Does it take a lot of luck to make money in coins?
dan1ecu
Posts: 1,573
The main reasons that I collect coins are because I enjoy it and because I find it to be educational and stimulating. A secondary (but important) concern is whether I’ll be able to get back at least most of what I paid for a coin in the event that I have to sell.
I got to thinking of ways in which the coin market is like the stock market. There is efficiency in the stock market, which means that information is readily available to everyone. It is therefore difficult for one to exploit information to make a profit. If everyone else has the same knowledge as you do, then it has already been priced into the market. This is why many expert mutual fund managers can’t beat the overall stock market.
Well, it looks to me like the coin market is similar. For example, lots of people think that three cent nickels are inexpensive relative to their mintage figures. If this information is already generally known, then what reason would we have for expecting three cent nickels to perform any better than the overall coin market? The only way to make a big profit (as I see it) is to buy a coin before anyone else realizes how desirable the coin is; then, when the rest of the collecting community comes to agree with you, the price will shoot up. How likely is it that I (or anyone else) will be able to do this on a consistent basis?
The coin market is also similar to the stock market in the sense that we CAN know when a bubble is occurring. Unfortunately, we can’t know when a bubble will burst, and so we can’t exploit bubbles to our advantage. Many people think that we’re in a high-grade moderns bubble right now. Prices have gone through the roof. Even so, who’s to say that they won’t double or triple from here? Remember that the U.S. large growth stock bubble lasted several years.
There was something in the world of stocks during the dot.com bubble known as the Greater Fool Theory. The idea was that if you pay a foolish price for a stock you could still make a profit because someone out there is probably a bigger fool than you! Maybe that’s similar to what’s going on in the moderns market today.
So, I’m proposing that having a diversified collection is the best route (just like having a diversified stock portfolio generally yields the best results). Speculating in coins, just like speculating in stocks, can lead to big gains or big losses, depending on how lucky you are. Additionally, one should buy eye appealing, desirable coins. That way, there will probably be many who are willing to take them off your hands if you ever need to sell.
What do you think? Should we not pay any attention to what is “undervalued” or “overvalued,” and just try to build a diversified collection (kind of like a mutual fund of coins)? I, for one, am not expecting a long term return any greater than that of the overall coin market.
What are your thoughts on this?
Dan
I got to thinking of ways in which the coin market is like the stock market. There is efficiency in the stock market, which means that information is readily available to everyone. It is therefore difficult for one to exploit information to make a profit. If everyone else has the same knowledge as you do, then it has already been priced into the market. This is why many expert mutual fund managers can’t beat the overall stock market.
Well, it looks to me like the coin market is similar. For example, lots of people think that three cent nickels are inexpensive relative to their mintage figures. If this information is already generally known, then what reason would we have for expecting three cent nickels to perform any better than the overall coin market? The only way to make a big profit (as I see it) is to buy a coin before anyone else realizes how desirable the coin is; then, when the rest of the collecting community comes to agree with you, the price will shoot up. How likely is it that I (or anyone else) will be able to do this on a consistent basis?
The coin market is also similar to the stock market in the sense that we CAN know when a bubble is occurring. Unfortunately, we can’t know when a bubble will burst, and so we can’t exploit bubbles to our advantage. Many people think that we’re in a high-grade moderns bubble right now. Prices have gone through the roof. Even so, who’s to say that they won’t double or triple from here? Remember that the U.S. large growth stock bubble lasted several years.
There was something in the world of stocks during the dot.com bubble known as the Greater Fool Theory. The idea was that if you pay a foolish price for a stock you could still make a profit because someone out there is probably a bigger fool than you! Maybe that’s similar to what’s going on in the moderns market today.
So, I’m proposing that having a diversified collection is the best route (just like having a diversified stock portfolio generally yields the best results). Speculating in coins, just like speculating in stocks, can lead to big gains or big losses, depending on how lucky you are. Additionally, one should buy eye appealing, desirable coins. That way, there will probably be many who are willing to take them off your hands if you ever need to sell.
What do you think? Should we not pay any attention to what is “undervalued” or “overvalued,” and just try to build a diversified collection (kind of like a mutual fund of coins)? I, for one, am not expecting a long term return any greater than that of the overall coin market.
What are your thoughts on this?
