8

HOW TO INVEST IN RARE COINS:

Things You Need to Know to Maximize Your Returns

COIN WORLD EXCLUSIVE:

HOW TO INVEST IN RARE COINS

A

coin collection can be not only an interesting diversification in a well-balanced portfolio, but also a vehicle for wealth building. While collectors possess an unquenchable desire to carefully collect and study their coins, those who are armed the best with knowledge stand to benefit the most. Since the turn of the 21st century, the rare coin marketplace has changed substantially, providing collectors with plenty of opportunities to hone their knowledge. The Internet is responsible for the biggest change because it has made coins easier to acquire, sell and study. With the rise of this new marketplace and all the additional access to information, the study of coins as an investment is as important as ever.

On top of that, recent improvements in coin grading and authentication by services like Professional Coin Grading Service and Numismatic Guaranty Corp. have cleared the way for enhanced consistency in the marketplace in an era when counterfeiters are improving their craft. The major grading services are quite skilled in identifying the new counterfeit coins entering the marketplace from China and elsewhere, and they strive for consistent grading. All the information the Internet makes available about coins and their values can be overwhelming, and one cannot become an expert at spotting counterfeits overnight. But when preparation is combined with an exacting eye and an awareness of what is happening in the market, significant investment opportunities can become a reality.

For generations, successful investing in coins has, like in the case of John Jay Pittman Jr., been synonymous with putting together a well-thought-out collection. Many of the greatest collections sold are the result of systematic purchasing over a long period of time, characterized by strong relations with dealers, and a willingness to take advantage of buying opportunities when they present themselves. Pittman, while financially comfortable, never had substantial wealth. Yet—over the course of decades of careful collecting— he was able to build a collection that was auctioned in 1997 for more than $30 million. David W. Akers, who sold Pittman’s collection, said it best, writing: “John was not a wealthy man, except in knowledge.” With his budget, Pittman purchased rare coins in the best condition he could afford. He took advantage of buying opportunities when they appeared, like when he traveled in

1954 to Cairo, Egypt, to attend the auctions of the grand coin collection of King Farouk of Egypt. Pittman’s Proof 1833 Capped Head gold $5 half eagle realized $467,500 at the Pittman auction in 1997. Pittman had purchased it from the Farouk auction in 1954 for just $635. In January 2005 the same coin—now certified Proof 67—sold for $977,500. While the acquisition price of $635 was a substantial amount of money in 1954, Pittman’s willingness to buy the best he could afford and to “stretch” when acquiring truly rare coins reaped substantial dividends for his heirs. So while the rare coin marketplace has shifted in the 21st century because technology makes collecting easier and research more accessible, it is still up to the collector to become the expert. The following are some of the key understandings necessary to master the expertise of collecting as an investment.

1. Embrace the Internet The Internet has been a game-changer for coin collecting. As collectors and investors have become more comfortable using the web to evaluate coin purchases, the buying process has changed. Auctions have gained prominence as collectors are now more at ease bidding online, and online storage and digital photography has greatly improved the presentation of coins online. The offerings of non-U.S.-based auction houses—once nearly inaccessible to most collectors in the United States—are now easy to find online. The end result: Collectors have more options than ever before for buying coins. The Internet has also allowed better research into coin pricing

as searching auction records online is now very easy. Auction houses reveal their final selling prices online—often illustrated— allowing would-be bidders to get a better understanding of a coin’s price history and place better-informed bids. The information revolution has been a boon to coin buyers. It’s a little more complicated for coin sellers. The increased availability and transparency of coins’ purchase histories has forced many dealers to lower their profit margins. On top of that, easy-to-place online bidding has reduced the need for dealer representation of clients at auctions over the past decade. The web’s benefits for coin buyers, however, should not diminish the value of face-to-face interaction with dealers.

2. Dealers and shows continue to be critical resources for coin investment opportunities Though the web is an amazing tool for collectors, loss of dealer representation can be to a buyer’s detriment. Building a good working relationship with a dealer is a key component in putting together a great collection. While many collectors mistakenly think that all coins are offered at auction, the truth is that many more sales are transacted privately, and a good relationship with a knowledgeable dealer can provide a coin buyer access to further acquisition opportunities and valuable “inside information” on the coins offered at auction. In an era of collectors connecting with coins and one another online, the role of the coin show has also shifted as more national-level coin shows have emerged. The largest shows include the Florida United Numismatists convention in January and the summer American Numismatic

Association World’s Fair of Money, which traditionally rotates among several cities (though in 2011 and from 2013 to 2015 was located in the Chicago area). The Central States Numismatic Society also hosts a major convention in the spring. One can add to the list of major shows the three-timesannual Long Beach Coin, Stamp & Collectibles Expo in California, the three Whitman Coin and Collectibles Expos each year in Baltimore, and a smaller ANA convention in the spring. These shows are held in addition to regional and local shows taking place across the country each weekend. Collectors and dealers have never had more options in selecting among major coin shows. Also on hand at major coin shows are major grading services, which play a key role in upping the value of your collection.

