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Primarily in the past 60 years, buying and selling rare coins for investment purposes has taken on a life of its own. Although they participate in the market alongside collectors (and benefit from the demand generated by collectors), many purchasers of rare coins view their acquisitions primarily or entirely as investment vehicles. Paul Montgomery, Senior Numismatic Analyst for Universal Coin & Bullion Ltd, comments on this phenomenon in a recent article entitled "Big Picture View: How Global Markets Affect Coin Prices":
Some coin buyers consider themselves pure collectors. Some are pure investors. But a large number these days are some parts of both. ...We know coin buyers whose main interest is in collecting. But just like investors, they have a keen interest in growing their collections at the most advantageous prices before the market makes the coins they want more expensive. We also know coin buyers who think of coins mainly as investments with profit potentials. But like collectors, they, too, are intrigued by the beauty and romance of a coin’s colorful history as well as the satisfaction of owning a piece of the past. The practical effect of having two growing classes of buyers competing to acquire rare coins is that coin values over the long haul tend to go in one direction - UP. Yes, there are peaks and valleys along the way, but that’s normal market noise vibration. In the long view - though it’s not guaranteed - the coin you buy today is quite likely to be worth more, maybe much more, tomorrow and tomorrow. Back to the Article.
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In an effort to reduce the risk involved in investing in equities, Wall Street has put more separation between analysts and investment banking operations and the federal government passed the Sarbanes-Oxley Act to pressure companies to make their operations more transparent. Nevertheless, investors in Refco saw their shares go from $30 to 44 cents in a few months as a result of fraud that an audit completed under Sarbanes-Oxley failed to reveal. Back to the Article.
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I do not mean to imply that rare coins never diminish in value. A broad index of rare coins, the CU3000 , published by Collectors Universe Inc. (NASDAQ: CLCT) is up 6,466% since January 1970 and up 18.25% in the past three years (figures in this article are through December 31, 2005 unless stated otherwise). By comparison, The Dow Jones Industrial Average has risen 1,340% since 1970 (adding dividends would make that figure higher). Nevertheless, the CU3000 Index is down 64% from its all-time high in May 1989, as this chart shows and as the caption under it explains. 
The spike in coin prices in 1989-1990 jumps out at you when you look at this chart, and tends to obscure the 6,466% increase from 1970 through 2005. The spike was a short-term market effect related to the:
- Widespread acceptance of certified grading
- Limited supply of certified product
- Rush to tangible assets resulting from the instability caused by the buildup to the first Gulf War
Back to the Ariticle.
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Dr. Lombra’s results have been confirmed by other research, such as a study by Robert A. Brown, Ph.D., Chartered Financial Analyst, published in the Journal of Financial Planning http://www.fpanet.org/journal. Dr. Brown serves as Chairman-Investment Management Executive Committee and Chief Investment Officer for GE Private Asset Management, Inc., in Encino, California. Part of the study’s abstract is as follows:
With the failure of the S&P 500 to reach lows that would have brought the majority of fundamental valuation measures back to their historic norms, many of our industry’s more serious thinkers, those with real gravitas, have suggested that we’ll experience long-term investment challenges ahead. Investment luminaries such as Robert Arnott (editor, Financial Analysts Journal), Peter Bernstein (consulting editor, Journal of Portfolio Management), Bill Gross (PIMCO), John Templeton (Franklin/Templeton), Bill Bonner (The Daily Reckoning), Jim Grant (Grant’s Interest Rate Observer), Jeremy Grantham (GMO), and Stephen Roach (Morgan Stanley) have suggested over the last two years that the decade ahead may offer relatively unattractive, if not painful, asset class returns for the most traditional and vanilla investment categories such as large-cap domestic equities. The resulting industry-wide debate has prompted a serious reexamination of less traditional asset categories such as venture capital (and its associated neighbors and offspring within the private investment arena), hedge funds, commodities, timber, real estate, energy, and rare art or collectables. It is this last category of rare collectibles that I examine within this paper-focusing specifically on the subcategory of rare coins or numismatics.
