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A Serious Question Re: Stocks vs. Coins
wondercoin
Posts: 16,712 ✭✭✭✭✭
A question occured to me this morning while watching CNBC. There was a commercial regarding some software the "professional" stock traders use. The commercial pointed out how this software outperformed the other software out there in the marketplace and was available for use by those "professionals" out there.
Now, my serious question to the professional stock traders and to anyone else with a comment out there. In my myriad discussions with coin dealers (and my own experience), it is common to make a mistake and lose money on a coin, but the vast majority of the time a coin purchase results in a profit (sometimes a large % profit, sometimes a small % profit). For example, if you look at the coins for sale on a dealer's site, I suspect it is the unusual coin that is being offered for sale at a loss. The vast majority, when sold, will result in a profit. Do the "professional" stock traders generally fare as well as knowledgeable coin dealers? Using this software, etc, can a "professional" stock picker outperform a knowledgeable dealer in successfully puchasing coins? If someone studied coins for 10 years and decided to deal coins in the area of their expertise, would they perform better, on average, than a "professional" stock picker who studied the stock market for the same 10 years?
Would it be fair to say that a knowledgeable coin dealer given $100,000 to work with would fare better over a 10 year period than a knowledgeable stock picker given the same $100,000 over the same period? If a casual coin collector took it to the next step and became a coin dealer would he outperform a casual stock picker who took it to the next step and became a "professional stock trader". I guess a related question is does that stock picking software really work?
Wondercoin
Now, my serious question to the professional stock traders and to anyone else with a comment out there. In my myriad discussions with coin dealers (and my own experience), it is common to make a mistake and lose money on a coin, but the vast majority of the time a coin purchase results in a profit (sometimes a large % profit, sometimes a small % profit). For example, if you look at the coins for sale on a dealer's site, I suspect it is the unusual coin that is being offered for sale at a loss. The vast majority, when sold, will result in a profit. Do the "professional" stock traders generally fare as well as knowledgeable coin dealers? Using this software, etc, can a "professional" stock picker outperform a knowledgeable dealer in successfully puchasing coins? If someone studied coins for 10 years and decided to deal coins in the area of their expertise, would they perform better, on average, than a "professional" stock picker who studied the stock market for the same 10 years?
Would it be fair to say that a knowledgeable coin dealer given $100,000 to work with would fare better over a 10 year period than a knowledgeable stock picker given the same $100,000 over the same period? If a casual coin collector took it to the next step and became a coin dealer would he outperform a casual stock picker who took it to the next step and became a "professional stock trader". I guess a related question is does that stock picking software really work?
Wondercoin Please visit my website at www.wondercoins.com and my ebay auctions under my user name www.wondercoin.com.
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If the software worked so well the sellers of the software would not be selling software.
As for the coin dealers selling all coins for a profit. Doubt it, everyone would become a coin dealer to make scads of $$$$. Dealers lose money on many coins as they hold it in inventory and it ties up capital. They have high over head. Collectors tastes change and they are stuck holding coins no one wants to buy.
There is a basic differnce between the stock market and the coin market. And that is that the stock market is a more controlled market place---if you are trading a normal amount of a stock then the bid and ask prices at any time are pretty non-flexible. Stock is a commodity item. But with coins (especially the higher end rarer ones dealers like yourself tend to handle), this is not true. You might buy a collection from someone and then sell at a profit for a couple of reasons: you were willing to buy the whole set and pay immediate cash; also you can hold the coins placing them with individual collectors who have particular interest (and hence, will pay more money) for particular pieces.
Then, in additoion to those factors, there is the ability to understand the market and where the market will go.
In the case of stock, the market is well enough managed and regulated, that the only opportunity for gain (or loss) is a proper (or improper, in the case of a loss) perception of where the market will go. I would guess that in the case of many dealers (especially the high volume ones), this is not much of a factor at all in their ability to make a profit. Instead, the first two factors (ability to quickly liquidate a seller's collection and contacts with individual buyers), which are essentially irrelevant in the stock market, are the factors that control your profit.
Pete
Your question reflects somewhat of a misunderstanding between a professional stock picker (like me) and a stock dealer.
To begin with, I will assume you are correct when you say that most coin dealers make money on most coins. With fairly large spreads, this should be the case. Of course whether a dealer can do enough volume to cover overhead seems a serious question. Those who stay in the business probably can.
The analogous stock dealers are NYSE specialists, OTC dealers, and upstairs block traders. In stocks the spreads are much more narrow, say 1/2 of 1% if that, and the markets are more short term volatile. I would guess there is a higher % of losing trades for these folks. Presumably their volume is greater.