3. Get certified Are your coins certified? Just about every investment quality coin out there today is certified and encapsulated (or “slabbed”) by one of several major grading services. Those slabbed by Professional Coin Grading Service and Numismatic Guaranty Corp. enjoy the most liquidity, but coins certified by ANACS and Independent Coin Grading are also very marketable. All four services employ consistent grading and excellent counterfeit detection. For collectors and investors, having coins certified provides several advantages, the most notable of which is the grading guarantee that the services offer. Grading services guarantee the grade and authenticity of the coins that they certify. If a buyer believes that he or she purchased an overgraded, misattributed or counterfeit certified coin, a coin buyer can send the coin back to the grading service in the original slab for re-examination. The grading service will work out a remedy in the rare event that a mistake was made. Not covered by grading services’ guarantees, which can be found at the services’ websites, are clerical or “mechanical” errors, including dates on holders that don’t match the date on the coin and other obviously incorrect designations. The term “mechanical errors” extends to obviously incorrect variety attributions and clearly misidentified coins. Coins in holders exhibiting tampering generally do not qualify for grading service guarantees.

Changes in a coin’s numismatic status are also not covered. For example, some numismatists believe that 1856 Flying Eagle cents are Proofs and others consider them circulation strikes. If future research indicates that all 1856 Flying Eagle cents are indeed Proofs, the grading service guarantee would not cover resulting value changes. For copper coins, each service has different standards for guaranteeing color, since the color and surfaces of copper coins can change after grading, because of environmental factors. So once a collector gets a coin certified, its value is locked in and not up for questioning, right? Not exactly.

4. Value is variable Coins certified by different grading services—PCGS, NGC, ANACS, etc.—often trade at different values, the result of both perceived and actual differences in the grading standards used by the grading services. Why would a coin graded by PCGS trade for more or less than a comparable coin graded by NGC? In some specific series and even in grades within a series, the market has expressed a preference for one grading service over the other. That can be seen in higher prices realized in auctions when coins graded by both services are offered in the same sale. When purchasing a coin—especially an expensive one—you owe it to yourself to look into the many different pricing resources accessible online. Auction results from the major coin auction houses are easily found online, so be sure to check them out and track how much the coin you’re targeting is selling for in the market. Because auctions bring together a willing buyer and willing seller in a transparent public forum, auction prices can provide the clearest indication of fair market value. The prices achieved at public auction are good comparables that you can use—along with a dose of common sense and a dash of caution—when figuring out what a coin is worth and how much you should pay for it.

While there is surely more consistency in the marketplace today than in 1986 when PCGS was founded, grading is still an art and not a science. That means the same coin submitted to different grading services at different points in time may be returned with different grades, depending on the grader who examined the coin, and shifting grading standards over time. With standards changing over time, some coins may trade for more than expected because the buyer believes that the coin may upgrade. For example, About Uncirculated 58 coins are often purchased by collectors who intend to resubmit them to the grading services in hopes of getting a Mint State 61 or MS-62 grade. The difference in price between grades can often be substantial, making the “crack out” game potentially profitable for those confident in their grading skills and having a decent appetite for risk. Some of the coin types most frequently resubmitted for grading include: • Small-sized gold coins, including gold dollars and gold quarter eagles • Indian Head $2.50 quarter eagles and $5 half eagles • Beautifully toned coins • Rare dates • Lightly cleaned coins Enough to think about? If your head isn’t already spinning, consider that even within a specific grade, coins can be rated below-average, average and aboveaverage. To reflect those next-level ratings, several new options have emerged in the last few years.

5. Go between the grades Even within one grade, some coins are nicer than others, and the market has struggled to come up with a way to meaningfully and consistently identify these “PQ”—premium quality—coins. Some credit the “stickering” phenomenon to Rick Snow, who introduced his Eagle Eye Photo Seal in 1996. Later, NGC began to identify especially nice coins through the use of its Star designation. A star on the grading insert on the slab signifies that a coin has exceptional eye appeal for a given grade. “To receive a star, coins must be free of any obvious planchet irregularities, and display no bothersome spots or blemishes,” NGC explains. “Toned coins can be of a single color or multicolored but cannot have any areas that are dark brown, approaching black.” The coin market responded positively to the NGC Star designation, but by and large, the stars identified coins that were already selling for premiums in the market because of their superior eye appeal. For years, a gap existed in identifying coins that were simply solid for the grade. Certified Acceptance Corp. began accepting submissions of PCGS- and NGC-certified coins in 2007. The company is not a grading service in a traditional sense, but instead, applies a CAC sticker that signifies that the coin meets CAC standards for a given grade. The marketplace has come to accept CAC sticker—the green “solid-for-the-grade” sticker and gold “candidate-for-an-upgrade” sticker—as a signifier of a coin that is premium quality. Observing collectors’ and dealers’ positive reception of CAC-stickered coins led PCGS and NGC to announce on

