The marketing and finance of coins
hchcoin
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I haven't posted a new discussion in a while but thought it would be fun to get thoughts on the marketing and finance of coins. Presented below are my basic thoughts on the price discovery of coins.
When people think of marketing they normally think of advertising. Marketing also involves determining the price of a coin as a buyer and a seller. The ability for someone to "set" a price is determined by the relative scarcity of the item being bought and sold. The typical coin collector really has no influence on the price and is considered a "price taker" because of the types of products they buy and sell. Generally, the newer coin collector will be drawn to precious metals because of the price variability and potential to strike it rich or survive a market disruption. In addition, many new collectors are also drawn to lower priced coins that are relatively affordable per unit and can be considered "fungible goods." Fungible goods are items that are interchangeable because they are identical to each other for practical purposes and are now affectionately called "dreck." Take any high mintage circulated coin as an example. The typical collector is basically taking whatever price the market dictates for that common item. Many typical collectors do o.k. when selling their collection because of time utility. Time utility means that the typical collector can just wait for an acceptable price because they are not in a hurry to sell. This time utility sometimes occurs over a lifetime of collecting common items but in reality the common collector has probably not kept up with inflation (unless precious metal prices have gone up).
As the typical coin collector matures into becoming a numismatist, they begin to see the true value in scarcity, rarity, and quality and are often drawn to books in order to gain knowledge. Instead of being a price taker they become a "price maker." Price makers tend to influence the market price and enjoy pricing power. This power comes from a variety of sources including education, grading, experience, mentors, and the afore mentioned scarcity, rarity, and quality. As numismatists become more astute at finding the right type of coins they begin to see accelerated price appreciation because of the relative scarcity of what they own. The time utility of a truly rare coin can be somewhat exponential compared to the common coin. In addition, the truly rare coin seems to be able to survive market downturns much better than the common coin. I believe this has led to the growth of reputable national coin dealers, grading companies and firms such as CAC. The growth of these types of firms comes from assisting numismatists (or investors) in finding the right coins. By assisting numismatists in finding authentic, correctly graded coins that are high quality and rare allows the numismatist to become more of a price maker at the top of the food chain and results in very positive selling outcomes over a shorter period of time.
My biggest struggle as a coin collector is the cognitive dissonance I feel when I am attracted to common coins and bullion when I know that spending more time and money finding a more valuable coin will generally have a more positive outcome (@ColonelJessup I hope I am using the correct term). I don't know what it is, but I am still a bargain hunter at my core and many times make mistakes that I should know better than to make. My second struggle is the increase and quality of counterfeits. As I spend more money on a higher quality coin, I become more aware of the risk I take by not getting additional opinions from experienced coin dealers, coin grading firms, and CAC.
Do you agree?
Comments
Yes and nicely put
@FredWeinberg and @ErrorsOnCoins I thought of you after I hit the post comment button earlier. I should add errors to the list of "right coins" as well and the service both of you provide to the price discovery, identification, and verification of sometimes one of a kind items. I would guess there is also a niche within the error coin market for common errors versus more rare errors.
Many collectors only purchase coins they feel are a good value. Some, but not all, of these proudly declare they will not pay above bid. Others rely different strategies such as "buy the best you can afford" as higher-priced coins have done relatively well value-wise due to the dynamics of our economy. Some rely on CAC or a trusted dealer for advice.
Some collectors, particularly those with a strong focus to their collections I believe, choose to acquire the necessary pieces even if it means being under water on a coin. For them the joy is in completing whatever goal they have set. Though no one wants to lose lots of money, these collectors enjoy the hobby without considering paying up to be a "mistake".
Both strategies are correct.
LIBERTY SEATED DIMES WITH MAJOR VARIETIES CIRCULATION STRIKES (1837-1891) digital album
Altho error coins is a thinner market, it for sure has its own niches.
Price level, date, error type, and connections separate most all the error coin dealers with a lot of crossover.
Scarcity, rarity, quality, but don’t forget popularity.