Stephen Roach, among others, believes that domestic stocks, bonds, and residential real estate are simultaneously and significantly over-valued as a result of excess liquidity having been pumped into our economy through actions by the U.S. Federal Reserve and by the monetary, savings, and investment behaviors of foreign nations. If true, as financial planners we have the responsibility to seek less traditional asset categories that remain predominantly unaffected by today’s extreme overabundance of liquidity
From 1978 through 1990, major brokerage firm Salomon Brothers (now Smith Barney, a division of Citigroup) published an annual study of the performance of tangible investments. The first report covered the period 1968-1978, during which Chinese ceramics had the best returns, a compound annual rate of 19.2%. (China had recently opened up to trade with the West, and there was huge pent-up demand.) A representative sample of 20 US typical collector coins, from Half Cent to Silver Dollar, showed an average compound annual return for that period of 13%. New York attorney David L. Ganz extrapolated the Salomon Brothers data back to 1938 and forward to 2001 in an article that does a fine job of analyzing the complexities of comparing data on investment classes http://www.numismedia.com/law/01-08-23.shtml. Ganz’s conclusion:
In 63 years of toting these market-basket coins, only 10 of those years show a negative growth rate, and at least three of those years essentially were non-growth or loss. The rate of change for coins over the period of time averages to around 12% using the index. By contrast, high grade municipal bonds averaged about 5.7 percent annually during this year period, and U.S. government long-term bonds had an average of 6.5 percent annually. There was minimal risk with those investments for the return; the 11.47% received for coins is with more risk. (c) 2001 by DLG all rights reserved. Used by permission
USA Today (May 5, 2005) compared the returns on collectible coins to those on other collectibles as well as to returns on traditional investments. With an increase of 53% from July1998 to May 2005, rare coins were a stellar performer. Back to the Article.
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The Professional Numismatist Guild (PNG) www.pngdealers.com is a 50-year old nonprofit organization composed of the world’s top rare coin and paper money experts. Its primary mission is to "make the hobby safe for collectors and investors by maintaining rigid standards of excellence for our member dealers." PNG’s fewer than 400 members must pass financial and character screening by an outside firm, have a minimum of five years of full-time professional numismatic experience, and adhere to a strict code of ethics. The code of ethics supports a 10-point Collectors’ Bill of Rights that entitles anyone who has a dispute about coins purchased from a PNG member to arbitration that is legally binding on the PNG member. PNG also sponsors an anti-fraud hotline and, in collaboration with ICTA (see below), a bi-annual survey of dealers on their evaluations of the coin grading services.
The American Numismatic Association (ANA) www.money.org was chartered by the United States Congress in 1912 "to advance the knowledge of numismatics" to assist in bringing about better cooperation between all persons interested in the coinage, circulation, classification, collection, sales, exhibition, use and preservation of all coins, bills and medals; to acquire and disseminate trustworthy information bearing upon these topics; to promote greater popular interest in the science of numismatology, and for the particular purpose of bringing the numismatists of America into closer relations with one another." The ANA’s 33,000 collectors and member-dealers enjoy access to a mediation service to "assist members in resolving disputes arising from unsatisfactory coin transactions." The ANA also provides consumer-protection alerts, counterfeit-detection reports, loss alert/reward programs, and, in collaboration with eBay, a community watch. In March 2004 the ANA published an article about how to buy coins on eBay to help coin buyers protect themselves from the small number of unscrupulous sellers and enjoy a positive experience when purchasing online.
The ANA conducts two major coin conventions each year, the National Money Show and the World’s Fair of Money. The location of the conventions rotates annually to reach the maximum number of members and potential members. Each ANA convention offers seminars on numismatic topics led by world-class experts. In 2005, the ANA started sponsoring the Las Vegas Coin & Collectible Show, an annual event held in October at the Mandalay Bay Convention Center.
ANA members have free access to a world-famous numismatic library (including borrowing books by mail) at the organization’s headquarters in Colorado Springs, with online access coming soon. The ANA’s unsurpassed numismatic museum is also housed at its Colorado headquarters. A yearly $39 membership in the ANA includes a subscription to Numismatist, a 100+ page, full-color, monthly magazine.
