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Graded Coins as Investments, Your Thoughts?
Old 09-27-2015, 12:52 PM   #1
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Graded Coins as Investments, Your Thoughts?

Hi, like a lot of ol' collectors I started looking for wheat cents, then silver dimes and quarters. Stopped for a while, and now buy certified coins in higher grades, 18th & 19th century types coins, gold coins, and Morgan /Peace Dollars, Washington quarters MS-65; '32-64, about done. Min. 66% is in gold (min. 45%) and silver coins. I do like them...

I think we will see gold /sliver go up in term (gold to $1350-$1400), then back down, silver percentage ST higher % gains. then down to $950 and $13 respectively, then next move up, in a couple of years too $3-5k, $170, roughly, rare certified coins will follow with a multiple of gains. That's the idea, and I get to enjoy them in the meantime as pieces of history to study.

Yes, it's a hobby, but LT gains historically have been at the top of list.

Anyone doing the the same, hobby and looking down the road to some nice returns. Or, think it's too much risk, too much spread?

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RJL
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Old 09-27-2015, 01:01 PM   #2
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I don't like calling something an investment unless the underlying asset intrinsically has the ability to produce a financial stream in the future. Coins, art, and metals cannot do that. Their appreciation or lack thereof is purely dependent on what people think it is worth, nothing more.
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Old 09-27-2015, 01:12 PM   #3
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One thing I read recently is when the Governments need money they historically go after financial assets, bank accounts (Greece), so the 'wealthy' put their money in land, art, rare wines, etc., as that is not confiscated via taxation or otherwise. I can't afford that kind of art, nor will I sit with 1 $50k bottle of wine, land on the other hand??
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Old 09-27-2015, 01:14 PM   #4
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dallas27 - yes you are correct in stating " produce a financial stream in the future. Coins, art, and metals cannot do that. Their appreciation or lack thereof is purely dependent on what people think it is worth, nothing more. I would also add the applies to financial assets, is a stock $15, then next day $10, next $20? Perceived value. Same for market as whole why worth !trillion less in a matter of days? It's not a single stock, but a huge sample size. Again perceived value of the financials assets. Just observation of what actually happens.
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Old 09-27-2015, 01:45 PM   #5
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I think its yet another form of diversification. I see no problem investing in things like coins/art, but I'd keep ones % allocated to this these type of things to a small %. That said, I am not sure to what extent old gold coins correlate to the current price of gold, however, I suspect their values may not directly correlate.
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Old 09-27-2015, 01:58 PM   #6
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I've been into coins for many years. Coins are a great hobby - history in your hands. But as an investment, I absolutely do not recommend it.


The problems with graded coins as an investment...
1. Supply only expands (as more coins get submitted and re-submitted) which decreases the perceived value based on population reports.
2. There is a serious buy/sell spread involved, so it takes about a 20% gain to get to breakeven.
3. Coins with the same grade do not have the same value. This is where casual collectors with deep pockets end up making mistakes. They don't have the experience of the market and they don't know what the other pieces look like. They don't recognize an overgraded coin and assume the label can't be wrong. A coin graded MS65 might be worth $5,000 and the same coin in MS64 could be worth $500. And what happens to inexperienced collectors is they end up buying an overgraded MS65 for $4,000 thinking they got a bargain. There is no Santa Claus in numismatics. Guess what happens years later when they want to sell? THAT's when they find out nobody wants to pay the MS65 price for that overgraded coin. It wasn't worth $4,000 to begin with, but the inexperience collector doesn't know enough to realize it.
4. The super-rarities have been doing OK but other than that, the market has been stagnant for a while. Most collectors are older and with the move to electronic payments, people who don't use cash aren't going to be attracted to the hobby. And there is so little of value that can be found in change.


Don't put big money in coins as an investment. For a hobby, different story. Very few hobbies can cost as little as coins in the big picture - for example, someone can spend $20K on coins over a 30-year collecting period, and probably still get $20K when selling - they held them long enough to offset the buy/sell spread and prices probably will rise modestly. That's 30 years of enjoyment for a net cost of zero. Not good as a pure investment, but how many other hobbies can match that?


If someone were to ask me what WOULD be a good investment (IMHO), I would pick the 1848 CAL quarter eagle - it's a small mintage, very historic, and most important it's valuable in ANY grade, not just the super-high grades that might be inflated. If I had to buy and hold for a couple decades, I'd buy that one coin.
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Old 09-27-2015, 02:01 PM   #7
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Quote:
Originally Posted by rjohnla View Post
dallas27 - yes you are correct in stating " produce a financial stream in the future. Coins, art, and metals cannot do that. Their appreciation or lack thereof is purely dependent on what people think it is worth, nothing more. I would also add the applies to financial assets, is a stock $15, then next day $10, next $20? Perceived value. Same for market as whole why worth !trillion less in a matter of days? It's not a single stock, but a huge sample size. Again perceived value of the financials assets. Just observation of what actually happens.
But you miss a huge difference, in case this matters to you.

Well chosen financial assets can produce cash income that does not depend on trading quotes. Quotes may (or may not) give information about what is going on with the company in question, but that is a somewhat different matter.

Ha
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Old 09-27-2015, 02:23 PM   #8
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Historically, they have performed a magnitude larger than, e.g., gold prices increase.


