Determining Undervalued Coins

Everybody seems to agree that demand is the primary driving force behind value of older coins. I wanted to graphically represent the influence of collector preference, and I figured that the Seated Liberty series would be the most accurate way of doing that (Essentially the same coin design in different denominations). Here's a plot of the raw data for value vs mintage for the different denominations:


It kinda looks like the value trends for each denomination are similar when plotted like this. I fitted a least residual squares function to each data set to smooth it out. I also ignored the coins issued in the 1880's because they are comparatively cheap even though mintages were very low (I guess a lot of them were hoarded by collectors or something?). The smoothed data plots look like this:




I guess that it would make sense that people prefer the larger versions of particular coin designs. As this will probably always be the case, this type of comparison also does not necessarily indicate over- or under-valued coins. However, I have heard many experienced coin collectors say, "When a particular series increases in popularity, the key dates are the first ones to move and the rest follow". The quarters and halves are kinda bunched together and dimes and half dimes are bunched together. But you do see a trend where the "key date" end of the dime plot is creeping up towards the quarters and halves. Do you think that this may be an indication that the rest of the dime series will follow?

 

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You exist in a certain environment for certain coins. Compare it to cities. In NYC you have
you have many conveniences, people and tolls to pay. Likewise you have series with many
Conveniences, ie dozens of modern, well presented references. You have many people to
chat with or road rage with and you have high grading tolls to pay. Especially when the
formally normal or trival is suddendly "exqusite." Helpful hint: chain your wallet to
your butt when you see that word.

What about Charlotte NC in the 70's? They had a major airport, modest conveniences,
low population and low taxes/tolls. This would corrospond to collecting Seated coins
in that same period. There wasn't hundreds of references or thousands of collectors.
But there was the LSCC, the Gobrecht journal and Kam 's Korner in CoinWorld. Best
of all there was a low tax-grey toning on a Seated dollar wasn't exqusite and worthy
of more money, it was just grey toning.

If you want to find a sleeper, find Charlotte. But I don't think you'll find it in US coins unless
it's Charlotte's web. Look for Charlotte in Darkside.

 

An undervalued coin is one that you purchase below market value, for various reasons, and is desirable for resale. Most high condition coins can fall into that category--investment grades are often MS 64-65.

 

Major point here. That is ONLY true assuming that the entire series will be collected. This is huge and should not be overlooked. Yes, if IHC are going up the 1877 will go up. However, I don't think if coins collected for type like 1853 SL halves will have a large affect on a coin like the 1878s. ONLY IF you are assuming that collectors will be pursuing the entire series will keys necessarily be affected by common coins increasing.

Btw, yeah the low mintage 1880's SL were by and large saved, so while scarce much more available than their mintages would lead you to believe. I have nearly every one for the halves. Again, they are available since almost no one collects SL coins by date/mm. If one of those low mintages were instead a mercury dime, it would be a $50,000 coin, BECAUSE mercuries are heavily collected by date/mm.

 

I would argue there's no such thing as undervalued coins. What you are really after is which coins will increase in value over time.

Please note that coin prices are primarily driven by demand, not supply. So graphing supply does little good.

Furthermore, what you're really trying to do is predict future demand, which is near impossible.

Traditionally, the best performing coins are large key date coins. If I were trying to invest in coins, that's where I would start.

 

I agree, the highest grade coins probably represent the best investments. But, I kinda look at problem from a prospective that reflects my collecting interests. I tend to not play the MS## game because the primary motivation behind coin collecting gets lost. When you shoot for collecting the highest MS## that can be obtained, then collecting isn't necessarily about love of the design or historical significance anymore, it is about probability of a coin leaving the mint in a certain condition. The prices of these coins are also not linked to general demand for the coin type, it is based on the same probability, and based on the number in existence at that grade or higher.

The ultimate example would be MS## Lincoln cents from the 80's, 90's, 00's selling for thousands of dollars. These prices have nothing to do with supply and demand for the pennies in general, it's about getting that one penny out of millions that happened to get through minting and delivery in pristine condition. Where's the historical appeal of a 2002 cent? Where are all of the people itching to fill that 1995 hole in their penny albums? To me, the MS## game is a pursuit for rich registry set builders, and I'll leave it to them. However, it is this aspect that makes them good investments, right?

Sorry, it's the scientist-engineer in me. I've been engrained in working on the premise that everything can be calculated if you can properly characterize the correct factors. But you are correct, when dealing with economic conditions, personal preferences of collectors, etc, the randomness may be impossible to represent mathematically.

You didn't have anything to do with the weird hysteria surrounding Morgan Dollars did you? If so, then you did a **** of a job!

I agree, prices are based on popularity. But what I am thinking is that maybe popularity can also be influenced by prices. When new collectors enter the hobby, or when established collectors decide to focus on a new series, then the overall coin prices may influence their decision on which series to collect. For instance, take the Seated Liberty example plotted above. A person of average means may decide to go with half dimes simply because they can't afford to spend hundreds of dollars on each coin. However, as their collection matures and as they become more financially stable, then they will begin to upgrade the general condition of their collection and/or pursue key dates. If this type of thing happened simultaneously for even just a handful of collectors, then prices could be influenced significantly.

