Rare coins are not an investment - though they are an asset that may increase in value over the long-term. I agree with the other comments about our government's shoddy financial practices... this will eventually drive the dollar into the ground.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
<< <i>"Rare coins are an "insiders" game, and newbies and the unknowledgeable generally get fleeced."
If you didn't understand this the first time, keep trying it until you getit...It's really true. Good post!
Coin ON! >>
This is the most important point in the thread. Coin investors tend to be amongst the least knowledgeable and most gullible of coins buyers. The average coin investor has far less information than the average collector. Often they have zero grading skills and don't want to learn. The only "knowledge" of the market is in the information the salesperson feeds them. In the worst cases, the "information" is pure fabrication and has no bearing on the real world. This combo of inabilty to grade, and not knowing what real world coins trade at, is a recipe for losing LOTS of money in coins.
If the coin investor is extremely lucky they might find an honest dealer or honest salesperson that will not take advantage of their ignorance. If they are average they will find someone with a song and a dance that will take them for all they are worth. There are plenty of folks/firms out there willing to do that.
There is also the very ugly history of coin investing, with the Noe scandal in Ohio being the latest chapter--investors, beware. There are dozens of Noe-wannabes that have even less ethics and fewer contacts, out there looking for marks to play. Coin investors are the target audience. >>
There are, in my observations, two types of pure investors: (1) compete rubes and (2) self-proclaimed newbie knowitalls. The first group is manipulated by promoters to buy pigs donning lipstick and flying. The other group often fails miserably to assess what due dilligence is for this market. Some get lucky as they pass the hot potatoes among each other. Bottom line for them is that when their fellow investors bail out for real estate or the next big thing, they depend on high rolling collectors to be interested in picking up the slack on their holdings. Yeah, there is the little old lady in Pasadena who is convinced to park her $$$ in MS63 Saints in the next up and coming TPG holders that offer 100% lifetime authenticity guarantees. There is also the impatient house flipper who is sure he can walk right in and dominate in the coin business similarly.
The best returns ultimately end up going to smart collectors nearly always.
While not all rare coins are good investments, well assembled numismatic collections tend to be.
Whether it be Brazilian copper coins, middle date large cents, Susan B. Anthony dollars, or Betts medals, a collection that is formed with taste (what QDB likes to call "connoisseurship") and knowledge is a good bet to show a pleasant increase in value over the long term.
Every investment has an opportunity cost, of course. The opportunity cost of a more remunerative investment might be the enjoyment of a coin collection. Magnificent! Short! Term! Profits! might be an opportunity cost of collecting the sort of stuff I like (medals, colonial paper money, etc.)
Everyone has to define a good investment on their own terms. My best investment, no matter how well Microsoft does, is my numismatic library!
IMHO most posts to this thread miss key points. First, quality coins can do well if included in a WELL DIVERSIFIED investment portfolio. Research on rare coins as investments published in financial journals (myself soon too be included in that list) have found:
* Excellent returns if held over long periods of time (12%+ compounded annual return over the past 36 years, though a bit lower over the past few years) * Strong performance during times of high inflation and very low inflation/deflation * Lower volatility than equities, which means adding them to an investment portfolio can reduce rather than increase portfolio risk * Returns that tend to be uncorrelated with equities over a few years, and inversely correlated on a 10-year moving average basis
Of course, "quality" means properly graded coins (not a 5 that should be in a 4 holder), coins graded by PCGS or NGC for liquidity, priced appropriately (not a high end price for a low grade 5), and investment quality (generally MS63-MS66). Also, the general opinion of those advising clients to include coins in their investment portfolio is that coins should not comprise more than 5% to 10% of the entire portfolio's value.
Second, rare coins are tangible assets and as such their performance and cost of ownership should be compared to like assets, such as real estate. Yes, there are costs associated with rare coins such as insurance, bank vault storage and transaction. For coins, the annual cost of insuring and storage is typically 1% - a little more or less depending on coin portfolio size. By comparison, real estate costs are usually double that amount when taxes, insurance and maintenance are considered. Transactions costs for coins (assuming you are working with a credible firm that specializes in putting together portfolios for investors) should be in the 10% to 15% range. Real estate transaction costs are lower, about 50% to 60% of that for coins. If the coins are held for 5 or so years, the overall costs between real estate and coins are about even.