The Industry Council for Tangible Assets (ICTA) www.ictaonline.org represents the interests of the rare coin and precious metals industry in the federal and state legislative arenas. Once of ICTA’s great successes has been the passage of legislation exempting rare coins from sales tax in most states, on the grounds that they are an investment. (Usually a minimum purchase of $1000 is required to qualify for the exemption.) ICTA’s help hotline assists members in complying with Internal Revenue Service and other government-agency reporting regulations. To provide open communication with federal regulators, ICTA works directly with the Treasury Department, the IRS, the Federal Trade Commission, and the Federal Aviation Administration and Transportation Security Administration (to facilitate air travel by dealers carrying coins and currency).
ICTA co-sponsors, with PNG, a bi-annual survey of dealers on their evaluations of the coin grading services. This survey, initiated in 2002, repeated in 2004, and scheduled for its next release this year, enables coin buyers to differentiate between grading services that dealers consider responsible and accurate and grading services that dealers consider unreliable or fraudulent. The survey has given passing marks to PCGS, NGC, ICG, and ANACS. It puts pressure on the responsible grading services to maintain and advance their standards, and makes it more difficult for incompetent or dishonest grading services to attract customers. The survey was an important step forward for the industry in that it enables new collectors and investors to enter the marketplace on more even terms with knowledgeable veterans. New buyers who have positive experiences based on confidence in the value of their purchases tend to become repeat buyers. An influx of new collectors and investors adds to demand, and, given the inelastic supply of rare coins, puts upward pressure on prices. Knowing that the next PNG-ICTA survey will take place in 2006. Back to the Article.
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An investor with a pressing need for cash (for personal reasons to or to take advantage of an investment opportunity) can use rare coin holdings to meet that need - without selling the coins. That’s an advantage in a flat coin market or when the coins have not been held long enough to achieve the desired return on investment. Most investors will rarely or never use their coins to raise capital. Nevertheless, the fact that loans on rare coins are categorized as asset-based loans shows that while a financial institution’s investment department may be ignorant about or disparage rare coins (or both), its loan officers may view them as solid collateral. The following section, contributed by Ned Fenton, managing director of Republic National Business Credit LLC, describes how these loans work:
"Using numismatic coins, which have value beyond their metal content, as collateral for loans can generate funds for any legitimate purpose, including acquisition of additional coins. Loans on numismatic coins funded by traditional lenders are generally structured as term loans of six months or as revolving lines of credit. Loans secured by coins are usually viewed as asset-based loans. Most lenders require the borrower to deliver the coins to the lender. Most lenders will advance 50% to 75% of the wholesale value of the numismatic coins."
"A borrower should verify where his coins are stored, how they are insured, and if they are stored separately under the borrower’s name. Borrowers should carefully review all charges involved in funding the loan to determine the total cost of borrowing including the interest rate and all fees, including any fees for origination, documentation, storage, service, administration, and/or sales. Before the funding of the loan, the retail borrower is entitled to receive a completed interest-rate disclosure reflecting the total APR including all fees and meeting the requirements of Federal Reserve Regulation Z." Back to the Article.
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Of course, some coin series and grades are more liquid than others, just as there is more of a market for some issues of stock than for others. An investor in coins should rely on an expert numismatist (or several) to put together a portfolio of coins that will be in demand when the time comes to sell (and many of which are likely to appreciate at a rate above the CU3000 Index or other appropriate index, such as the Mint State Rare Gold Coin Index). True numismatic scholars tend to have a collector’s perspective: they are mainly concerned with considerations such as a coin’s history and variations within a type. Investors should choose invested-oriented numismatists whose main considerations are best value, price level, liquidity, and potential profit.
