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10 Rules for Successful Collectors (from the Pinnacle/DW archives)

RYKRYK Posts: 35,797 ✭✭✭✭✭
More great advice from Doug Winter. It is hard to find anything objectionable here.


The Ten Rules of Successful Collectors

If you do not learn how to become a good coin collector, you will not enjoy this hobby. This will become quickly apparent; especially the first time you have your rash, uninformed purchases looked at (and, probably, summarily dismissed) by a knowledgeable dealer or collector. There are a number of rules that all coin collectors should remember every time they make a purchase. Here are ten that I feel are especially important.

Education


Specialization


Patience


Connections


Thinking Like a Collector


Connoiseurship


Learning to Grade


Thinking Long Term


Quality not Quantity


Buying the Best You Can Understand


I. Education
The most successful coin collectors take time to learn as much as they can about numismatics. They not only study coins but the dynamics of the market as well. To learn about coins, I strongly suggest that you buy and read as many books as possible. You can supplement these books with specific catalogs that relate to your chosen field of specialization. A serious collector might even go as far as creating a database of prices that relate to his specialty. Other suggestions for new collectors include subscribing to periodicals such as Coin World and Numismatic News. You should join the American Numismatic Association and use their library (they will send books by mail to members). Become friendly with other collectors and communicate with them by phone or e-mail. And don't be afraid to ask questions.

II. Specialization
It is too hard to begin a coin collection without having goals and boundaries. I have always been a strong believer that it is better to view numismatics with a "micro" perspective as opposed to a "macro" perspective. As an example, if you start by collecting Charlotte gold coinage, your "world of focus" becomes 52 specific issues. It is realistic to assume that an intelligent individual who is willing to commit time to this area of study could become relatively knowledgeable within a year or two. To become similarly knowledgeable in a larger field of study (such as all branch mint US gold coins produced between 1838 and 1907) requires many more years. Becoming a well-versed specialist will allow you to level the playing field between you and dealers and it should enable you to make better purchases.

III. Patience
We live in an era of immediate gratification. New collectors often have the urge to jump in very quickly and complete their sets as fast as they can. The best coin collections are built over the course of many years. Sometimes, it is possible to purchase a number of great coins in a very short period of time. But most times, the opportunities to purchase great coins are few and far between. The new collector should avoid the temptation to buy the "wrong coin" just because he needs it for his set and he does not want to wait. Impetuous decisions are invariably incorrect and usually prove costly over the course of time.

IV. Connections
It amazes me how many serious collectors get their "meatiest" information on topics such as pricing, market conditions and future trends from such third-hand sources as newsletters, coin magazines and coin brokers. This information is almost always well out of date and totally biased. (Remember that most newsletters which recommend specific coins are written by dealers who have taken a position in what they are touting). The only way to get real information about the coin market is from a dealer or collector who regularly attends shows and auctions. This discounts most coin brokers/salesmen as they get diluted information from their superiors and then pass on these half-baked "truths" to the masses. I personally view it as my duty to pass on accurate information to good clients. Conversely, I will not willing pass this information onto "tire kickers." The best way to get good information is to establish a good working relationship with a well-connected, reliable dealer.

V. Thinking Like A Collector
Anyone who approaches numismatics with a dispassionate attitude is a virtual certainty to lose money. Conversely, most pure collectors make money; often times in spite of themselves. This is because they buy coins for the right reason: they love them. They buy what interests them and they carefully research their purchases. They know for example, that a coin similar to one they just purchased sold for 10% more at a major auction. They know that they are not buying overhyped coins at the height of a promotional period. They are not buying coins just because a voice at the other end of the phone told them to and they are not buying them because this person told them their new coins would "increase in value 50-75% over the next three years." Remember this rule because it may be the most important one of the ten listed here: learn to think and act like a true collector and you will have more fun now and have a better chance to expect a reasonable profit on your purchases over the course of time.

