5 key axioms to consider when buying coins
roadrunner
Posts: 28,303 ✭✭✭✭✭
I had posted this on the BST in response to another thread. A forum member suggested it might receive more air time here.
I would not be surprised if these same thoughts have been previously posted here from time to time.
_____________________________________________________
These are some of my axioms about dealers and yes, even collectors in general. They do not necessarily apply to any, some or all of the dealers or collectors on this forum. But these are things that should be considered when one is buying frrm anyone.
1. Dealer's success should be solely measured on how well their
clients do when selling, not on how much the dealer makes or how
much they spend at auction. You can be a "non-rich" dealer
cash-wise, but have 100% satisfied customers that you put into the
right coins at the right prices in both up and down markets.
In the end, this is the KEY axiom. How your dealer makes you $$
and not the other way around. Forget wannabee's and all that
stuff....this is what counts. Read that first sentence again if financial
returns are of any concern to you. To the pure collector who is not
worried about costs, or returns, or even getting hammered, this is
supposedly of no concern. In that case, only collector satisfaction is
high on the dealer's list of priorities. Make the guy happy and fill
the hole. And in this respect, all dealer's meet the grade! (hmmm).
It is certainly no secret that some or even many of the biggest coin
firms in the country routinely bury their clients in coins. And being
smart or the best grader, or having a long list of qualifications or
affiliations doesn't rule you out from being a charter-member.
2. It would not be a bad idea for dealer's to take the PCGS grading
test and have it posted in their ads as a measure of their grading
skills. Grading tends to be a key factor in making money for clients.
One doesn't have to know how to grade to be a successfull coin
dealer however. You can make millions each year and be burying
your clients in coins you know or DON'T KNOW are overgraded.
But at least PCGS/NGC have shrunk the field somewhat wrt burials.
Frankly, passing an industry grading test should be a requirement
to post a shingle as an accredited coin dealer. Whether you decide
to use that to your client's benefit or demise is up to the individual.
3. Dealers, especially ones with significant cash flows, have the
ability to sell their losers at cost or even a profit to their trusting
clientel. Alas, collectors as a rule have no such golden parachute
to part ways with offending coins. This is a very key point. Dealers
have far more outlets for coins that don't work for them. They have
the means to recover from them far more easily than you or I.
Hence, you and I must avoid such coins at all costs. The availability
to move out losers with much less risk, allows well backed buyers
to be more aggressive in their buying on the bourse and at auction,
a luxury collectors and smaller dealers do not have. If you compete with them in this arena understand your downsides are totally different in most cases....possibly the upside too if they have a back door to the grading service (hmmm). Just because "Dealer XXX" bought said coin at auction for $1000 doesn't mean it's worth $1000 plus 20% markup. But in all likelihood it will get sold in that range.
You as the collector have no such self-fullfilling prophecy to use to support a selling price of $1200 to anyone in the market...the dealer on many levels does have that pull. Hey, I paid "X," so you better believe that "X+15%" is a good deal.
4. Even the sharpest and most well-meaning dealers and collectors
will sell losers at times either on purpose or due to their own
blindness or lack of skill/market knowledge, etc. (mea culpa!)
It's up to you as the buyer to differentiate between the two. This is hard to do and what ultimately separates those with the best returns from those who are also-rans. Put faith in your dealer, but
not blind faith. And do follow up from time to time to assess their added value (if any). If that means selling some coins or showing
them about to get offers, it's a good thing.
5. "We want to buy the coins back we sell." Be careful on this one.
Many times I've gone back to dealers with the coins they sold me, I got very little interest on them. In one case they told me I was a liar and they never sold them to me. You gotta love that! Sometimes you paid so much for coins that the dealers just cannot
afford to buy them back without revealing how little they can offer.
They'd rather just pass for now....until cash flow improves or some other reason. While there are a number of good dealers who buy back their own coins at good prices, this is probably not the norm imo. If you buy raw coins, it's a good bet that your dealer does not want to see you ever again with those coins. But the market is more efficient today than ever before and spreads are not quite as oppressive as they were in the raw coin days. Maurice Rosen professes a max of 10-15% markup for coins you get into but many dealers have to work on 20-30% to meet college fund obligations.