This is just one possible scenario that I think could be at least partially predicted by data analysis. Like I said, I'm not actually doing this to develop an investment strategy, I'm just interested in exploring the factors that may aid in determining possible trends.

 

Also, just as a general rule, be very careful of what "experienced" collectors tell you. I have been around long enough to see the tremendous overpricing of key dates that coincided with people trying to "invest" in coins. When I started keys were pretty much priced in relation to scarcity. Nowadays, I see whole collections of only "key" dates because "they are the best". An 1877 us not a better coin than a 1878, 1895, or a 1907, its only scarcer and "needed" if you wish to complete a set.

I see keys extremely overpriced nowadays, and that is a severe risk. What if collectors stop collecting complete sets? I predict an 1877 would be worth as little as one-fifth todays price if set collecting curtailed.

ALWAYS remember if you are "investing" in coins, the ONLY value a coin has above melt or face value is based upon coin collector demand. They are not inherently valuable like precious metal is, its value is solely based upon the fickleness and whims of people doing this as a hobby. As such, as hobby cycles go, so go any valuations accordingly. Classic commemoratives were hot in the 80's, rolls were hot in the 60's etc.

 

Like the rarity status of a certain Morgan when
it became known that thousands of them were
in treasury vaults?

 

...which is why advanced collectors buy the books that most collectors refuse to pay for. Knowledge means money, and if you buy all of the good references when they come out you will have this knowledge long before it becomes "common knowledge".

My US coin books are not a large part of my total, but the money I have spent on them I have recouped many times over in smarter than average purchases based upon this information.

 

Popularity of a series by date collectors is a huge factor. A 1909 s-VDB is easy to acquire in high grade ( like Ms-65) but has high demand as people collect them by date. So it's like a $1,000 + coin unless it has problems.

Any half-cent is rarer than an 09-s VDB, as in any particular year, like say 1856, 1857, whatever. So the most common half cent is actually rare, but most collectors are content to have one of each type, very few collect these by date and variety.

Same for SL and even Barber coins.

 

The people making money in this business are buying cheap, and I know many reports of people having done that. A dealer on one of the other sites bragged about buying coins in large numbers at Teletrade, $10s of thousands over a period of time at a third of retail. If you could develop a powerful program to go over entire auctions and do a market analysis and put in bids where you would make 10-20% per purchase, you would make a lot more than speculating on which series or which coins will go up.

 

I would imagine one could do worse than just snapping up as many 1877 IHC as they could. It's rare and part of a must-have series for collectors. Does anyone really think those coins will do anything but increase in value? Same could hold true for the 1885 nickel. Obviously, be alert to counterfeits.

 

The problem is that once bought it is hard to sell for what you paid for it, esp. with a B&M dealer. If they buy stuff at 70 and sell at 100, you have a tough nut to crack.

You'd have to look long term. say 30 years. Now how would you do buying keys like this in 1982 and selling in 2012 ? I'm going to guess not really well !

Coins and profit are tough.to combine

 

I don't know, some keys have done very well in the last 30 years. I think PCGS has a chart on this and it's been posted here before. I agree with the part about B&M dealers, but let's face it--they're yesterday's news. The coin business is now transacted primarily online, and in particular on ebay. There, the marketplace isn't determined by a guy holding a copy of the Greysheet, it's determined by your coin, its picture, your feedback and the demand of millions of customers. Obviously you need a time horizon with this strategy for it to have a chance at working.

 

I've had a lot of luck with Barbers.

There are some fine details to look for to find Undervalued Barbers. I've developed a spreadsheet of barber coins, where the price difference between a F and a VF is 100% or more. I've found some shops get hasty, and I pluck 'em up and sell them for a premium. I've had more success than not.

 

Well define very well ?

I graduated HS in 1982. No ebay back then. I don't have historical stuff in front of me to make solid comparisons, but I'd guess maybe you'd need to have had your key coins like an 1877 cent, 16-D dime, 09svdb and such increase to like 5X of retail prices in that span....then you you'd do well to get 80% of retail.

I can't make a good case for buying non bullion coins, but keys should outperform common stuff.

Anybody have a price history of the 1877 cent ? I'm thinking in a grade of Fine/ VF....kind of hard to do MS-65 and such since slabs were absent.

 

A quick glance at the Dow jones , and it looks like that went up 15X or so in that time.

I'd guess that if you took 10k ( or whatever amount to invest) in 1877 cents and put another 10k in simple bank cd's and renewed as applicable....the cd's would have done better than the 1877's that you now have to sell ( and probably slab as well).

 

I'm fairly confident in guessing that an 1877 cent has not quintupled in price in the last 30 years , I'm not sure that I'd happy with a 400% increase on an investment of 30 years either !