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My inference from reading coin forums and coin articles is that most collectors with collections of "meaningful value" are substantially motivated to avoid any "noticeable" proportional loss. This is understandable since most (as in at least 95%) collectors buy coins which can be bought at any time or short notice.
I believe that "buy the best you can afford" will mostly turn out to be a losing long term strategy (from now) where the price spreads are "high". The same applies to common US key dates which are overpriced for what it is as a collectible.
This describes my collecting where I am willing to lose money on it, up to a point. But this is substantially due to the coins I primarily buy now being hard to buy. I'd never do that with a coin I can buy almost any time I want it.
Great point! I have a few ultra rare coins that are not really that valuable such as my Maris 25-S New Jersey Copper. Considering the relative scarcity of that coin I would think it would be priced much higher but the demand is just not there.
On the other hand, I think of popular mint products that are really not that scarce but see exponential price appreciation in a short period of time. I would still argue that after the price is discovered, you really are a price taker and the upside potential is somewhat limited or non existent. To really make it big with these type of items I think you need to make it up with volume once the price is established. If you go to any coin show or online it is relatively easy and quick to buy one of these items.
Consider the 16-D mercury dime as well. In lower grades it really is just a common coin. You can find one of these coins at just about any coin show and online in an instant. Is this really a great long term investment or just a coin that is easy to sell for the going price? Is it truly a rare coin? If you buy a 16-D that is a top pop coin with great eye appeal you have now entered a new category in my opinion. You are now dealing with a price maker type coin instead of a price taker.
That is why registry sets, auction firms, CAC, coin grading firms and reputable dealers are so valuable for the rare coin market. These coins really are price makers and the firms facilitate this process. These firms have revolutionized the rare coin market making it much more attractive to outside investors who don't understand coins but understand price marketing and finance. Add in the ability to discover prices in an instant online and you have a much more efficient and fair market in my opinion.
Excessive rarity is actually a detriment to rising prices for most coins. Most coins do not have a sufficiently high preference where more than a (very) low number will attempt to buy it (a coin or series) when it is seldom or almost never available. I have stated this on this forum (and elsewhere) numerous times and infer it's a position which most probably find counterintuitive and contradictory but the data seems to support it. This is true of the primary series I collect now.
Since you asked, I will have to say that I personally don't have your problem. The majority of the coins I buy (95% or more) are in TPG holders and over 80% of those are CAC stickered. My bullion purchases are from reputable dealers and include common Eagles, Maple Leafs, Britannias etc. I do buy the random raw US type coin but those are from reputable dealers as well and not high dollar items. I feel my greatest risk as a coin collector isn't from not getting additional opinions but in the lost opportunity of my "investment" if I were to use the coin funds to invest in other areas like the S&P 500.
Are you using scarcity and rarity interchangeably? It seems so with your NJ Copper reference. If not, what is the difference in your mind?
I should have used rarity in that example and used scarcity for the more modern mint products. Great catch!
To price correctly you need experience, superior grading skills, and a deep working knowledge of the market.
Nearly every great collector (coins, art, sports cards, etc...) relied on experience from dealers to build the collection.
One term missing from this thread is passion.
There can be inner conflict, but what is the end goal?
Always ask myself before a big sell/buy...
"Who do you want to be... Fred Weinberg or Alan Weinberg?"
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There is nothing wrong with common slabbed generics and bullion. In many instances this is all many can afford. The bullion tide floats all BV based boats. Mexico slabbed silver onzas one of my best sellers.
The more you spend on a numismatic coin the more the risk. Focus on an area of interest and what you enjoy and comfortable about investment wise.
This is the US coin forum, of course, but thinking more broadly this is quite true.
If you collect the world, there is just a gigantic assortment of different issues around different topics. Many of those can be bought on the secondary market for bullion value.
I mean this in the kindest way, but I have to say I think you are overthinking it. I had no idea buying things that are neat and make you happy have to be wound into some marketing/investment schema with rules. I Practice this:
Me: Wow, that's neat.
Dealer: It is $100
Me A: That is a $100 neat to me, I'll take it.
Me B: That is not a $100 neat to me.
Both of us: Thanks and have a great day.