I prefer collectors to get in at 5-10%. When your local dealer and even most bourse dealers say they want to buy from the public or pay top prices....they don't include me and you in that group. Public is another name for "uninformed." That's where the best deals originate from. Those are the people that "top" prices are paid to.
And to those who don't care if they make a dime or lose it all because they are pure collectors at heart, none of the above applies to you so just ignore it.
roadrunner
I would not be surprised if these same thoughts have been previously posted here from time to time.
_____________________________________________________
These are some of my axioms about dealers and yes, even collectors in general. They do not necessarily apply to any, some or all of the dealers or collectors on this forum. But these are things that should be considered when one is buying frrm anyone.
1. Dealer's success should be solely measured on how well their
clients do when selling, not on how much the dealer makes or how
much they spend at auction. You can be a "non-rich" dealer
cash-wise, but have 100% satisfied customers that you put into the
right coins at the right prices in both up and down markets.
In the end, this is the KEY axiom. How your dealer makes you $$
and not the other way around. Forget wannabee's and all that
stuff....this is what counts. Read that first sentence again if financial
returns are of any concern to you. To the pure collector who is not
worried about costs, or returns, or even getting hammered, this is
supposedly of no concern. In that case, only collector satisfaction is
high on the dealer's list of priorities. Make the guy happy and fill
the hole. And in this respect, all dealer's meet the grade! (hmmm).
It is certainly no secret that some or even many of the biggest coin
firms in the country routinely bury their clients in coins. And being
smart or the best grader, or having a long list of qualifications or
affiliations doesn't rule you out from being a charter-member.
2. It would not be a bad idea for dealer's to take the PCGS grading
test and have it posted in their ads as a measure of their grading
skills. Grading tends to be a key factor in making money for clients.
One doesn't have to know how to grade to be a successfull coin
dealer however. You can make millions each year and be burying
your clients in coins you know or DON'T KNOW are overgraded.
But at least PCGS/NGC have shrunk the field somewhat wrt burials.
Frankly, passing an industry grading test should be a requirement
to post a shingle as an accredited coin dealer. Whether you decide
to use that to your client's benefit or demise is up to the individual.
3. Dealers, especially ones with significant cash flows, have the
ability to sell their losers at cost or even a profit to their trusting
clientel. Alas, collectors as a rule have no such golden parachute
to part ways with offending coins. This is a very key point. Dealers
have far more outlets for coins that don't work for them. They have
the means to recover from them far more easily than you or I.
Hence, you and I must avoid such coins at all costs. The availability
to move out losers with much less risk, allows well backed buyers
to be more aggressive in their buying on the bourse and at auction,
a luxury collectors and smaller dealers do not have. If you compete with them in this arena understand your downsides are totally different in most cases....possibly the upside too if they have a back door to the grading service (hmmm). Just because "Dealer XXX" bought said coin at auction for $1000 doesn't mean it's worth $1000 plus 20% markup. But in all likelihood it will get sold in that range.
You as the collector have no such self-fullfilling prophecy to use to support a selling price of $1200 to anyone in the market...the dealer on many levels does have that pull. Hey, I paid "X," so you better believe that "X+15%" is a good deal.
4. Even the sharpest and most well-meaning dealers and collectors
will sell losers at times either on purpose or due to their own
blindness or lack of skill/market knowledge, etc. (mea culpa!)
It's up to you as the buyer to differentiate between the two. This is hard to do and what ultimately separates those with the best returns from those who are also-rans. Put faith in your dealer, but
not blind faith. And do follow up from time to time to assess their added value (if any). If that means selling some coins or showing
them about to get offers, it's a good thing.
5. "We want to buy the coins back we sell." Be careful on this one.
Many times I've gone back to dealers with the coins they sold me, I got very little interest on them. In one case they told me I was a liar and they never sold them to me. You gotta love that! Sometimes you paid so much for coins that the dealers just cannot
afford to buy them back without revealing how little they can offer.
They'd rather just pass for now....until cash flow improves or some other reason. While there are a number of good dealers who buy back their own coins at good prices, this is probably not the norm imo. If you buy raw coins, it's a good bet that your dealer does not want to see you ever again with those coins. But the market is more efficient today than ever before and spreads are not quite as oppressive as they were in the raw coin days. Maurice Rosen professes a max of 10-15% markup for coins you get into but many dealers have to work on 20-30% to meet college fund obligations.