Third, rare coins have both advantages and disadvantages over traditional investments. Unlike stocks, rare coins do not go out of business and their value doesn't drop to zero. If you have a diversified portfolio of coins (different series, metals and grades) it is unlikely they will drop significantly in value over a 5-10 holding period. Coins also qualify for tax-deferred exchanges, which means you can swap (using a qualified intermediary) a rare coin (or group of rare coins) for another coin (or coins) without having to pay tax on the change in valuation. That tax becomes due when you sell the coin(s). Unfortunately, this IRS rule does not allow you to swap bullion coins for rare coins or vice versa. A disadvantage of coins is that when you sell them, profits are taxed the collectibles capital gains rate, the ceiling for which is currently 28%. By contrast, capital gain's tax ceiling for traditional investments is 15%. However, in 2010 the traditional investment rate is being raised to 20%, so the difference will narrow.
The industry is unregulated, and as such there are many boiler rooms and unscrupulous dealers who sell investors overpriced and overgraded material. Such has left a bad taste in the mouth of many investors. But I argue that if done right, adding coins to a well-diversified investment portoflio provides benefits that may not be available elsewhere.
The debate on coins as a sound investment rages on. Of course if you are really knowledgable and smart (usually refers to yourself), you will make money and if you are naive and stupid (like everyone else), you will lose money. At the level usaually discussed on this forum, this is not an inexpensive committment; most of the discussants ( no matter what they say when asked) talk about value of their collection. So I believe that most of the people who spend more than 1% of the net worth on coins expect some degree of return. Furthermore, if you die with a collection most heirs will sell your prized selections considering it an asset (for which they have little attachment). For me, I love the collecting but and I am willing to pay some differential from a different investment for the joy of the hobby but not so much that it hurts. What has changed the formula for disposal is the availablity of national auctions that provide at least some reasonable degree of liquidity for older rarer coins and E-Bay that lets experienced players dispose of lower grade coins.
<< <i>Rare coins are without a doubt excellent investments, if bought at market prices and held long term.
Of course, 99.99% of what people think of as "rare coins" aren't rare at all, they're common or maybe possibly scarce.
Common and merely scarce coins may or may not be good investments, depending on whether they're sold for more or less than they cost >>
As always there are exceptions to this. At the link is an excellent example of a first rate coin in a strong market in a super hot segment that sells for less then it did eight years ago. Someone with future knowledge might have hand selected this kind of coin for appreciation. Yet they are down 15% in real terms, and down closer to 35% in relative terms after factoring in eight years of inflation and opportunity costs. The coin was bought in 1999 at auction for "market" price and sold the same way after a longish eight year holding period.
/edit for those that don't want to register to see the prices, the 1846-D $5 AU53 PCGS sold for $4600 at 2007 FUN, down about a thousand dollars from its hammer price in August 1999.
<< <i>Rare coins are without a doubt excellent investments, if bought at market prices and held long term.
Of course, 99.99% of what people think of as "rare coins" aren't rare at all, they're common or maybe possibly scarce.
Common and merely scarce coins may or may not be good investments, depending on whether they're sold for more or less than they cost >>
As always there are exceptions to this. At the link is an excellent example of a first rate coin in a strong market in a super hot segment that sells for less then it did eight years ago. Someone with future knowledge might have hand selected this kind of coin for appreciation. Yet they are down 15% in real terms, and down closer to 35% in relative terms after factoring in eight years of inflation and opportunity costs. The coin was bought in 1999 at auction for "market" price and sold the same way after a longish eight year holding period.
/edit for those that don't want to register to see the prices, the 1846-D $5 AU53 PCGS sold for $4600 at 2007 FUN, down about a thousand dollars from its hammer price in August 1999. >>
Exceptions abound - in all markets. That's why diversification is so important. Just as you wouldn't place all your investment funds in one stock, so you wouldn't buy just one coin. At least the specific coin you reference didn't drop to zero in value, as happens when companies go belly up.
An 1846-D $5 gold in AU is not exactly a bellweather coin for the entire market. With a couple dozen AU or better pieces graded it's likely more than enough to cover all those set collecting in that grade range.
Bellweather coins to track the market might be AU to MS65 bust coinage, barber and seated material in AU-MS/PF65, Proof Morgans, Proof or MS trade dollars, type generic gold in MS63-65, etc. These are coins that are widely collected and sought, with reasonable liquidity in all markets, and generally available to the market.
Now a MS 1846-D $5? In mint state it has probably done quite well assuming specimens have been available.
I think most of us in this debate only have to look at our own experience. We know whether we have made money or lost money on coins.
I have done both.
But my biggest memories are on the coins I sold and wished I had kept because of how much they have gone up in value over time. Most of us have those memories, don't we?
That tells me that I disagree with the comment that rare coins are not a good investment.
And while I have been collecting many years I am really talking about coins bought and sold in the last ten years.
Compound that over the last 30 or 40 years.
I seem to be paying up. Anyone else experiencing that?
