So What is a Good Coin Investment?

     Well, if any of us actually had the answer to that question we wouldn't be searching for one in these eBay guides, or writing one either. We'd be sitting on some island in the Caribbean drinking rum and tropical fruit juices from a coconut shell with a little umbrella sticking out of it. The world of collecting, whether it is coins, antiques, or any other item to which people attach value, is frought with the perils of any speculative investment. There simply is no guarantee we will get as good or better price for our item when we sell it as when we bought it, and therein lies both the fear and trembling and the exhiliration of the hunt. Can we learn enough about what we are doing to make it more likely we will succeed than fail? Can we afford to invest at all, knowing we could lose it all on the whims of chance and a fickle market or a fickle coin grading service somewhere? Do we have the resources to make this hobby fun or not?

    One thing every collector needs to know, almost in the biblical sense, and that is that his/her motives for collecting coins are almost certainly not the same as the motives of those who buy and sell coins as brokers or retailers. Any business, to actually stay in business, has to make a profit from what it does, and that profit will always be the bottom line to the coin dealer, not grade, not type, not condition, not beauty, not history, not any of these things will be the primary consideration of the coin dealer. Now don't get me wrong, I am a coin dealer and all of these things factor into what I buy, sell and trade, but the bottom line is, do I think I can make some money on this or that coin deal? 

     I however am one of those rare dealers who appreciates the ethos of the collector without being addicted to any single motive. I love the history, I love the beauty and artistry, I love the interplay of market forces in finding a value for any particular item, I love the rarity of real rarities, and yet, though I have all of the above pass through my hands many times, I do not need to have them hoarded away in some vault simply for me to look at. Many dealers started by being collectors and then, after a certain period of time the ethos of collecting was shouldered aside by the need to make a living at the trade of coin dealing. It is not so much that they have forgotten what they knew earlier, it is more that they simply can no longer make it their central focus when evaluating a coin or the deal they can make on it. There is nothing wrong with this, they are after all, attempting to be professionals, which means to bring a certain level of knowledge, both of the commodity being traded, and of the market itself, as well as their own requirements of it to that deal. For them, of course a little stability and predictability would also be good, since it would give them a better handle on what they can and can't make of any single deal.

     What all this is leading to is an attempt to create a certain bridge, or common ground between the three priciple elements of numismatics that will allow all to coexist with comfort in a very competitive marketplace. The collector, the investor and the dealer/broker all have different reasons for doing what they are doing. All are engaged in the same essential act, buying, selling and trading coins of one form or another. The collector wants what is rare, beautiful, historical, artistic, creative and joyous. The investor wants to put aside an appreciating asset that he can redeem at some later date for more than he paid with an appreciation greater than the cost of living during the same period and hopefully greater even than the average appreciation his cash would have made if simply invested in stocks, bonds, mutual funds, etc. The dealer/broker for the love of the business, for the love of the coins themselves, of simply because it is all he/she really knows, wants to make a living. So what happens when they all meet at the same coin?

     At one time, it seems like ages ago now, when most monetary systems operated on precious metal standard systems, the average guy could collect coins and really hope to sometimes stumble on the most extraordinary and beautiful examples of genuine rarities in pocket change. Those days are pretty much gone as it applies to gold and silver coins. If there are any gold and silver coins still in circulation it is either through the vagaries of complete ignorance of their value, or extraordinary philanthropic myopia. So the days of pulling gold and silver coins out of pocket change are virtually gone. Now, there is, in our pockets no appreciable intrinsic value to the metal, only the potential for numismatic value. This is not necessarily a bad thing. There are some extraordinary modern issues that are appreciating in the collectors market very quickly. Most dealers, if they want to make any money will pay attention to these, as well as the gold and silver. However, the single most important advantage that a gold or silver, or copper or nickle coin has to any of the triad of numismatics is "intrinisc value". In a real sense, these coins will never be worth nothing. Even the lowliest silver dime is still worth almost 1100% more than 10 cents when silver is selling for $12.00 an ounce. The smallest gold U.S. coin, the gold dollar is still 1/20th of 90% of an ounce of gold which is still worth $29.25 cents when gold is selling for $650.00 an ounce.

     So now that we have established the basic values of gold and silver in the coins we all handle, and we have examined the basic motives the triad of numismatics brings to the coin bourse, lets take a little look at the industries, and accessory skills that have grown up around these three and how they have affected the marketplace, and through it the collector, investor and dealer.

Coin Grading as a Profession: It used to be, some time back, every collector, investor and dealer graded their own coins. The American Numismatic Association set up a clearly outlined set of standards by which any coin could be examined, evaluated and graded. There was, of course, as there had always been, some room - sometimes boxcars of room - for disagreement on the standards and on the principles of the examination itself. There were grading services but they were all so expensive almost no one used them, and even they had huge room for disagreement. What ANACS called MS-65 PCGS might call MS-63 or MS-64 and the price jump between them could be enormous. What someone called an EF-40 someone else might call a  VF-38 and again, the price jump between the two could be enormous even though the differences between the two grades might be so minute that even microscopic analysis could not tell the difference between two coins with these respective grades.