I prefer collectors to get in at 5-10%. When your local dealer and even most bourse dealers say they want to buy from the public or pay top prices....they don't include me and you in that group. Public is another name for "uninformed." That's where the best deals originate from. Those are the people that "top" prices are paid to.
And to those who don't care if they make a dime or lose it all because they are pure collectors at heart, none of the above applies to you so just ignore it.
roadrunner
0
Comments
The first point shows how important it is to have a good relationship with the right dealer(s). I think it also implies that the type of dealer you describe will be interested in buying back coins as well.
Regarding number 2, while it's important that collectors buy properly graded coins, a dealer with great grading skills can still bury clients by charging too much.
I found number 3 to be particularly interesting as I don't recall it being discussed before. It certainly explains why collectors continue to be astounded at seeing a coin sell at auction for "too much" and see it for sale later at 30% more! Who knows how often some poor buyer inquires about the coin, the seller generously
And your last point - you're right... it's hard to do!
New collectors, please educate yourself before spending money on coins; there are people who believe that using numismatic knowledge to rip the naïve is what this hobby is all about.
think about to myself every week. How much sweeter the hobby would be if I could totally avoid losers. Frankly, I'd take limiting losers to just 10%. The right dealer can do that for you. I had one such a dealer in 1983-1987 doing that for me. And I never bought one loser from him in that period. A few times we even bumped heads on the same auction lots. But eventually he bid for me on any lots I might be interested in.
Dealers and even well-connected collectors have a huge advantage in being able to farm out losers through a myriad of sources at commissions or fees you and I can only dream of. When coin columnists often say "Knowledge is King," they ain't kiddin. And having sellers bring coins to your doorstep unsolicited, at advantageous prices doesn't hurt any either. Paying full boat for a loser is one thing, but getting it at 20-30% off softens the blow. Basically, a collector's margin of error is minute and you have to play the game knowing that.
roadrunner
Of course all pure collectors that do not care about monatary gain or loss should just disreguard the previous statement.
Ken
No one expects sellers to be clairvoyant, but excessive hype is certainly one area that can be avoided. How about $10 Million for the first silver dollar struck? One can exercise some due caution with client's money (or when guiding them). The last 35 years of the coin market has much to teach us. There are no new fads that will outlast the market (not even Registry Sets).
And as far as where the market is headed (or the economy) see my post about the Kondratiev cycle. Knowing where the economy is heading long term does foretell much about how our tiny market will behave in the same period. It doesn't have to be pot luck and astrology. And those huge ups and downs you metion, those are the Kondratiev cycles. And one can see that they have been accentuated since reducing our dependance on a gold standard to the point of making the world a pure-fiat economy. That's the whole point of the massive waves of money being manipulated as they flow from one area to the next. If we still had a gold dependant dollar, you wouldn't have seen the swings in coin prices that have resulted in the past 30 years.
roadrunner
As axioms pop into my head I'll add them. Just added #5.
roadrunner
1. To some extent, dealers are judged and rewarded by how their clients perform--either as collectors or investors. The collecting community is small and word-of-mouth pervasive. Perhaps, in the short run, a dealer can be hugely successful while their clients are getting creamed--in the long run, I believe this to be, to some degree, self-correcting.
2. I have no strong opinion on the matter other than I doubt that we will ever see such a credentialling process.
3. Excellent point. I have seen these "losers" in all dealers' inventories--even the best. Granted, some of these are probably consigned coins and coins part of a bigger deal. Eventually, they always go away. Often, they go to auction and ironically sell for more than the offering price when they were listed in the inventory.
4. Another excellent point.
Kranky: The first point shows how important it is to have a good relationship with the right dealer(s). I think it also implies that the type of dealer you describe will be interested in buying back coins as well.
Good point, Kranky. The minute my dealer is no longer interested in buying back coins that he/she is selling is the moment I start to get very nervous.
Dealers should know about coin trends, certainly
shortly after they have begun. These good dealers
should then be able to enlighten their regular customers
and keep them out of most of the harms way.
Camelot
Excellent Post. I would give it atleast "Post Of The Month".
Ken
never knew they existed till a week or so ago
well another ttt for this thread it is great
michael