VI. Connoisseurship
I define connoissuership as the ability to discern true quality in a specific field. In numismatics, the connoisseur is able to determine which coins have the most aesthetic eye appeal and which, literally, stand apart from the "typical" piece. A numismatic connoisseur, for instance, is able to appreciate a truly original gold coin with rich, "crusty" coloration. He is able to innately sense that 150 year old coins do not have to be big and bright in order to be desirable. Connoisseurship is a natural ability. You either are able to naturally determine the "best" or you are not. If you are not a born connoisseur (and very few people are) then you should find a dealer who has this ability to assist you with your purchases. I would estimate that less than 5% of all coin collections are "connoisseur quality" and those that are typically the ones that show the greatest financial appreciation over the course of time.

VII. Learning to Grade
I have seen people spend millions of dollars on rare coins without having the slightest idea how to grade. They put their complete trust in dealers and in third-party grading. Frankly, this attitude leaves me baffled. If I do not feel very comfortable grading a specific type of coin, I do not buy it. As an example, I think Indian Head half eagles are extremely hard to grade. To be totally honest, I can't grade the damn things. My solution? I don't buy them. By the same token, I feel that I am a world-class grader of Liberty Head half eagles. So I buy a lot of them. There are some simple rules when it comes to grading. First--and foremost--you need to view as many coins as possible. I would recommend that you attend shows and auctions and carefully look at coins. Secondly, I would take one of the grading classes offered by the American Numismatic Association at their annual Summer Seminars. Thirdly, I would make the decision to specialize, so that you have fewer types of coins to learn to grade. Fourthly, I would try to learn grading tips from the dealer(s) that I buy the majority of my coins from. Finally, I would always remember that while third-party grading is a great safety net for the beginner, there is nothing like your own knowledge.

VIII. Thinking Long Term
Coins are a terrible short-term investment. Even if you buy coins at a fair "retail" mark-up, you are still paying at least 10-20% over typical wholesale prices. This means that any coins that you purchase has to go up at least 10-20% for you to break even. When coins were heavily touted as investments in the 1980's, the common logic was that you needed to hold at least three to five years. I would suggest that you should plan to hold your coins at least ten years and preferably more. The greatest collections (Eliasberg, Pittman, Norweb, etc.) were built over the course of fifty+ years.

IX. Quality Not Quantity
Let's say that you have a coin budget of $20,000 per year. I would suggest that you purchase four or five really nice $4000-$5000 coins each year than twenty $1000 pieces. The coin market of the future will be even more predicated on quality than it already is. High quality coins will become harder to find and, consequently, more expensive. The decision to purchase the best coins you can afford will prove to be very intelligent over the course of time. A few years ago, another dealer had an advertising campaign that basically said that your entire collection should be able to fit into a PCGS shipping box (i.e., it would be twenty coins). While this never really caught on, I think his idea actually has some merit. If you have decided to be more of a "generalist" buyer than a "specialist," I like the concept of having a small collection of great coins instead of a large collection of nondescript coins.

X. Buying the Best You Can Understand
If you are new to coin collecting and you know next to nothing about coins and the coin market, you have no business purchasing $10,000+ items. I would strongly suggest that you start small and take at least three to six months to study the market. Once you feel more comfortable, you can take a bigger plunge into the coin market.

Conclusion:
The regimen that I have discussed above is not easy to follow. Most people are not willing (or able) to follow this approach as it requires considerable discipline and a major commitment of time. If some of these steps seem practical to you and others do not, then I suggest you follow what you can and keep the other steps in the back of your mind as you become better acquainted with numismatics.

© Copyright 2000, Pinnacle Rarities, Inc. All rights Reserved.

Comments

  • krankykranky Posts: 8,709 ✭✭✭
    Agreed - nothing that I can quibble with.

    I can only hope I live long enough to master all those characteristics! image

    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.

  • coinguy1coinguy1 Posts: 13,484 ✭✭✭
    If, as I occasionally do, I wanted to go out of my way to find a few points of (slight) disagreementimage, I would note....

    1) Regarding "education" - Mr. Winter omitted to mention the education one can get right here on the forum. Of course, understandably, he might have supposed that someone might get bad information here, on occasion, too.

    2) While "specialization" might have a number of advantages for collectors, it can also be less enjoyable for those who prefer greater variety and more types of coins to study and collect.