Professional stock pickers are like sophisticated coin collectors. We try to pick stocks which over time will outperform certain benchmarks. Many of our picks will lose money as we try to hold longer term. In a serious down market, we can actually have mostly losers and still look good. Or, in a strong up market all our picks can be winners but we still look like idiots. I suspect that most coin collectors are less benchmark sensitive. If the market for coins drop, I suspect we still feel bad if we have mostly losers.
BTW. In stocks software adds almost nothing.
Greg
trying to make quick profits on short term transactions.
If the coin-pro really specializes in an area, there is little reason for them to lose
money on most coins. The problem is, they are still limited in the number of
transactions they can complete in a 10-year period. There isn't a single place
where they can go to buy/sell all their coins in minutes, but instead, they are
dealing with people all over the country, which takes time.
The stock-pro will probably pick more losers than the coin-pro, but they have the
opportunity to complete a lot more transactions. They also have more options
available to leverage their capital and increase gains.
Because of these reasons, I will pick the stock-pro - but he/she better be very,
very good as they will still be just a small fish compared to the large institutional
forces in the market.
Greg: Serious question. IN YOUR OPINION, if you were forced to put 100% of your money over a 10 year period in rare coins or stocks (and being you are both a professional stock picker and a sophisticated coin collector), which would perform better for you? Also, would you answer change if you were not a "sophisticated coin collector", but, rather, a full time coin dealer?
As you mention, a skilled coin dealer has an advantage in that almost all "trades" will be winners. He is in tune with his segment of the market, and he only buys coins below that market price -- either from less knowledgable sellers, or from sellers who do not have access to the same customer base. In addition many dealers take consignments where there is virtually no risk of significant loss.
A skilled stock trader does not have that advantage, because thousands of people are all looking at the same thing with broadly disseminated information. However, the trader does have the advantage of a vastly larger, far more liquid market, with lower transaction costs. He/she also has a variety of ways to make money outside of traditional "buy low, sell high" that a coin dealer is limited to. And a lot more ways to lose money, too, of course.
An intraday trader can go after tiny profits that would be senseless to attempt with coins, and easily turn over his "inventory" many times a day. Using leverage and multiple trades, buying and selling $1 million/day in stocks with a $50,000 account is trivial.
Also, many types of trading are scalable -- just add money. With the identical effort, a trader can take a $1,000 position as easily as a $100,000 position. That is something a coin dealer can only dream of.
The principal problem with the coin business, in my experience, is that lack of scalabilty. You can't go to a show, find an undervalued coin and say , "hey, great, I'll take 1000 please". And even if you could, you couldn't sell 1000 of the same coin to one customer.
Consequently, almost every aspect of growing a coin business involves adding more labor, with only very minimal economies of scale. Every coin is maddeningly unique -- which makes it a great hobby, but a tough business.
About the only way I can see for a coin dealer to simulate the scalability available to the stock trader is to deal in fewer but more expensive coins. That keeps the labor involved smaller relative to the coin price and anticipated profit. Even still, that has its own set of problems. It's a much thinner market, so the risk of loss goes up and there are fewer opportunities to turn-over inventory.
To answer your question about giving $100,000 to an aspiring coin dealer or trader... it's much more likely the coin dealer will attain some degree of success. But if you're looking to be extraordinarily succesful, particularly as a sole proprietor -- the trader's "slim" beats the coin dealer's "none".
PS -- "Stock Trader" as I'm talking about here is very different than the stock-picking Greg does for a portfolio.
Having gone from being an equity trader to a coin trader. I hope the pastures are greener here!
The ability afforded you in the stock market to be able to hedge positions and lock in a price via options and such is the big difference that I see. Also you can trade against a position. ie write puts and calls and short against the box so you never have to actually sell the stock. With the coin all you can do is buy sell or hold. Does that make sense?
Larry
Dabigkahuna
By the way, does the stock software for "professionals" work? The same way a racing form "works" at the race track? Maybe I should ask the professional horse handicappers if the race track beats both stocks and coins
Wondercoin
LC: You're not playing fair. I told you to "assume" equal intellect with respect to my question
Wondercoin.
The trading platform does make a big difference. I haven't found one I really like yet. The more info they give you the better but some of these programs look like your doing advance work on an alien spaceship with all the lights and blinking info coming at you at warp speed! If I find a user friendly one I will let you know.
More than the fact that I enjoy trading both coins and stocks, I used to work for an auction house out in Beverly Hills back when I was a kid and I never got the intense rush that you get from an auction out of my system. I love them. I enjoy bidding and trying to snipe as much as I do selling coins. The anticipation of bids and the interest in the auction just gets my blood flowing.
Supercoin,
It doesn't have to be just one or the other does it?