In addition to market size, liquidity requires quick and easy tradability. By that measure, rare coins certified by reliable grading services are far more similar to shares of stock than they are to "alternative investments" such as real estate, antiques, or fine art. Although there are large markets in these investment classes, it can take months or even years to sell a building, an antique, or a work of art. When a market is reaching a peak, or has peaked and is trending down, or when a fund or individual investor has an immediate need for cash, such inability to sell quickly threatens profits and/or meeting the fund’s obligations or taking advantage of buying opportunities. Through the Internet and trade conventions/coin shows/auctions that take place virtually every week in one city or another, most certified rare coins can be sold in a few days, sometimes even in a few hours, or, on dealer-to-dealer electronic networks, virtually instantly. Furthermore, knowledgeable professional numismatists often know exactly what coins other dealers, investors, and collectors are searching for and can profitably sell a coin with one phone call or through a handshake at a coin show. Back to the Article.
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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
Heritage Auction Galleries has close to a 45% market share. Other major, highly respected auction houses include Bowers & Merena Auctions, Kingswood Coin Auctions, Superior Auction Galleries, Stack’s Rare Coin Auctions, Ira & Larry Goldberg Auctioneers, American Numismatic, Rarities, Lyn Knight Auctions, DLRC Auctions, Ponterio & Associates. Some specialize in particular categories of coins, such as world ancients or Latin American. Additionally, firms that auction a wide range of collectibles, such as Sotheby’s and Christie’s, also conduct numismatic auctions.
US Mint and World Mints - $1.2 billion
The US Mint, with its large mailing list of US buyers of proof and uncirculated collector coins and sets has the lion’s share of this market channel. Other majors selling newly minted numismatic products into the US market include Royal Canadian Mint, Pobjoy Mint (Isle of Man), Royal Australian Mint, Spanish Royal Mint, China Mint, Singapore Mint, South African Mint, Monnaie de Paris, Israel Mint, British Royal Mint, Perth Mint, Japan Mint, La Casa de Moneda de México and Austrian Mints.
Internet auction sites - $1.1 billion
eBay, which on any given day has 150,000+ US, world, and ancient coins listed for auction, dominates this channel. Other major retail coin-auction sites include Tele-a-Trade, Yahoo Auctions, Onlineauction.com, Amazon.com/auctions, Bid-alot.com, uBid Auctions, Overstock.com auctions, ePier.com, RM Smythe Online, ioffer.com, eBid, Auction.com, and BidVille Auctions, with more launched every month.
Direct-to-consumer - $0.5 billion
This category includes print and TV ads and offers sent with credit-card bills. It includes continuity programs, through which coin buyers automatically spend an average of $30 to $50 a month on their credit cards to build numismatic collections. Collector continuity programs are growing rapidly, with an estimated 500,000+ participants. American Historical Society and Littleton Coin Company are two respected firms that lead this category, along with a number of private mints which sell self-manufactured, valued added packaging or enhanced numismatic products. Direct-to-consumer companies often develop continuity/approval programs.
Telemarketing companies - $1.0 billion
Industry leaders in numismatic telemarketing include Blanchard & Company, Universal Coin & Bullion Ltd, Goldline International, Monaco Financial, Merit Financial, Swiss America, Stanford Coin, Investment Rarities, Lear Financial and New World Rarities. Most numismatic telemarketing firms use radio, TV, newsprint, and purchased mailing lists to generate new clients.
Television shopping channels - $1.1 billion
The major national television shopping networks with programs devoted to selling rare and bullion coins are Shop at Home, Home Shopping Network, and QVC. Regional shopping channels in major cities also offer numismatic items. Regional networks include Celebrity Shopping Network, Ultimate Shopping Network, Gem Shopping Network, AmericasStore.com and ShoppingSource.com.
400 largest US traditional numismatic dealers - $1.2 billion
Each of the 400 largest US numismatic dealers has annual rare-coin sales of $3 million to $20 million. These 400 dealers have established relationships with thousands of collectors and investors nationwide. They have effective retail websites and attend most major numismatic conventions. Average US sales of $3 million each is a conservative estimate, even after deducting bullion and non-coin sales (such as supplies, books, and fees to grading services) and sales already counted under Internet auctions.
4,600 smaller US numismatic dealers - $2.3 billion
The 2005 Numismatic Dealer Directory lists over 5,000 coin dealers nationwide. That’s 4,600 small to medium-size dealers in addition to the 400 major dealers. Annual US sales by these 4,600 dealers range from $200,000 to $3 million each, primarily in retail stores and at local conventions. Even after deducting for bullion and non-coin sales and sales on Internet auction sites, an average of $500,000 for each dealer is a conservative estimate.