Dan
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Comments
Frank
Your points are excellent, but there is one factor you're discounting when comparing the stock market to the coin market; passion. The value of coins, as with all collectibles, is based at least in part on emotion and desire. Not so much the case in the stock market (although there is some there). It is this passion about a particular series or type that can determine current values, and it is that same emotion that can change that value up or down.
So, I believe that those experienced people who point to a series or a coin that is currently undervalued relative to market do so based on the knowledge that what is cold today could easily become hot tomorrow when/if the emotional factor takes hold.
In other words, most buy stocks for investment, most buy coins for love. Because of the "love" factor, the coin market is less efficient than the stock market.
Russ, NCNE
dan1ecu - Have you read or considered reading the Coin Guide written by Q David Bowers? It`s a lengthy read and it`s interesting.
in order to make money at coins, you have to already have money. it's easy to turn a $1 mil coin into $1.5 a few years later but turning a $50 coin into a $75 coin is a lot harder.
2 Cam-Slams!
1 Russ POTD!
amoung them is the virtual impossibility of predicting in what direction collector tastes
will go. There are historical patterns and obviously undervalued areas, but there can
be no gaurantee that patterns will persist or hat undervalued areas might ever become
noticed. Even if your guesses are right on the money and you can turn on a dime it can
take decades to profit and take all your time to do it. Ralph Cramden (Jackie Gleason)
once used the curse "may your uncle die and leave you a million dollars- - in bus tokens".
Thus is the rub.
Put your money in undervalued stocks, gold, real estate, and enjoying what you have.
Coins are a great way to enjoy your time and wealth and a great way to meet people
and expand your knowledge and horizons. They are not a great way to make money
unless you deal them for a living or have a few decades to play around with them. So
collect the coins you enjoy and try to get full value for your money and you should do
well enough.
As for a bubble in moderns. I won't be selling until they start approaching the values of
equally rare classics. It's going to take a lot more than a doubling or tripling to do that.
Numismatics in general is a hobby, that in the past, with proper attention to the collection AND proper aging of it has produced great profits for great collections. Proper aging, for the most part, is generational and not months or years. There has to be a mystique to the collection. This can only be built over a long period of time, so that the coins have not been seen by the current collectors. Even the Bass and Trompeter collections were never properly aged. Most of the coins in these collections had been available within the past 20 or 30 years. Those collections were sold for different reasons. If Harry Bass & Ed Trompeter had lived longer, they would not have sold their collections. Great collections like Garrett, Norweb, Starr, Bareford, Carter, Elliasberg, Pittman, etc. were all properly aged and were generational. This is where the great returns exhibited themselves.
I firmly believe in numismatics as the world's greatest hobby, but recognize that this is a luxury and without collectors, we can all spend/melt our collections/inventories.
myurl
I recently bought five early date walking Liberty half dollars (and I don't know much about grading nor do I collect the series) from the local dealer of 40 years here in Salt Lake City. I noticed that Ebay sellers were bidding at much higher amounts than what the coins appeared to grade. Picked up the coins as they were very nice looking and original, appeared properly graded on the conservative side and threw them on Ebay. Five coins totalling about $1140 returned over $1920.00 for a profit of about $800.
That was buying them for retail at a coin shop. Can't say I have always had that success, but finding coins below what they are worth in the market place is key.
Tyler
in order to make money at coins, you have to already have money. it's easy to turn a $1 mil coin into $1.5 a few years later but turning a $50 coin into a $75 coin is a lot harder.
Text
I would say that is not correct...I think it would be easier to sell 10 coins at 350 each vs 1 coin that is $ 3,500...
You enjoy collecting so that has some payback to you.
Regarding turning a profit, an approach that I take is to only use my disposable income to purchase my coins (i.e. extra money I would donate, eat, drink, entertain, gamble, etc.). In doing that, if a few years from now I sell what I accumulate for $10,000, to me that is a $10,000 profit as I would not have had it originally (not to mention the fun/enjoyment that I would have received).
I know this is fuzzy math and I am sure accountants will shoot many holes in my process. However, I always have to come back that accountants know the cost of everything but the value of nothing (and my approach has lots value to me).
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 ??
<< <i>I know this is fuzzy math and I am sure accountants will shoot many holes in my process. >>
Actually, the thought process makes a lot of sense. People frequently buy automobile A rather than automobile B because they perceive that auto A will provide more pleasure during the tenure of ownership. Does anybody expect to make a profit when it comes time to sell the vehicle? No. Instead, the cash from the sale would be perceived as icing on the cake of fun.
Russ, NCNE