March 25, 2010, that they were introducing Plus designations to formally signify that a coin is high end for the grade. PCGS also announced that day its new PCGS Secure Plus system, which digitally captures a unique “fingerprint” of each coin and enters it into a permanent database where the system can detect when the same coin is resubmitted. PCGS President Don Willis stated, “The process can help detect if a previously registered coin has been artificially toned, dipped or processed in some other way in an effort to get a higher grade.” NGC continues to use both the Plus and the Star designation, and while the coin market has accepted that coins with stars, CAC stickers and plus signs are worth more, the degrees of increase in value for each are still being defined. Especially for Plus designated coins, the number of coins evaluated for this designation is small in proportion to the total number of coins on the market. The absence of a CAC sticker, a plus sign or an NGC star does not mean that a coin is not superior quality—it could mean only that the coin has not been evaluated for the added designation. In recent years other services have entered the marketplace to sticker certified coins that are nice for their grades. These include WINGS, which reviews world coins, tokens and medals to determine if they are premium quality (WINGS gold sticker) or solid for the grade (WINGS silver sticker). Quality Assurance Company places a QA Check sticker to verify solid quality PCGS- or NGC-graded modern-era U.S. coins. Additionally, MACge identifies 17 copyrighted Grade Enhancement categories on certified and encapsulated modern coins, such as a Full Split Thumb designation on Walking Liberty half dollars. A sticker or Plus designation solidifies a grade that a service determines. On the other end of the spectrum, it’s possible for a determined grade to be faulty, and you need to be aware of how.

6. Look out for “doctored” coins “Coin doctoring is the action of a person, or the enabling of another, to alter a coin’s surface or appearance, usually to diminish or conceal defects, and thereby represent the condition or value of a coin as being superior to its actual condition or value,” the Professional Numismatists Guild said in 2010. The PNG definition listed some of the processes that would be considered “coin doctoring,” including: • Effacing hairlines by polishing or manipulating the surfaces of Proof coins. • Applying substances to the surface of coins to hide marks and defects. • Hiding marks or otherwise changing the appearance of a coin by adding toning. • Adding chemicals or otherwise manipulating the surfaces to create cameo frost on the devices of Proof coins. • Making a coin appear more fully struck by re-engraving portions of the devices, such as re-engraving bands on the reverse of a Winged Liberty Head dime or adding head detail to a Standing Liberty quarter dollar. • Altering dates or Mint marks or other struck portions of a coin to make it appear to be from a Mint, date or type other than that of origin. • Altering circulation-strike coins to make them resemble Proof issues. “This definition is not intended to be all-inclusive, but only illustrative of forms of coin doctoring,” PNG says. Perhaps the definition was too specific, because on Jan. 5, 2011, at the FUN convention in Tampa, the PNG membership voted 45 to 2 to remove

the expanded definition. The PNG determined that a sentence in the membership code requiring members “to refrain from knowingly dealing in counterfeit, altered, repaired or ‘doctored’ numismatic items without fully disclosing their status to my customers” is sufficient. Unfortunately, coin “doctoring” is a dark area of the rare coin market that defies easy categorization and definition. The problem of “doctored coins” came to the forefront on May 13, 2010, when Collectors Universe Inc., the parent company of PCGS, filed a lawsuit in a federal district court accusing several coin dealers of various illegal acts related to allegedly submitting “doctored” coins to PCGS for grading on multiple occasions over a period of years. Both PCGS and NGC have stated in their dealer agreements that dealers will not knowingly submit coins that have been doctored and the PCGS lawsuit sought to establish coin “doctoring” as a federal crime. The lawsuit brought up a key problem with “doctored” coins: they change over time in the holders. While the coins may defy detection at first, over time the chemicals applied to the coins’ surfaces create notable changes in the appearance, revealing their “doctored” nature. While that lawsuit was dismissed on Dec. 13, 2010, it brought the issue of coin “doctoring” into the open as never before, and both PCGS and NGC have responded with improved detection techniques aimed at helping detect “doctored” coins and fakes. The guarantees offered by the grading services provide an extra layer of protection. Even with those protections now in place, the best protection against buying “doctored” coins is educating oneself on how coins age over time and what genuine coins look like, and working with trusted dealers who can guide potential investors toward high-quality coins that appear to have original surfaces. “Doctored” coins can do you in if you’re not careful. But so can the finest of certified, authentic coins.