Larry
Dabigkahuna
My answer to your question is that if U.S. stocks and coins were all that were available to invest in, I would do about 70% stocks and 30% coins. If I had to do all one or the other, I would do 100% stocks. The stock market now seems reasonably valued and posed to be able to go up, while the coin market seems like it has already made some significant gains. Also, I think stocks have the greater long-term return potential, albeit with more risk. I wouldn't like the risk of all stocks and would prefer the diversified portfolio if at all possible. I would never do all one or the other unless forced by the question.
The second part of your question is inconsistent. If I were a coin dealer, by definition I would have to have some investment in the dealing business. Therefore, I could not have 100% stocks. If I had to be concentrated all in one, than the only possible answer is all coins. However, assume that after I invest what's needed in my coin dealing business, I have investment funds left over. In that case it would all go in stocks, as my investment in the dealing business gives me plently of "coin" exposure. I know Mitch, that you also collect coins yourself as a collector. From a risk and investment point of view I would recommend selling them all and going into stocks, bonds, and real estate. You are plently exposed to coins through your dealing business. However, as I know you are a serious collector as well as a dealer, I am fairly certain you could no more sell all your coins as you could cut off your right hand
Greg
The software of course is nice to look at, and it makes those who are dependent on propietary trading (dare I say the evil "day trading") feel alot better about what they are doing, thinking they have found the magic bullet, but it can't make you 5% or 100% in week, month or year just based on it (though there always is the highyl remote possibility someone has incrediable luck and internal human computing ability to make a steady, small profit). As said, if I or anyone else in the business found out they worked, you couldn't download one on the net from anywhere from 50 bucks, to 1200 bucks. We would do everything in our power to keep it a secret. Sad thing is people buy the expensive ones. Some of the lesser priced ones are ok and can expand your knowledge and learning experience about the markets, but they shouldn't be used except if you know how to use them inside out, and you don't rely on it as your only source of info. They will give you a read, but they can't pick stocks for you. They are fun for watching your current market holding and for entertainment though.
Must end life...in classic Lorne Green pose...from 'Battlestar Galactica'...best...death...ever!"
-Comic Book Guy
> rare coins or stocks (and being you are both a professional stock picker and a sophisticated coin collector), which
> would perform better for you? Also, would you answer change if you were not a "sophisticated coin collector", but,
> rather, a full time coin dealer?
I would favor the professional stock picker over the sophisticated coin collector. The key word being "professional".
I would hope that working at something 8 hours a day would give me an advantage over someone doing
something as a hobby.
If you go to pro against pro I have no idea. If I knew more about the costs of a coin dealer I would be
better able to haggle with them.
I would be interested in hearing from Tad and Larry as to why each changed to the field they did.
I'm guessing Tad changed for the liquidity, scalability and that you can theoretically make an unlimited
amount of money.
-KHayse
Seriously, the motivation is pretty evenly split between the money and the unparalled freedom. I can work virtually anywhere, and on my own terms. If it's a nice day I can close all my positions with the click of a mouse, and take the day off. Assuming that money part works out, that is.
Any system that tries to predict invidual stock prices seem very suspect to me. Stocks are too susceptible to huge movements on news.
My impression is that systems like that are better suited to a huge lumbering market like Foreign Exchange (which dwarfs the stock market in size). Trends in a market like that tend to be longer and less volatile. A recent article I read showed a simple system used in ForEx that returned a 17% annual profit over the last 12(?) years, with less drawdown than the stock market experienced.
But, to a stock trader, that's a pretty poor return. Not nearly enough to make a living on unless you've got a big pile of dough.
Regarding IQ, I'm not sure that's a prime ingredient to success. Trading successfully requires a very different way of thinking, and plenty of very smart people give their money away to savvy traders every day.
In my case I didn't stop making markets out of choice. The plunge in the market and the execration of that with the 9/11 tragedy along with the reduced spreads and the attempt to legislate the NASDAQ Market into something that more closely resembles the NYSE has cost me and more than 50,000 other wall street workers their jobs. I think things will improve but the profit versus risk factors have changed so dramatically to the point where it will be more difficult for startup companies to get listed. The lack of growth capital that normally would be raised thru an IPO won't be there. The day of the OTC specialist is over in my opinion.
Now you guys have got me going and I thought I was retired. lol!
There is one thing that the coin market offers that was killed a couple of years ago by the Justice Dept. and that is that you can talk to competitors and have working as well as friendly relationships. Im not talking about collusion like the Fed charged us with. Just fellow enthusiast. When all of the big wall street firms agreed to the settlement everyone in the business had to stop talking with each other. It really took put a dampener on the things and made the business even more cut throat. Hmmm, I think Im sworn not to speak about this under penalty of law. LOL!!!! LMAO!!!