Yet net net I am ahead and still enthused.
As a matter of fact, the longer I "collect", I find myself going up the ladder in rarity and scarcity as my "allocation" and finances permit.
This means bigger potential losses and profits.
Here is my take: I generally agree that grading is essential and if you are going to be an investor you better like the coin or hire someone with significant experience to buy for you.
Even then, the appeal is in the eye of the beholder isn't it?
For example, at the Platinum night auction Thursday evening at FUN, an NGC PR 68 Ultra Cam 1898 2 1/2 Lib brought 52.5k hammer. The lot before it, an 1898 PCGS PR 67 DCAM 2 1/2 Lib could not meet reserve at 30k. Now, I think there are examples like that of great coins spread throughout ALL series.
So the coin market IS treacherous and even pros and advanced collectors make mistakes.
But I have been bailed out by the next guy who makes a mistake buying my coin. We have all been there haven't we? Needless to say, I'd rather limit my mistakes and buy truly desirable coins.
Having said that, clearly demand is important too. Wealthy buyers are seemingly increasing and putting upward pressure on rare 'high end' coins and also newer collectors over the last five years ( due to state quarter and Mint coins, etc) are probably supporting the more common areas of the coin hobby as they dabble and gain interest in 'classics'.
But is demand really that important, as far as investment?
I think there are also great opportunities in areas that do not currently have great demand!
Let me give you an example.
In the US market rare and scarce and even common coins in condition census and high grades can bring huge multiples over the next grade. Matter of fact I think US collectors are used to that by now.
But in the foreign coin market, where demand is not nearly as high, condition census and high grade coins go for far less multiples.
Now, what do you think about that?
Matter of fact, I am amazed at the total lack of interest and positioning of foreign coins by most major US dealers. The ratio of foreign to US dealers at FUN was about 1 to10.
Does that tell you something?
I am skating to where the puck is going.
I manage money. I earn money. I save money . I give away money. I collect money. I don’t love money . I do love the Lord God.
Comments
<< <i>
<< <i>"Rare coins are an "insiders" game, and newbies and the unknowledgeable generally get fleeced."
If you didn't understand this the first time, keep trying it until you getit...It's really true.
Good post!
Coin ON! >>
This is the most important point in the thread. Coin investors tend to be amongst the least knowledgeable and most gullible of coins buyers. The average coin investor has far less information than the average collector. Often they have zero grading skills and don't want to learn. The only "knowledge" of the market is in the information the salesperson feeds them. In the worst cases, the "information" is pure fabrication and has no bearing on the real world. This combo of inabilty to grade, and not knowing what real world coins trade at, is a recipe for losing LOTS of money in coins.
If the coin investor is extremely lucky they might find an honest dealer or honest salesperson that will not take advantage of their ignorance. If they are average they will find someone with a song and a dance that will take them for all they are worth. There are plenty of folks/firms out there willing to do that.
There is also the very ugly history of coin investing, with the Noe scandal in Ohio being the latest chapter--investors, beware. There are dozens of Noe-wannabes that have even less ethics and fewer contacts, out there looking for marks to play. Coin investors are the target audience. >>
There are, in my observations, two types of pure investors: (1) compete rubes and (2) self-proclaimed newbie knowitalls. The first group is manipulated by promoters to buy pigs donning lipstick and flying. The other group often fails miserably to assess what due dilligence is for this market. Some get lucky as they pass the hot potatoes among each other. Bottom line for them is that when their fellow investors bail out for real estate or the next big thing, they depend on high rolling collectors to be interested in picking up the slack on their holdings. Yeah, there is the little old lady in Pasadena who is convinced to park her $$$ in MS63 Saints in the next up and coming TPG holders that offer 100% lifetime authenticity guarantees. There is also the impatient house flipper who is sure he can walk right in and dominate in the coin business similarly.
The best returns ultimately end up going to smart collectors nearly always.
NSDR - Life Member
SSDC - Life Member
ANA - Pay As I Go Member
Of course, 99.99% of what people think of as "rare coins" aren't rare at all, they're common or maybe possibly scarce.
Common and merely scarce coins may or may not be good investments, depending on whether they're sold for more or less than they cost
Liberty: Parent of Science & Industry
Whether it be Brazilian copper coins, middle date large cents, Susan B. Anthony dollars, or Betts medals, a collection that is formed with taste (what QDB likes to call "connoisseurship") and knowledge is a good bet to show a pleasant increase in value over the long term.
Every investment has an opportunity cost, of course. The opportunity cost of a more remunerative investment might be the enjoyment of a coin collection. Magnificent! Short! Term! Profits! might be an opportunity cost of collecting the sort of stuff I like (medals, colonial paper money, etc.)