25,000 to 50,000 part-time dealers and hobbyists - $0.6 billion
There are an estimated 25,000 to 50,000 part-time "vest pocket" dealers as well as thousands of collector-to-collector transactions that occur at coin clubs, coin conventions, or as private sales. (There are about 200 coin conventions/shows in the US annually, each with a "bourse" where coins are bought and sold.) These sales easily amount to another $600 million annually. Back to the Article.
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The Rothschild family fortune began in the 1760s when the young Meyer Anselm Rothschild became a moneychanger for the seamen who sailed into the port of Frankfurt. At that time, prior to national unification, each ruler of a duchy or analogous area in Europe struck his own coinage. As Rothschild became interested in the wide variety of coins, he became aware that Prince William of Hanau, who ruled over the state in which Rothschild resided, was a coin collector. Rothschild began selling coins to the prince and his associates. Then he bought out a number of coin dealers and published and distributed a catalog describing the coins and offering them for sale.
Fast forward several centuries. The following story is posted on the Harry W. Bass, Jr. Foundation website www.harrybassfoundation.org
"In 1955, an accountant friend of Bass’ asked him if he could obtain some 1955-D Washington quarter dollars, since the mintage on the coins was low. Bass served as a bank director at the time. Bass said he was able to obtain a $10 roll of the coins for face value. Ten years later the friend brought that roll of quarter dollars back to Bass and explained a coin dealer down the street offered him 10 times the face value. ‘That captured my attention,’ Bass said. ‘I looked at numismatics being first, perhaps, an investment vehicle.’"
Bass went on to become one of the premier collectors and students of US coins, particularly of die varieties of Federal gold coinage and patterns. He served for seven years as president of the American Numismatic Society. Following Bass’s death in 1998, the assets of the Harry Bass Foundation, which makes grants to Texas organizations in the areas of education, human services, religion, science, arts, and culture, grew through the sale of a portion of Bass’s greatly appreciated coin collection.
Within its museum in Colorado Springs, the American Numismatic Association displays Bass’s spectacular and comprehensive collections of American gold coins, experimental pattern coins, and paper money in the multimedia Bass Gallery. The estimated value of these collections is $50,000,000.
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. In return, based on appraisal of the coins by numismatic experts, the estate was granted a $5,534,808 federal estate-tax credit. Mr. Lilly had assembled coins of the highest quality, including numerous extreme rarities. They would have appreciated at a higher rate than the broader CU3000 Index. But even if we assume that the collection was worth only $5.5 million in 1970, and appreciated at the rate of the Index, had the Lilly family kept it, they would have an asset valued at more than $341 million today.
Willis J. duPont, of the family that founded DuPont de Nemours & Co., was a major coin collector. His purchase of Grand Duke Georgii Mikhailovich’s collection of over 10,000 Russian coins and 1,250 medals would have been produced a huge return on investment, except that duPont donated it to the Smithsonian Institute, where it forms the basis for the National Numismatic Collection’s Russian section. Perhaps the family received a tax deduction based on the appreciated value, as was the case with the Lilly family.
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. He quit his paper route to deliver for Stack’s, a famous coin dealer, then became a partner in the New Netherlands Coin Company. A coin dealer, he also built a major private collection. Eleven auctions of Ford’s numismatic holdings have already produced $35 million, and after nine more planned auctions the total may exceed $55 million. Ford, a numismatic scholar, produced auction catalogs with coin descriptions of unprecedented detail, boosting investor confidence in the days before independent authentication and grading.
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. Considering that there is only one known specimen of some issues, Eliasberg accomplished a virtually impossible feat. He constantly strove, through original purchase and "trading up," to acquire each coin in the highest grade available. When Eliasberg loaned his collection to the Smithsonian in the late 1950s, 1.5 million people visited the exhibit. In 1975 Eliasberg calculated that the coins acquired for his hobby had appreciated at an average of 119% per year, demonstrating the value of quality. The collection was sold in three auctions from 1982 to 1987, for a total of $44 million.
