II) Is the size of the US rare coin market sufficient to provide adequate liquidity?
"Profits are made from buying" is a mantra among coin dealers. And it is true that buying the right coins at the right time at the right price creates the potential for profitable sales. Nevertheless, investing in coins produces profits only when sales transactions take place. Therefore fund managers and individual investors considering investing in rare coins should evaluate the liquidity of the rare coin market. A liquid market requires enough buyers and sellers so that, on any given day, there is plenty of trading volume. It also requires sufficient dollar volume so that even a relatively large institutional investor can make a big sale without depressing the market. Let’s first consider the number of participants in the US rare coin market, then the dollar volume.
Number of coin collectors and investors
Leading rare coin experts that I have polled concur, based on their evaluation of industry statistics and US Mint data on sales and coins removed from circulation, on the following estimates. Please note that these figures are worldwide: many customers of US rare coin outlets do not reside in the United States. This is particularly true of those who purchase via the Internet.
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Casual US Coin Collectors: 50,000,000
Collectors who save US coins, such as Statehood Quarters and Sacagawea Dollars, that they pull from change or get in rolls from banks. Some are exposed to rare coins when they shop for supplies, such as boards and albums for displaying Statehood Quarters.
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Average US Coin Collectors: 2,000,000 Occasionally purchase coins on the Internet or from television shopping channels, government mints, or in response to print ads and direct mail.
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Serious US Coins Collectors/Investors: 250,000 Collectors/investors who have developed a numismatic strategy, participate in registries, and have established a relationship with one or more dealers. They buy quality rare coins for their collections or for medium to long-range investment goals such as such as college tuition, retirement, and estate building.
Dollar volume of US rare coin market
Within the United States retail rare coin sales total about $10 billion annually (a conservative estimate detailed below). This figure does not include bullion coins such as US Eagles, Canadian Maple Leafs, South African Krugerrands, or Vienna Philharmonics, or US Mint coins meant for circulation, such as the State Quarters. Nor does it include bullion products from private mints or bank-issued bars, plates, or ingots.
| Bullion coins are silver, gold, and platinum coins whose intrinsic metal content accounts for about 90% of their value. Investors in and collectors of bullion coins are exposed to rare coin marketing and frequently become buyers of rare coins. Therefore bullion-coin marketing indirectly helps raise demand for rare coins. |
If a pension fund invested $100 million/year in rare coins and had 100% turnover/year, its sales would represent only 1% of the US market. $100 million/year is more than most funds - let alone private investors - would contemplate investing in coins, and 100% turnover would indicate that on average coins were being held for too short a time to reach the optimal balance between yield and risk. Therefore, in terms of overall market size, a fund or individual investing in coins would have no problem converting numismatic assets to cash. Read more 7.
The breakdown of the $10-billion annual retail sales of rare coins to US collectors and investors is segmented below:
- Traditional auction houses - $1.0 billion
- US Mint and World Mints - $1.2 billion
- Internet auction sites - $1.1 billion
- Direct-to-consumer - $0.5 billion
- Telemarketing companies - $1.0 billion
- Television shopping channels - $1.1 billion
- 400 largest US traditional numismatic dealers - $1.2 billion
- 4,600 smaller US numismatic dealers - $2.3 billion
- 25,000 to 50,000 part-time dealers and hobbyists - $0.6 billion
The above estimates, which we have tried to keep on the conservative wide, total $10 billion. Read more about the indepth breakdown of the U.S. collectors and investors market segment 8.
Wholesale rare coin trading - not included in the total - $2 to $3 billion
Many large investor and collectors purchase their coins from major rare coin wholesalers via telephone, Internet, or trading networks. Wholesale dealer-to-dealer networks like CCE and CoinNet enable over 500 dealers and Associate Members to view over one billion dollars worth of posted bids and asks for certified rare coins.
Coin Net www.coinnet.com is an online dealer-to-dealer trading network founded in 1982. More than 400 coin dealers and associates pay a monthly fee to buy and sell through Coin Net.
Certified Coin Exchange (CCE) www.certifiedcoinexchange.com facilitates trading between 150 relatively large Member Firms who post bid and ask prices online and execute trades against those prices. An additional 275 Associate Members subscribe to view the bid/ask prices and use them as the basis for transactions with other dealers or propose transactions to Member Firms based on their posted prices. On the Internet since 1990, the roots of CCE extend back to the FACTS message system, which began in the 1960s as a teletype network.
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III) Who among well-known people has successfully invested in rare coins?
Until recently, most long-term purchasers of what I refer to as "investment-quality" rare coins have been hobbyists who were buying primarily for enjoyment rather than financial gain. Nevertheless, they and/or their estates realized millions of dollars in profits through appreciation of the coins they had purchased. On the average, their coins appreciated more than their stocks, real estate, and art.
The Rothschild family fortune began in the 1760s. Read more 9.
Fast forward several centuries. The following story is posted on the Harry W. Bass, Jr. Foundation website www.harrybassfoundation.org: Read more.
Josiah K. Lilly, Jr., a third generation chief executive of the Eli Lilly Pharmaceutical Company, died in 1968. His estate donated his collection of over 6,000 gold coins from around the world to the Smithsonian’s National Numismatic Collection. Read more.
Willis J. duPont, of the family that founded DuPont de Nemours & Co., was a major coin collector. Read more.
John J. Ford, Jr. died July 7, 2005 at age 81. As a teenager during the Great Depression, he paid 15¢ for a Confederate bill that later sold for $200. Read more.
Louis Elisaberg (1896-1976), dubbed "The King of Coins" after photos of his gold and silver coins shone forth from the pages of the April 1957 Life magazine, assembled the only complete collection of US coins: every type, every date, every mint mark. Read more.
John Jay Pittman (1913-1996), born in rural North Carolina, was 10 years old before he owned a new pair of shoes. He became a chemical engineer at Kodak and, on his adequate but limited income, slowly proceeded to acquire US and foreign coins for his collection. Read more.
Former US Congressman from Louisiana Jimmy Hayes put his collection of finest known "first year of type" US coins on the auction block in 1985 to finance his successful run for a seat in the US House of Representatives. Read more.
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