The liquidity of stocks wins out over the coins investment wise but no matter how much I enjoy trading stocks it is still a lot of work. With the little bit of what I have seen of "day trading" the only ones that get to call it a day early are those who lost the maxim limit for the day!
As far as coins go. At the end of the day I still have my coins to look at and enjoy..if I didn't have to sell any to cover my margin call!
Larry
> years, with less drawdown than the stock market experienced.
>
>But, to a stock trader, that's a pretty poor return. Not nearly enough to make a living on unless you've got a big pile of dough.
Tad, when you can consistently make 17% you let me know. We'll talk about commission percentages
and I'll ship you some money.
-Khayse
The one thing you hit on that seems to have been overlooked, or at least not mentioned specifically, unless I missed it on one of the threads that have carried this theme lately, is the V word... volatility.
That's what makes stocks riskier, and more rewarding... if you catch the right one(s) on the way up. Or, on the way down, if you short.
I would like to answer your question with a question. If you are watching CNBC, why do you ponder this question versus wanting to look at Maria Bartiromo ?
Seriously, about 18 months ago, I moved $3,000 from my stock fund to a coin fund of just slabbed key coins (CC Morgans, 1928 Peace $s, MS66 Clad Ikes, misc 5c, 10c, 25c as well). Today, that $3,000 is about $4,800* and in stocks it would have been about $1,800. Now, all I have to do is sell the coins to realize the profit.
Chris
* Your actual results may vary, please consult a professional stock broker, this is not an inducement to wager, value only applies if you take delivery by 10/31/02, please do not attempt this at home without supervision
I love Ike dollars and all other dollar series !!!
I also love Major Circulation Strike Type Sets, clad Washingtons ('65 to '98) and key date coins !!!!!
If ignorance is bliss, shouldn't we have more happy people ??
Larry, you were a market maker? I'll have to buy you dinner and pick your brain sometime, I'd love to get some insight into the "other side".
Or maybe you should buy me dinner -- you probably took some of my money when I first started dabbling in trading a couple years ago.
A few quick comments.
1. One advantage stocks can have over coins (as I beleive SuperCoin mentioned) is that you can buy 10 shares of MSFT, 1000 shares, or 100000 shares with simplicity. Trying to do this with coins would be crazy, and if there are 100000 of a coin in a certain grade out there it probably isn't what you should be investing in!
2. In one of Ric Edelman's books (he is a money manager type book-writer), he mentions clients of his who have a lot of value in a wine collection, or sportcards, or whatever, and he asks when they are going to sell and they say "Never!". In other words you can get attached to other types of collections, but if your stocks go up, its not too hard to be happy and sell! Remember there is a difference between "Realized gains" and "Unrealized gains"! Chris may want to consider this advice!
JJacks
And, this point finally hits the nail on the head!! Us married guys with kids are sitting here trying to figure out why one prominent board member is leaving coins to play stocks, while the other prominent board member is leaving stocks trying to play coins. When, the answer all along has been to spend all the money you've got in Las Vegas and Atlantic City on fun and sun with the likes of "Maria Bartiromo"
You can't take it with you!! Wondercoin
There are two types of traders.
Fundamentalists - who make trades based on fundamental data, i.e. supply/demand, growth, etc.
Technical traders who trade based on trends and historical data. Software for technical traders is widely available.
It's much better to be a broker than a trader. A broker gets his cut regardless if the client makes or loses money.
My posts viewed
since 8/1/6
I am not nor was I ever a stock broker or trader. Someone asked me that but I forgot who.
But this is an eerie report on maria and what she said back in 1998......a must read
Maria's birthday
JJacks,
I am with you, based on what I said ... "Now, all I have to do is sell the coins to realize the profit".
This point is especially worth noting since I have never sold a CC Morgan (have over 20), 1928 Peace (have about 10) or a MS66 Clad Ike (have over 10, which, by the way, Mdwoods, if you are listening, 3 of them are 1976D T1's).
Mitch,
You are on the mark with your last point, did I mention that I love my wife (and life) !?!?!
I love Ike dollars and all other dollar series !!!
I also love Major Circulation Strike Type Sets, clad Washingtons ('65 to '98) and key date coins !!!!!
If ignorance is bliss, shouldn't we have more happy people ??
That's the second time I've heard a woman didn't think much of Maria's looks. A lady friend of mine once told me the same thing.
Hmm, I think they're nuts! I look forward to seeing her on Squawk.
Most pros and people in the business use ILX. My firm uses ILX and also First Call (very important), they are very expensive but well worth it.
Taking out the scenario of getting coins upgraded and instantly flipping them for multiples, I would say that professional traders and talented, experienced brokers would outperform coin dealers over a 10 year period in most instances.
Dragon