    3) It's hard to argue with "quality not quantity". But, in the case of someone who has $20,000 to spend, for example, I don't think he necessarily needs to confine his purchases to 4 or 5 really nice coins. He might find 10 to 20 quality coins, each of which he might enjoy as much as others that cost considerably more. It's difficult to know precisely where to draw the line, but quality coins can be obtained for hundreds, as opposed to thousands of dollars.

    These very minor points of mine aside, I think the article, like many others Doug Winter has penned, was right on point, extremely well written and of immense potential help to countless collectors.




  • RYKRYK Posts: 35,797 ✭✭✭✭✭
    Mark, since I am not one to shy away from a disagreement image (however slight), I would say the following:

    1. This forum was not here when that article was written (2000), though perhaps there were others. I agree that there is a lot of good information here and some not so good information. One of the best things about this forum is that you can, day or night, get a coin-related question answered or problem addressed, often by multiple individuals (or the same individual with multiple alt ids).

    2. I agree with your point about specialization. After all, variety is the spice of life. That said, the collectors who really take it to the next level are the ones who specialize in one or few series, not try to collect everything. This is a point that I often struggle with internally.

    3. Quality vs. quantity--This is another point that I struggle with a lot. I am very conflicted as to whether my sets should be in a fairly tight grade range (say XF-45 to AU-53) or all over the place (VF-20 to MS-61) for the series I collect. Pricing, to some extent, correlates with grade and quality. Item #3, patience, has never been my strength, and this plays in to my willingness to allow the grade range to expand, so long as my purchase has nice eye appeal and originality (quality) for the grade (price).

    While these "10 Rules..." are written as "rules", I tend to use them as guidelines to follow--not the law itself. It is good for me to reread this article every once in a while, and I thought the forum members could take a glance, too.
  • coinguy1coinguy1 Posts: 13,484 ✭✭✭
    Robert - whoops, I did not realize the article was from 2000image

    Sadly, you said nothing in your follow-up post that I care to disagree with.image
  • RYKRYK Posts: 35,797 ✭✭✭✭✭
    Sadly, you said nothing in your follow-up post that I care to disagree with.

    That's because in my rebuttal, I pretty much agreed with everything you said.
  • coinguy1coinguy1 Posts: 13,484 ✭✭✭
    "Sadly, you said nothing in your follow-up post that I care to disagree with."

    << <i>That's because in my rebuttal, I pretty much agreed with everything you said. >>

    Well, I guess that explains it.image
  • BarryBarry Posts: 10,100 ✭✭✭
    On the quality vs. quantity issue - I believe it makes sense to buy coins on the low side of the price break, wherever that may be. Like many things in life (cars, for example) as the prices rise, the preceived value per dollar decreases.
  • RGTRGT Posts: 508 ✭✭


    << <i>3) It's hard to argue with "quality not quantity". But, in the case of someone who has $20,000 to spend, for example, I don't think he necessarily needs to confine his purchases to 4 or 5 really nice coins. He might find 10 to 20 quality coins, each of which he might enjoy as much as others that cost considerably more. It's difficult to know precisely where to draw the line, but quality coins can be obtained for hundreds, as opposed to thousands of dollars. >>



    I agree and would like to add a point or two.

    First, I'm not sure I could manage to only buy 4 or 5 coins in a year. I've only bought one coin in the last month and I'm already experiencing withdrawals.

    Second, it's far easier to stay in my wife's good graces buying ten $500 coins over time than buying one $5000 coin. The cost is the same but the repercusions are vastly different. Sometimes outside forces affect our buying decisions. image
  • LongacreLongacre Posts: 16,717 ✭✭✭
    It is a good article. Thanks for posting. It is possible to be a specialist in a series, and then have a "fun" series that is a lot less expensive.
    Always took candy from strangers
    Didn't wanna get me no trade
    Never want to be like papa
    Working for the boss every night and day
    --"Happy", by the Rolling Stones (1972)
  • RYKRYK Posts: 35,797 ✭✭✭✭✭
    Barry:

    On the quality vs. quantity issue - I believe it makes sense to buy coins on the low side of the price break, wherever that may be. Like many things in life (cars, for example) as the prices rise, the preceived value per dollar decreases.