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. Pittman and his wife even took a second mortgage on their home to raise the money to travel to Egypt and bid in the 1956 auction of King Farouk’s coins. It is estimated that Pittman invested a total of several hundred thousand dollars in his coin collection. In three auctions from 1997 to 1999 the coins brought in more than $30 million. Like Eliasberg, Pittman was an early adherent of buying what I refer to as "investment-quality" coins.
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. The coins brought in $1.2 million. We don’t know how much Hayes paid for them, but considering that he started collecting as a youngster in 1957, and became expert at evaluating coins (his acquisitions were before the advent of grading services), it is likely that his ROI was as exceptional as the quality of his coins. Back to the Article.
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With $100,000 to invest, it may make more sense to buy 10 coins than 50, 100, or 200 coins. The table below shows the difference in returns over a 3-year period that would have been achieved in different grades of seven popular issues of US rare coins. At MS-60 the average 3-year increase was 17.34%. At MS-65 the average increase over the same period was 85.5%. At the beginning of the period, December 20, 2002, the current bull market had begun, but prices were not rising as fast as they were at the end of 2005.
3 Year Price Comparison of 5 Rare Coin Series*
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MS60 |
MS63 |
MS65 |
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MS60 |
MS63 |
MS65 |
MS63 |
MS64 |
MS65 |
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Item |
Date |
Ask Price |
Ask Price |
Ask Price |
Date |
Ask Price |
Ask Price |
Ask Price |
% Increase |
% Increase |
% Increase |
| $20 Liberty Type Gold |
12/20/02 |
$395 |
$540 |
$2,650 |
12/16/05 |
$580 |
$855 |
$4,580 |
46.84% |
58.33% |
72.83% |
| $3 Gold Type Princess |
12/20/02 |
$1,570 |
$3,900 |
$8,450 |
12/16/05 |
$2,360 |
$9,050 |
$19,350 |
50.32% |
132.05% |
128.99% |
| $2.50 Indian Type Gold |
12/20/02 |
$215 |
$730 |
$2,900 |
12/16/05 |
$220 |
$910 |
$6,100 |
2.33% |
24.66% |
110.34% |
| $2.50 Liberty Gold |
12/20/02 |
$240 |
$600 |
$1,165 |
12/16/05 |
$240 |
$900 |
$2,325 |
0.00% |
50.00% |
99.57% |
| 1881-S Morgan Silver Dollar |
12/20/02 |
$23 |
$29 |
$79 |
12/16/05 |
$26 |
$38 |
$132 |
13.04% |
31.03% |
67.09% |
| 1922-P Peace Silver Dollar |
12/20/02 |
$13 |
$22 |
$87 |
12/16/05 |
$13.25 |
$28 |
$140 |
1.92% |
27.27% |
60.92% |
| 1934-47PDS Walker Half Set |
12/20/02 |
$2,668 |
$4,024 |
$15,689 |
12/16/05 |
$2,852 |
$4,210 |
$24,911 |
6.90% |
4.62% |
58.78% |
*These popular rare coin series were recommended for investors by The Wall Street Journal. "Type" or "common date" coins are the generic coins in a series, the opposite of relatively rare "key date" coins. The first three items are part of one series. Pricing courtesy of the Coin Dealer Newsletter (Grey Sheet), December 2002 and December 2005.
Buying quality is a simple concept, but the devil is in the details. What issues should you buy when? How diversified should you be? Should you buy sets, or individual coins that make sets? Should you buy cents? Silver coins? Gold coins? Proofs? Patterns? Commemoratives? Errors? Foreign coins? Within a particular issue, should you buy an MS65 or an MS66? When should you sell what coins? To further indicate the importance of selecting the right coins, take a look at the following chart of the Mint State Rare Gold Coin Index, which is a subset of the CU3000 Index.