"At least four studies on the long-term performance of rare U.S. coins have been undertaken. Brown (2005) published a study in the Journal of Financial Planningon the returns of rare coins versus other asset classes covering the period 1941 through 2003. Rare coin performance over this 62-year time frame was 10.46% on a nominal annual basis and 9.83% on an internal rate of return basis. These returns exceeded the returns on more conservative investments such as bills (4.45%) and bonds (5.86% to 8.34%), but performed somewhat below the returns of equities (12.35% to 21.04%). However, and as will be discussed later in this article, the risk-adjusted return of rare coins exceeded all but one class of equities."
Other studies are in article. And yes, it's overall a small %.


The Case for Rare US Coins - EligiusEligius
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Old 09-27-2015, 02:35 PM   #9
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Here's why I disregard that study. Today, coins are graded and encapsulated using a scale that, for uncirculated coins, has more than 10 different grades (60,61,62...70, and now they even have "plus" grades like 64+). Even 30 years ago there was no such grading. You would have 60, 63, 65, and a tiny handful of super high end coins graded 67.

The coin graded 67 today might have been graded 67, 65, or even 63 way back then. How do you compare returns when the standards are changed? I know a guy who bought a gold coin graded 65 back in the early 1990s when there were no higher graded examples of that coin. He had it regraded and it came back 68. Now his $2,000 purchase was worth $50,000. Now what about all the other coins that were graded 65 when he bought his? Some will always be 65, some are probably overgraded, but he found the one super-gem that was terribly undergraded. Good for him. I would bet that the other coins that were graded the same when he bought his have not even come close to the increase in value that the stock market has achieved. How did he find that coin? From having years of experience and knowledge. Not because his coin dealer wanted to shoot him a bargain.

I know a few collectors who have deep pockets - some who have spent over a million dollars on their collection. And NOT ONE would recommend coins as an investment unless the person had years of experience.

Disregard any "historical analysis" of rare coin returns. The market has changed, grading has changed... you can't compare the past to today.
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Old 09-27-2015, 02:35 PM   #10
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Prudent-one: Great write-up and recommendation; I'd buy that coin. I bought a lot of $20 St. Gaudens (gold about $600 then) in high-end MS64/65 for around $900 each, sold when gold was around $1500. You know the return on that was great and I was lucky. Last 1871 $3 gold, mintage 1,300 (600 est. survive) solid VF-35, $900. But not high demand area. Demand is key, you know '09-S VDB penny
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Old 09-27-2015, 03:07 PM   #11
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One more thought to discredit historical analysis. Look at the 1909 VDB proof cent. It's always been the key to the early Lincoln proofs (1909-16). For decades, when one would come up for auction it would do quite well with strong bidding. Many who collected early Lincoln proofs needed that one to complete the set but the prices were too steep.


Then it became known one collector had been buying them up for a very long time. In fact, he had amassed many dozens. Once the rumors started to fly that the collector wanted to sell (one source told me that he offered all of them to a dealer for a 7-figure sum), the market softened. For all I know, they are already being meted out to the market slowly. The availability is higher. That's the kind of situation that is ripe for exploitation by coin marketers. They can point to historic prices as being very strong. They can offer them at a price that seems very attractive. Why? Because they know there are now plenty to go around and you can guess who will be left holding the bag - the unknowing investor who isn't well-connected enough to know the real story. And soon the prices will reflect the increased availability of many examples that are looking for a new home.
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Old 09-27-2015, 03:10 PM   #12
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Seems this has been a topic before, maybe a couple of times. If you like the hobby and have the money then why not. I don't think I'd put to much into numismatics as a core investment but it 's probably not bad for some diversification (But who really knows) Of course, stick with NGC or PCGS slabs and if possible with CAC stickers for the more rare/expensive ones. If you are buying as an investment only, buying common coins, slabbed or not is a waste of money, IMHO. Even knowing what I do about coins, I would never buy raw again for anything of any real value. To many well made counterfeits out there.

Personally, I like Morgan Dollars (all the CC's in the highest grades you can afford.) Of course the Morgan in 93s is the key but good luck fining anything above XF (and that's tough to find, and get's expensive)

Others I like if in MS are 09 Indian, 09s VDB Lincoln, 37d 3 leg Buffalo, 16d Mercury, and 32d, 32s Washington's. It might take some looking, but you can still find these if you try, and there's a good market (for buying and selling)

Also collecting Silver Eagles in rolls "might" prove be a good thing if you are into collecting and want to invest in sliver at current prices. Of course most dealers want $3+ over spot and I hate paying that. You can find some dealers at shows that will sell them for 1 to 2 over spot (sometimes)
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Old 09-27-2015, 03:23 PM   #13
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Car-guy: If a person bought these coins in the highest grades and CAC:
"Others I like if in MS are 09 Indian, 09s VDB Lincoln, 37d 3 leg Buffalo, 16d Mercury, and 32d, 32s Washington's." I cannot help but think they would make money on them.
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Old 09-27-2015, 03:25 PM   #14
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Car-guy: If a person bought these coins in the highest grades and CAC:
"Others I like if in MS are 09 Indian, 09s VDB Lincoln, 37d 3 leg Buffalo, 16d Mercury, and 32d, 32s Washington's." I cannot help but think they would make money on them.
Agree, of course but who really knows what the future will be for any collectible.
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