    I agree and DW talks about this in another article. I will post it some other time.

    RGT:

    Second, it's far easier to stay in my wife's good graces buying ten $500 coins over time than buying one $5000 coin. The cost is the same but the repercusions are vastly different.

    Please PM me. I will teach you all of the tricks for sneaking coins by your wife. image

    Longacre:

    It is possible to be a specialist in a series, and then have a "fun" series that is a lot less expensive.

    That is another DW recommendation that I have also read elsewhere. I will try to dig it up.
  • RYKRYK Posts: 35,797 ✭✭✭✭✭
    Barry, as I promised, here is DW's article on the "best value grade" (BVG).


    THE CONCEPT OF "BEST VALUE GRADE"
    by Doug Winter © March 2000

    Unless you are Bill Gates, the chances are good that you have a coin buying budget. It is my contention that every United States coin has a price point above which it no longer makes economic sense to purchase it; unless you are an avid specialist within a series or you are totally compelled to have the best of every coin and/or type you collect. I refer to this price point as the "Best Value Grade."

    There are a number of applications of the Best Value Grade theory (heretofore referred to as the BVG) and these are directly related to the classification in which a specific coin falls.

    In my opinion, coins can be classified in two distinct classes: absolute rarities (coins that are rare and desirable in all grades) and condition rarities (coins whose rarity is predicated solely on a high level of preservation). Using Type Three double eagles as the series to examine some coins, we find a number of perfect examples.

    The 1891 double eagle is an absolute rarity. Fewer than 50 examples are known from the original mintage of just 1,390 business strikes. This is truly a coin that can be described as rare and desirable in any grade. Coin World Trends (dated 2/28/00) shows the following price information for this date:

    EF-40: $4000
    EF-45: $5000
    AU-50: $7750
    AU-55: $11750
    No Trends values are listed for this date in any grade above AU-55.

    Population data on this date is interesting as well. As of 2/00, PCGS had seen a total of just 25 examples in all grades (quickly confirming that it is a true rarity) with the breakdown as follows:

    EF-40: 2 coins
    EF-45: 1 coin
    AU-50: 7 coins
    AU-55: 5 coins
    Five coins have been graded higher than AU-55 (all AU-58) with none in Mint State.

    This data shows that the 1891 double eagle is seldom available and when it does come up for sale, it is most likely to be found in the AU-50 to AU-55 range. Assuming that your budget allows for a purchase in the $7500-15,000 range, the question you must now ask is: "at what point does the 1891 double eagle become overpriced?"

    It could be said that there is no real point that the 1891 becomes overvalued as this is a truly rare coin that seems quite undervalued when compared to other more famous but less rare double eagles. But let's say that a collector has a choice between an AU-50 example at $6500 and an AU-55 at $10,000. In my opinion, I think the higher grade coin makes sense. It is priced at less than double the level of an AU-50 but is considerably scarcer, quite close to being the finest available quality (remember that the highest recorded grade level for this date at PCGS is only AU-58) and, from a cosmetic standpoint, a nice AU-55 should be considerably more appealing than an AU-50.

    The 1891-S double eagle is a good example of a condition rarity. Nearly 1.3 million were struck and thousands of examples exist in the lower to medium levels of Uncirculated. Coin Dealer Newsletter bids for this date, as of 12/99, are as follows:

    MS-60: $390
    MS-63: $2,040
    MS-64: $6,100
    MS-65: No Bid
    (Note: While there is no published bid for this date in MS-65, we can establish a hypothetical value level of $15,000-17,500, based on other comparable issues of this era).

    The 2/00 PCGS Population report shows that 1,840 1891-S double eagles have been graded in all grades with the majority of these in the MS-60 to MS-63 range. The breakdown is as follows:

    MS-60: 164
    MS-61: 459
    MS-62: 784
    MS-63: 217
    MS-64: 23
    MS-65: 0

    This data shows that the 1891-S is easily obtainable in MS-63, somewhat scarce in MS-64 and extremely rare in MS-65.

    If a collector were to ask my advice what the BVG is for the 1891-S I would unhesitatingly advise him to pursue a nice, high end MS-63.