The coins represented by this Index increased in value 9,523% since January 1970. That’s 3,057% more than the coins represented on the broader CU3000 (PCGS3000™) Index. This significant difference in performance is primarily a result of quality coins (Mint State) coins outperforming the overall market. By contrast, a subset that represents lower-grade coins, the Generic Gold Coin Index, is up "only" 2,775 percent since January 1970. Also revealing what a difference quality and knowledge can make, as of December 31, 2005 another subset, the Key Date & Rarities Index, is up 66.42% for three years vs. 18.25% for the overall CU3000.
Back to the Article
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Q. David Bowers, Numismatic Director for American Numismatic Rarities and author of The Official Red Book of United States Type Coins: A Complete History and Price Guide, among dozens of other highly respected numismatic books from 1953 to the present, emphasizes that knowledge, and working with a knowledgeable professional, is the key to unlocking the profit opportunities of the numismatic market:
A fine collection of United States coins, tokens, medals, or paper money has the potential of yielding an attractive investment return if carefully gathered over a long period of time, with knowledge of the subject. Probably the word knowledge is key, for someone entering the marketplace and simply buying offered products will probably do no better than if they purchased the latest hot tip in the stock market or real estate.
The good news is that today’s numismatic marketplace offers many tools for the sophisticated buyer, also the possible investor who does not want to become a collector, but who taps the expertise of a trustworthy, knowledgeable professional.
For those among us who have pursued collecting in combination with knowledge and careful buying, the profits have often been immense, in fact in some instances, unbelievable. As to the future, I feel that numismatics is here to stay, that each year brings new enthusiasts into the hobby (a term I prefer instead of industry), and that all indications are positive. However, now, 25 years ago, and 25 years from now, knowledge is king. Those who take the time to learn before buying will always do the best. Back to the Article.
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The absolute numbers on CCE indicate a raging bull market, and the trend is accelerating. For example, on October 21, 2005 (a typical day in that month) there were 106,314 bids posted and 3,820 asks - 27.83 bids for each ask. Total bids on October 21 were $493 million; total asks $2.62 million. By December 30, six weeks later, total asks had dropped by $160,000, or 6.1%, and total bids has risen by $212 million - a 43% increase.
Even The Wall Street Journal, which covers rare coins about as frequently as it covers the duck-billed platypus, has taken notice of the entry of new buyers into the coin market. In a Dec. 1, 2004 column headlined "Investors Flock to Coins," the Journal wrote," ...sophisticated investors are increasingly looking for assets outside of the U.S. stock market, which many market observers expect to post only modest gains during the coming year." The column made the following points:
- As a result of the Internet and coin-grading services, investment-grade coins are "nearly as liquid as the stock market."
- Over the past three years, rare coins have "far outpaced" the S&P500 Index, and the outlook for the stock market is "lackluster."
- Nevertheless, rare coins are still about 65% below their 1989 high.
- Experts say coin bull markets typically last 4-5 years, and that we are in the second year of this one.
- As a result of a weakening US dollar, investors seek hard assets not tied to dollars, such as precious metals and rare coins.
I would add that as the real estate boom comes to an end (possibly with a crash that will take the stock market down with it), some investors who found hard assets in land and buildings will seek alternatives such as rare coins. Back to the Article. |
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There are at least two major differences between the earlier wave and this new wave of collecting from circulating coins:
- It includes girls and women, and is therefore a much broader social phenomenon.
- Collectors actively seek State Quarters at banks and coin stores and from TV coin shopping shows and Internet coin sites, not just from pocket change.
In his July 1996 testimony before Congress, Harvey G. Stack, senior member of New York City rare coin dealer and auction company Stack’s, advocated the 50 State Quarters Program. In October 2005, Mr. Stack described the results as follows:
Non-collectors are becoming more aware of collecting and have gravitated toward numismatics in larger numbers. This is evident in our over-the-counter business, our mail-order business, our Internet business, and mostly in our coin auction prices. The favorable publicity received by auctions, and the business in general introduced many new buyers. The record price for the 1933 Double Eagle of $7.6 million excited interest from other high-value collectible fields. The Internet also increased activity greatly in the past several years, as collectors now have an additional place to look at coins, learn about them, and bid on them.
