. How many years is the Japanese market down now? The DOW went from double digits after the '29 crash to about 900 in the later 1960's (a factor of 10x) over approx. 40 years. My math is good enough to know that a 10x gain in 40 years (or say even a 20x gain) is not 12% a year. Not 8% a year. It's not even 5%! The average DOW gain during those 40 years was between 2-5%.
The next 20 or so years in the DOW showed 0%. So how anyone concludes that the '29-'87 period was 8-12% is in la-la land. Maybe the S&P gained 8% in this period but the DOW sure didn't.
Typetone's 10-12% gains all start in 1952. What is magic about 1952 and go to a still overrated market in 2002. Why not include the data back to 1929 or take it from '29-'87? I guess because that data is a stinker. What we are going through now is certainly more in tune with 1929 than any other period in the stock market. Massive speculative bubble bursting. Long-long shakeout. We need to include ALL the data. Without including the mid 90's hype, the gains just don't measure up. So we have 60 years of data that is lackluster, and then another 15 years of data that says stock indexes were "fabulous." How do you get a trend out of averaging these 75 years together....You don't. If I started buying a DOW index in 1930 I would have had to wait 65 years to show a decent overall return. Those that made money in this period didn't do it with index funds. And don't forget that all the stinker stocks were tossed out of the index along the way. What you end up with is not representative of the true gain. No different than if we picked all Benson's coins or all of TDN's coins. Actually, what Benson was buying was probably more representative than you think. Heck, he bought an original run of proof sets from 1858 to 1915 for $235.
This was a large part of the Benson 2 sale. Do you think he was fussy about what was in there and if they were gems? I doubt it. He bought a pile of coins at a fair price. He bought coins when they were dirt cheap and almost no one else cared. Good for him. A lot of those proofs got cleaned along the way and retoned. He still did admirably. TDN, whatever you do, don't start cleaning your 19th century proofs just because it worked for Benson. But....by the way, do you use Brasso or Liquid Plumber?
Supercoin, this stuff is getting old. I say play the cycles because
everything is speculation......long term "trends" included. Good night all.
roadrunner
We've all heard stories about investors who were wiped out in the Crash of 1929, but how often do you hear about the fortunes made by those who had the guts to buy stocks when the market bottomed out in 1932? Someday, we're going to look back on 2002-2003 as one of the best stock buying opportunities of a lifetime, but how many of us will be glad we had the foresight to make the investment at a time when the market looked so bleak? Not many, I predict.
I've collected coins most of my life, and can't imagine another hobby I'd enjoy more, but over the long run, I'll be happy if my coins can keep up with inflation. There will certainly be exceptions, but I've seen so many fads and cycles come and go over the past 40 years that I know better than to expect the coin market to go through a sustained bull market similar to what stocks experienced in the '90's. The coin market is usually strong for just 2 or 3 years before a "correction" occurs.
The bottom line, as Greg said, is to diversify.
Jim
You'll have to check with those two for the accuracy of the figures -- though I don't doubt them as they are typical of when I've run some numbers in the past.
If you've got some coins over another long time period that you'd like me to crank through the spreadsheet, I'd be happy to.
I say play the cycles because everything is speculation......long term "trends" included.
I agree, particularly in regard to coins, and said as much in a previous thread.
My main contention is that a long-term buy-and-hold strategy for investing in coins -- which is what coin investing proponents typically say to do -- has actually instead been a very bad idea from a financial standpoint when compared to more conventional investments.
So when you say If you have to wait over 20 years to get a good return that is not reasonable in my opinion., then you are also disagreeing with that conventional coin investing wisdom. So your argument is with Legend (for example), not me.
And let me apologize for my bogus #'s from last night (staying up too late). The compounded rates from say the crash of '29 to when the market reached the previous high's again in the mid-60's would still be a % return in the 7-8% range I think. Not bad. #'s can be misleading depending on who is spinning them. IF you bought at the peak in 1929 you made nothing for over 60 years.
But what makes me uneasy about everyone who think stocks are THE (only) American way to fortune (meaning, everything else is major speculation) is through long term stock investing. And Supercoin and Typetone have not jumped on that wagon either. Just pointed out the pros and cons of each.
For something so "sure," I'm a bit uneasy when it took almost 60 years for the market indexes to exceed the highs of 1929 for good.
That's a zero return on paper. If you were smart enough to buy at the bottom in 1930-33 you made up to 8% over the next 40 years.
But like any market, how many really took advantage of buying at the lows and selling at the highs? Always a small minority. Coins are no different. As Typetone said, there is great risk in both areas.
Just don't be on the wrong end of the 40 to 60 years. If coins as a group never again exceed the highs of 1989 (many already have) over the next 40 years......I'm bailing for good.
roadrunner
The nonsense I am speaking against is the arguement as to which is a better investment stocks or coins.
Most except Cocoinut have missed the point and are still argueing stocks vs coins.
Buy both.
When any single class gets overweighted that is the recipe for disaster. When coins become more than about 10% of your investment portfolio, they make bad investments even if they go up (if you understand why you got the point). Over 10% they are a hobby, an obsession, a collectible, a consumption good, or an ill-advised investment. They are not however a great investment.
Greg
The problem for many very knowledgeable coin collectors is that the 10% threshold may be too low given their legal inside knowledge of coins and the coin hobby vis a vis stocks in which they may be clueless (just like everyyone else).
Furthermore, 10% is much too high for the less experienced coin collectors.
Stock index funds would not be anywhere in my current investment mix but maybe down the road. I think this is a good time to be holding cash type assets. I'd agree about 10% but only in gold bullion for now.
roadrunner
Hey! Who you callin' clueless?
Actually I'm not sure I'd agree on the 10% of your portfolio in coins either (sorry!), at least not for long-term horizons. If you are active in the market and smart, and get in and out at the right times, then it may make sense.
But for long-term, I think the passive nature of coins (they just sit there incurring storage/insurance costs) is a huge disadvantage compared to other alternative investments.
For the money and time many people invest in coins, something like real estate income property could be bought instead. The huge advantage of something like that is that it produces money every year instead of sucking it up, so a much more modest appreciation in value still produces excellent overall results.
TDN's theory could be applied to real estate too if that's your budget. Instead of a classic rarity you could buy a premium beachfront property. And again, eventually sell it to that guy who strikes it rich.
Coins are easier to take care of than tenants, though. And did I mention prettier?
<< <i>
For the money and time many people invest in coins, something like real estate income property could be bought instead. The huge advantage of something like that is that it produces money every year instead of sucking it up... ) >>
Yea, maybe, maybe not...refer to the movie "The Money Pit". Since you tend to be more leveraged with a real estate investment, your ride on the downswing could be a dandy.
And coins don't call you at 3 a.m. in the morning when the toilet is leaking.
<< <i>And coins don't call you at 3 a.m. in the morning when the toilet is leaking >>
Perhaps not...but ever find out your toilet overflowed at 1 am and the coin came strolling out of the toilet at 3 am because your nephew accidentally dropped one of your circulated Peace Dollars into the same and was too embarrased to tell you about it???
A leveraged investment like mortgaged real estate can cut both ways, of course. But if you weren't comfortable with the leverage, you wouldn't necessarily need to use it either. For the amount many people have in coins, they could simply buy property outright if they wanted.
But with many alternative investments, I suspect much of the success is due to how well the investment fits your personality. If you have no desire to be a landlord, but are a keen observer of coin market trends and like to play part-time dealer... you'd probably do better in coins, even if the income property is mathematically better. And vice versa.
For example, your leaky toilet example keeps me out of income property, even though I like the concept.
Greg