     A number of people wrote books on grading coins and some of them have become virtual bibles. Everyone who collects or invests in or deals coins knows what they are, and to what good uses they can be put. But then, along came the internet and the capacity to communicate instantly in both word and picture. Suddenly gone were the barriers that required of the coin grader an extensive and difficult learning process about a coin before he/she put their big toe into the shark infested waters of numismania. You didn't actually have to hold a coin to own it, and you didn't actually have to lay eyes on it to be able to grade it. What you could hold could be described to you and what you couldn't see could be posted as a digital image of great resolution and clarity that would bring into focus all of the highlights, and blemishes of the coin you want to buy.

    All of a sudden, everyone could be there own expert and read all the books, research all the standards, look at all the pictures. Yet, maybe even more so than before, there were huge arguments and titanic stuggles over grade and price. And the reason for that finally took center stage. The value of a coin has always been a matter of four basic concepts:

1. Condition
2. Type
3. Rarity
4. Eye Appeal

     Concepts 1 and 2 could be objectified easily enough inside the 70 point system of the ANA. Concepts 3 and 4 were slightly more difficult, with 4 being the most difficult of all. Rarity can often be adequately defined by the mintage figures issued by the mint where the coin was struck, but still remains somewhat open to interpretation because of a number of factors:

• Mintage figures tell how many coins were initially struck but not how many actually went into circulation
• Mintage figures do not describe how many coins were destroyed, returned to the mint, melted down in eras where silver prices out distanced the numismatic or currency value of the coins.
• Mintage figures do not tell how many coins were stuck away in bank vault hoards, back yards, shoe boxes and family treasure boxes.
• Mintage figures do not tell how many coins of any type were struck with significant errors of one sort or another and then made their way into circulation or bank vaults.

So, even the most common of coins, may actually have a rarity value that is unknown until it shows up on the market and some collector or investor is trying to get ahold of one for his/her own motives.

     Finally, "eye appeal" became something far more important to the value of coins than it had ever been before and it is, in point of fact, one of the most difficult of grading principles to objectify. Simply put, beauty, like pornography, is difficult to define, but we all know it when we see it. Each of us has our own definition of beauty and each of us brings that definition to the coin bourse when we shop for coins. I have seen PCGS graded coins at MS-65 that I thought were positively ugly because they met the standards for that grade but had picked up a tone, or tone spots that simply did not meet my own sense of what is beautiful. However, that does not mean someone else, with a different definition of beauty, perhaps a definition that includes the historical process that caused that particular tone color and pattern, will find this coin very beautiful.

     In the final analysis it was inevitable that setting coin grading standards would lead to Professional Coin Graders and Grading Coins as a profession. And, like all professions, those who ply the trade will try to make sure that anyone who practices their trade will have to meet certain professional standards of education, ethical consideration and finally, certification. There is now a company actually called Profession Coin Grading Services, we know them as PCGS and they purport to set the industry standard in grading coins and tracking their sales on wholesale and retail levels. In fact, they have become so much the industry standard for grading coins that everyone uses their coins as avatars of what their own coins might grade. Additionally, there is a real world premium attached to a coin sold that already has a PCGS Slab overlaying it, and a cottage industry in coins that have been slabbed by other grading services and then broken out of their slabs and regraded by PCGS.

     Without a doubt PCGS is the industry leader in coin grading services. They are also the industry leader in priceyness for their services, as well as requiring a membership in their website as a "collector" to get coins graded. To join as a "dealer" requires more, such as a minimum capital level of investment, a 3 year record of full time dealing in coins and numismatics, and a couple of other requirements. The only other way for a collector to get his coins graded by PCGS is to submit them through a certified PCGS Dealer. Of course, joining as a collector is not especially expensive, but the per coin grading service itself is pretty pricey. The question of course becomes, can getting a PCGS slab actually increase the resale value of my coin sufficiently to justify the time and cost of having it done? 

     Of course there are other grading services, ANACS - American Numismatic Association Certification Service - NNC - National Numismatic Certification - and others. Each has their own set of rules for using their service and each has its own pricing structure, and, of course, each has its own, though broadly similar, grading standards. All have grown up over the years mostly to satisfy one demand, the need for a single set of standards to grade and evaluate "expensive" coins for investment. In short, all of these "professional" coin grading services are principally aimed at meeting the needs of investors in "fine numismatic rarities". Investors in bullion could care less about the condition of a coin. It is 90% silver, or gold by weight and the spot market price in those metals will do nicely. But investors in expensive coins, "fine numismatic rarities" are very concerned about the finer gradations between an MS-65 - 66 - 67 - 68 - 69 - 70. When it comes to "key" and "semi-key" date/mint coins, then sometimes those concerns can descend all the way down into the G-4 and AG-3 grades. So what does all this mean for the collecter? The investor? The dealer? Well, the answer to that one is going to require we actually divide each of these groups into a subset of groups called The Special Motives and the Average Motives groups. These will be discussed in the 5th installment of these guides, so stay tuned...