Everyone has to define a good investment on their own terms. My best investment, no matter how well Microsoft does, is my numismatic library!
Betts medals, colonial coins, US Mint medals, foreign coins found in early America, and other numismatic Americana
* Excellent returns if held over long periods of time (12%+ compounded annual return over the past 36 years, though a bit lower over the past few years)
* Strong performance during times of high inflation and very low inflation/deflation
* Lower volatility than equities, which means adding them to an investment portfolio can reduce rather than increase portfolio risk
* Returns that tend to be uncorrelated with equities over a few years, and inversely correlated on a 10-year moving average basis
Of course, "quality" means properly graded coins (not a 5 that should be in a 4 holder), coins graded by PCGS or NGC for liquidity, priced appropriately (not a high end price for a low grade 5), and investment quality (generally MS63-MS66). Also, the general opinion of those advising clients to include coins in their investment portfolio is that coins should not comprise more than 5% to 10% of the entire portfolio's value.
Second, rare coins are tangible assets and as such their performance and cost of ownership should be compared to like assets, such as real estate. Yes, there are costs associated with rare coins such as insurance, bank vault storage and transaction. For coins, the annual cost of insuring and storage is typically 1% - a little more or less depending on coin portfolio size. By comparison, real estate costs are usually double that amount when taxes, insurance and maintenance are considered. Transactions costs for coins (assuming you are working with a credible firm that specializes in putting together portfolios for investors) should be in the 10% to 15% range. Real estate transaction costs are lower, about 50% to 60% of that for coins. If the coins are held for 5 or so years, the overall costs between real estate and coins are about even.
Third, rare coins have both advantages and disadvantages over traditional investments. Unlike stocks, rare coins do not go out of business and their value doesn't drop to zero. If you have a diversified portfolio of coins (different series, metals and grades) it is unlikely they will drop significantly in value over a 5-10 holding period. Coins also qualify for tax-deferred exchanges, which means you can swap (using a qualified intermediary) a rare coin (or group of rare coins) for another coin (or coins) without having to pay tax on the change in valuation. That tax becomes due when you sell the coin(s). Unfortunately, this IRS rule does not allow you to swap bullion coins for rare coins or vice versa. A disadvantage of coins is that when you sell them, profits are taxed the collectibles capital gains rate, the ceiling for which is currently 28%. By contrast, capital gain's tax ceiling for traditional investments is 15%. However, in 2010 the traditional investment rate is being raised to 20%, so the difference will narrow.
The industry is unregulated, and as such there are many boiler rooms and unscrupulous dealers who sell investors overpriced and overgraded material. Such has left a bad taste in the mouth of many investors. But I argue that if done right, adding coins to a well-diversified investment portoflio provides benefits that may not be available elsewhere.
GForce
Of course if you are really knowledgable and smart (usually refers to yourself), you will make money and if you are naive and stupid (like everyone else), you will lose money.
At the level usaually discussed on this forum, this is not an inexpensive committment; most of the discussants ( no matter what they say when asked) talk about value of their collection. So I believe that most of the people who spend more than 1% of the net worth on coins expect some degree of return. Furthermore, if you die with a collection most heirs will sell your prized selections considering it an asset (for which they have little attachment).
For me, I love the collecting but and I am willing to pay some differential from a different investment for the joy of the hobby but not so much that it hurts.
What has changed the formula for disposal is the availablity of national auctions that provide at least some reasonable degree of liquidity for older rarer coins and E-Bay that lets experienced players dispose of lower grade coins.
<< <i>Rare coins are without a doubt excellent investments, if bought at market prices and held long term.
Of course, 99.99% of what people think of as "rare coins" aren't rare at all, they're common or maybe possibly scarce.
Common and merely scarce coins may or may not be good investments, depending on whether they're sold for more or less than they cost >>
As always there are exceptions to this. At the link is an excellent example of a first rate coin in a strong market in a super hot segment that sells for less then it did eight years ago. Someone with future knowledge might have hand selected this kind of coin for appreciation. Yet they are down 15% in real terms, and down closer to 35% in relative terms after factoring in eight years of inflation and opportunity costs. The coin was bought in 1999 at auction for "market" price and sold the same way after a longish eight year holding period.
Jan 2007 and 1999 sale are same coin
[thanks to RYK for the education]
/edit for those that don't want to register to see the prices, the 1846-D $5 AU53 PCGS sold for $4600 at 2007 FUN, down about a thousand dollars from its hammer price in August 1999.
My icon IS my coin. It is a gem 1949 FBL Franklin.