    To my way of thinking, there is nothing especially exciting about this date. If you are collecting Type Three double eagles by date, you need an 1891-S to complete your set but it is unlikely that I will be called by a single collector this year who just happens to be looking for an example. So, right off the bat, this issue lacks the "sex appeal" factor that the 1891 double eagle has.

    A look at the price levels for this date are interesting. An MS-63 can probably be bought in the $1750-2000 range, an MS-64 would be at least three times that amount and an MS-65 (if available) might cost ten times the amount of an MS-63.

    The population data above tells me that this coin is available enough in MS-64 that I would not want to pay $6000+ for one. And the possibility always exists that one or more of the coins currently graded MS-64 could be upgraded to MS-65. The first PCGS MS-65 example that is graded will, no doubt, command a strong price from a collector or investor who is sold on its status as a "finest known" piece. But what happens to the value level of this coin when two or three other MS-65's are graded?

    I also believe that there are certain coins which it always makes sense to stretch for. A good friend of mine has a theory that the most desirable issues are those whose essence can be summed up in fifteen words or less.

    An example of this is the 1861-O double eagle. Here's how I would distill the essence of this coin to a new collector: "A rare, historic issue with a strong possibility of having been struck by the Confederacy."

    A little background research shows that the 1861-O double eagle is rare in all grades with an original mintage figure of just 5,000. It is probably unknown in Mint State and very scarce in all AU grades. Most interestingly, a number were produced by the Confederacy in the Spring of 1861, after the New Orleans mint had been seized.

    According to the 2/28/00 issue of Coin World Trends, the price levels for better quality 1861-O $20's are as follows:

    AU-50: $6500
    AU-55: $13,800
    No trends value is listed for any grade higher

    As of 2/00, PCGS had graded seven examples of this date in AU-50, seven in AU-53, three in AU-55, two in AU-58 and none better.

    Now let's say a collector of this series is suddenly offered the chance to purchase two really nice 1861-O double eagles. One is an AU-55 that is priced at $12,000 while the other is an AU-58 that is priced at $17,500. Which coin is the better value?

    In this case, I would strongly advise him to purchase the AU-58. To me, this is an easy choice. The price spread between the AU-55 and the AU-58 is not unreasonable. There should be a discernible difference in quality between the two coins. The AU-58 would be tied with just one other coin as the finest graded by PCGS. And, this is a very desirable, truly rare issue with a level of demand that extends beyond specialists within the series. All of these factors combine to make this a logical purchase.

    What if the same collector were suddenly confronted with a fantastic, newly discovered 1861-O double eagle that had been graded MS-62 by PCGS and was clearly the finest known by a mile? Would this be a coin that he should stretch for?

    It is always very hard to determine a value for coin such as this. But let's say that after careful reasoning, the collector and the dealer who owned the coin agreed that it should be priced at $45,000.

    Clearly, $45,000 is a lot of money to pay for an 1861-O double eagle. It would represent a world record price for this date. In my opinion, this would be an instance where a stretch would make sense.

    As discussed above, the 1861-O is an issue that passes the "fifteen word test" with flying colors. The finest known example of this date would be a coin that would appeal not only to specialists but to any collector of rarities as well. The price level of $45,000 is not way out of line with the value for an AU-58. And, presumably, this MS-62 coin would be vastly more attractive than the aforementioned AU-58.

    There are circumstances that might make this coin a bad deal. For example, its overzealous owner might originally price it at $85,000. At five times the price of an AU-58, this would not make sense. Or, the coin in question might be unappealing and, in the opinion of the collector, not all that much better than the AU-58 he already owned. In this case, the coin should be passed on at the inflated price and maybe even at the more realistic price of $45,000.

    The Best Value Grade theory can be applied to all issues of United States coins. Every time I purchase a coin for my inventory, I do a quick BVG calculation. The immediate questions I ask myself are: does the value that this specific coin make sense to me and does this coin offer good value for my clients? I would strongly suggest that before you decide to specialize in an area of make any significant coin purchase that you make your own BVG calculations.

    If this theory intrigues you and you'd like to know me thoughts on the Best Value Grade for the coins that you collect, please e-mail me at dwn@ont.com.

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