7. Beware price bubbles Another development of the past decade has been the increasing popularity of collecting by PCGS and NGC registry sets. These programs allow collectors to record the certified coins in their collections and compete with other collectors, primarily for “bragging rights” of having the finest collection. Participating in the registry programs is free and provides collectors with a sense of community. But, perhaps the programs’ main success for the grading service is in placing pressure at the very top end of the market, especially for modern coins. For example, a coin may be common in Proof 69 Deep Cameo yet be prohibitively rare in Proof 70 Deep Cameo. In January 2004, Heritage Auctions sold a PCGS Proof 70 Deep

Cameo 1969-S Lincoln cent for $40,250. In contrast, PCGS Proof 69 Deep Cameo Lincoln cents can be readily found for under $500, such as one that sold at a Jan. 11, 2015, Heritage auction for $493.50. Later, that Proof 70 Deep Cameo cent developed several small spots and PCGS bought it back under its grading guarantee, as it no longer graded Proof 70. Even the grading services are beginning to advise collectors to be cautious when purchasing low-population common coins for stratospheric prices. Mark Salzberg, NGC’s chairman, warned collectors at the FUN convention on Jan. 8, 2011, that he saw what may be a speculative price bubble forming for such coins.

He cited the example of a 1944 Walking Liberty half dollar graded MS-68 by PCGS that realized $109,250 at an Aug. 10, 2010, Heritage auction. MS-67 examples were routinely trading at the time at the $1,000 to $1,500 level and at a February 2015 Heritage auction a PCGS MS-67 example with light toning sold for a reasonable $1,292.50. His message was that while some coins are truly rare, many extremely high prices achieved in the marketplace for otherwise common 20th century coins of exceptionally high grade may not be fully justified from a value perspective. When looking at coins for investment purposes, look at rarity both in an absolute sense and a relative sense. Questions to ask when evaluating a coin for investment purposes include: • Is a coin rare because there are few known of the issue or type, or is a coin rare because it is the finest known?

• Is this the type of coin that has historically been valued by collectors? • Is this the type of coin that future generations of collectors would likely covet? • Is this price justified from a value perspective and is there room for appreciation in the figure? Going through this exercise will help a potential buyer identify the marketplace for a given coin in the future, because for coins to be held as an investment, one hopes for price appreciation, which is only possible if demand is sustained for a given coin. Investing is about getting a great return on your rare coin collection, but if you don’t pull yourself away from the cold, hard facts once in awhile and see the big picture, you won’t be as successful.

8. Listen to the timeless advice of Q. David Bowers Legendary numismatic figure and Coin World columnist Q. David Bowers is by far the most prolific author of numismatic books. He co-founded the major auction house Stack’s Bowers, began dealing in coins as a teenager in the early 1950s, has sold just about every major rare U.S. coin that exists, and has been writing on the numismatic hobby since the 1950s. He wrote the “Coins as Investments” chapter in the Millennium Edition of the Coin World Almanac. In it, he provides sage advice in suggesting one have a “holistic” relationship with numismatics. On a “holistic” relationship, Bowers wrote: “By this I mean that the whole is worth more than the sum of the parts. A modest amount of time spent reading and studying coins, plus some intelligent buying, will not only reward you with a nice coin collection but should, over a period of time, give you much collecting enjoyment and the possibility for really super investment.” Bowers suggests that time spent in understanding grading, chatting with other collectors about good dealers, and generally becoming a knowledgeable collector will enable far greater returns on an investment in rare coins. His advice holds as true in 2015 as it did in 2000. Ultimately, the best coin investments are made when investors are engaged with their coins, when they take a connoisseur’s approach to collecting and arm themselves with knowledge about the coins they collect, build relationships with the dealers who make the markets move, and develop a love of numismatics beyond simply the pursuit of good investment returns.

So in conclusion … Being a successful coin investor requires a number of tools. You need to be able to value coins beyond their sticker price and develop a keen eye for doctored coins, while also understanding how a coin gets its grade, how grading services can differ, and how available certain coins are at certain grades. It is critical that an investor be both web-savvy and able to develop quality personal connections with dealers who have knowledge and experience the investor might lack. Quite the toolbox, right? Luckily, there is one place where you can find expert content that will help you hone all of these skills—Coin World. Grow your knowledge with the best in numismatic news and information. Established in 1960 and a leader ever since, Coin World offers a variety of means to holistically grow your knowledge and understanding of the hobby. Whether you prefer to consume our unrivaled content online or in a traditional print format, we have you covered: • Our renowned weekly and monthly Coin World magazines available in both print and digital formats. • CoinWorld.com, home to over 5,000 free coin articles and updated daily. • Our free email newsletter, which delivers personalized numismatic news and valuation information directly to your inbox. • Our engaging and informative Facebook and Twitter pages. • A community of thousands of collectors who share your passion and interests.