<< <i>I have two hobbies. Coin collecting and boats. Believe me, coin collecting is a great investment...for a hobby. >>
But not nearly as good as Railrod Pocket Watches, it's like the 60's in that hobby.
<< <i>
<< <i>Rare coins are without a doubt excellent investments, if bought at market prices and held long term.
Of course, 99.99% of what people think of as "rare coins" aren't rare at all, they're common or maybe possibly scarce.
Common and merely scarce coins may or may not be good investments, depending on whether they're sold for more or less than they cost >>
As always there are exceptions to this. At the link is an excellent example of a first rate coin in a strong market in a super hot segment that sells for less then it did eight years ago. Someone with future knowledge might have hand selected this kind of coin for appreciation. Yet they are down 15% in real terms, and down closer to 35% in relative terms after factoring in eight years of inflation and opportunity costs. The coin was bought in 1999 at auction for "market" price and sold the same way after a longish eight year holding period.
Jan 2007 and 1999 sale are same coin
[thanks to RYK for the education]
/edit for those that don't want to register to see the prices, the 1846-D $5 AU53 PCGS sold for $4600 at 2007 FUN, down about a thousand dollars from its hammer price in August 1999. >>
Exceptions abound - in all markets. That's why diversification is so important. Just as you wouldn't place all your investment funds in one stock, so you wouldn't buy just one coin. At least the specific coin you reference didn't drop to zero in value, as happens when companies go belly up.
GForce
Bellweather coins to track the market might be
AU to MS65 bust coinage, barber and seated material in AU-MS/PF65, Proof Morgans, Proof or MS trade dollars, type generic gold in MS63-65, etc. These are coins that are widely collected and sought, with reasonable liquidity in all markets, and generally available to the market.
Now a MS 1846-D $5? In mint state it has probably done quite well assuming specimens have been available.
roadrunner
I have done both.
But my biggest memories are on the coins I sold and wished I had kept because of how much they have gone up in value over time. Most of us have those memories, don't we?
That tells me that I disagree with the comment that rare coins are not a good investment.
And while I have been collecting many years I am really talking about coins bought and sold in the last ten years.
Compound that over the last 30 or 40 years.
I seem to be paying up. Anyone else experiencing that?
Yet net net I am ahead and still enthused.
As a matter of fact, the longer I "collect", I find myself going up the ladder in rarity and scarcity as my "allocation" and finances permit.
This means bigger potential losses and profits.
Here is my take: I generally agree that grading is essential and if you are going to be an investor you better like the coin or hire someone with significant experience to buy for you.
Even then, the appeal is in the eye of the beholder isn't it?
For example, at the Platinum night auction Thursday evening at FUN, an NGC PR 68 Ultra Cam 1898 2 1/2 Lib brought 52.5k hammer. The lot before it, an 1898 PCGS PR 67 DCAM 2 1/2 Lib could not meet reserve at 30k. Now, I think there are examples like that of great coins spread throughout ALL series.
So the coin market IS treacherous and even pros and advanced collectors make mistakes.
But I have been bailed out by the next guy who makes a mistake buying my coin. We have all been there haven't we? Needless to say, I'd rather limit my mistakes and buy truly desirable coins.
Having said that, clearly demand is important too. Wealthy buyers are seemingly increasing and putting upward pressure on rare 'high end' coins and also newer collectors over the last five years ( due to state quarter and Mint coins, etc) are probably supporting the more common areas of the coin hobby as they dabble and gain interest in 'classics'.
But is demand really that important, as far as investment?
I think there are also great opportunities in areas that do not currently have great demand!
Let me give you an example.
In the US market rare and scarce and even common coins in condition census and high grades can bring huge multiples over the next grade. Matter of fact I think US collectors are used to that by now.
But in the foreign coin market, where demand is not nearly as high, condition census and high grade coins go for far less multiples.
Now, what do you think about that?
Matter of fact, I am amazed at the total lack of interest and positioning of foreign coins by most major US dealers. The ratio of foreign to US dealers at FUN was about 1 to10.
Does that tell you something?
I am skating to where the puck is going.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
Inflation hasn't been a very significant challenge for a almost 3 decades. But it's creeping in again--that's why the Fed hasn't eased yet.
The dollar has had a huge decline against foreign currencies going from what,.9 dollars per euro to 1.35 in the past 3 years?
While stocks are poised for a meaningful slowdown and Fed rate reduction,
if it doesn't materialize, or worse, inflation keeps building, precious metals will move substantially higher.
Though gold's more than doubled, we haven't seen the popularization of coins for decades,
but if we start seeing a faster rate of inflation rare coins can benefit huge.
I personally think it is a good time to be focused there.