David Hall, president of Collectors Universe, has observed the same phenomenon. Mr. Hall said,
The coin market has been bullish for over two years. Prices have moved up, there’s a long-term trend for product scarcity, and there has been an explosion of collector interest due to the Statehood Quarter program and the Internet information revolution.
Back to the Article
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Whitman Publishing has been in the numismatic publishing field since 1942. Publisher Dennis Tucker explains the role Whitman plays today in reaching way beyond the traditional collector base to expand the coin market and, ultimately, the rare-coin investment market:
Whitman has made great strides in publicizing the hobby and putting coin books, supplies, and folders in the hands of new collectors. One way is through a nationwide network of distribution channels including major American retailers such as Wal-Mart, Sam’s Club, and Michaels. ...Our products are also on the shelves of the three biggest American book retailers: Barnes and Noble, Borders, and Books-a-Million. We have responded to the public’s love of new U.S. Mint issues (such as the State Quarters and the Westward Journey nickels) by offering folders, albums, maps, books, and other related products. Whitman ‘value packs’ sell like hotcakes year-round. As with our distribution and promotion in major retail stores, Whitman’s presence in bookstores that serve millions of customers yearly promotes coin collecting and investing and brings it to mass-market awareness...
By serving and supporting collectors - nurturing their curiosity with new titles and book series, keeping them informed and interested in the hobby with new research - Whitman maintains and builds the ‘Main Street, America’ foundation that Wall Street needs to function in the rare coin market. Without a solid foundation of collectors, any investing cycle in rare coins is at risk of becoming a series of market bubbles, with no real liquidity. The existence of a strong, established manufacturer and publisher such as Whitman strengthens not only the hobby, but also the investment market. ...Our emphasis on research and fact-based education, rather than empty promotional hype, is a cornerstone of all of Whitman’s work. We feel that, in the long run, knowledge is the best promoter of coins as an investment.
When State Quarter collectors visit coin stores and Internet coin sites and buy coins from TV, they are exposed to rare coins. Some have already become rare coin collectors; many more will do so. More investors in stocks had a significant effect on propelling that market. The effect is and will be far more pronounced in the coin market, because of its limited size. For example, Coin World has only about 65,000 subscribers and the ANA has just 33,000 members (up 2,000 in the past two years). What would happen to rare coin prices if the ANA doubled in membership over the next five years?
More and more people are developing into serious collectors. One sign of this emerging trend is the sharp increase in the number of coins sent to the major grading services for certification - not something typically done by the casual seeker of coins from pocket change. Listen to Mark Salzberg, Chairman of NGC:
We are experiencing a compelling confluence of factors that include soaring metals prices, well executed US Mint programs, and a maturing of our dealer network that has aided growth in all of our core sectors. NGC is poised to certify 250,000 coins each month in 2006, which is a staggering total considering the size of our industry just 10 years ago.
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With coins "in the air" as a result of the State Quarters Program, the ability to buy coins free of sales tax and the opportunity to shelter capital gains from coin investments in retirement accounts can only add heat to the current rare-coin bull market. The buzz is not confined to elite publications such as The Wall Street Journal. An article in the May 5, 2005 USA Today advised that publication’s readers that collectible coins were up 53% from July 1998 to May 2005.
The numbers show that we have been in a bull market for rare coins since 2002, and that the uptrend continues. Ira Goldberg, co-owner of Ira and Larry Goldberg Coins & Collectables, Inc. in Beverly Hills, said he has seen "a very healthy gradual rise in the rare coin market" and that
I see no reason for this trend to stop. Stock and bonds have fared poorly over the same period. Property values, at least here in Southern California, are vastly overpriced and ready for a correction. With interest rates near historic lows and the price of energy at new highs...what better place is there to put some money? In addition, rare coins are a tangible asset that is easily stored and easily transported.
This was hammered home most recently by the devastating effects of Hurricane Katrina. When you have only a couple of days, in some cases only hours to flee, what assets can you take with you? Property, paintings, art, furniture, rugs - all No! You would flee with your coins and jewelry. And what is easier to sell? Without question it’s certified coins. In addition, the spreads between fair market wholesale and retail value are far narrower for certified coins than for jewelry.
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