So, you are in charge of a coin investment fund. What would you do?

Discussion in 'Coin Chat' started by mrbreeze, Dec 20, 2022.

  1. GoldFinger1969

    GoldFinger1969 Well-Known Member

    The expectation of "Wall Street $$$" in 1988-89 was what fueled that infamous coin bubble. Coins doubled or tripled in prices within 18 months or less.
    Open and closed-end funds can BOTH last indefinitely. The Tri-Continental CEF (TY) was set up in the mid-1920's.

    OEFs are the large, traditional mutual funds that accept new monies and create or destroy shares every day AFTER the close of trading at 4 PM. CEFs are fixed-investment vehicles that issue a fixed amount of shares and can trade at a premium or discount to NAV, whereas OEFs track NAV 1-for-1.

    A CEF would probably be better for any coin fund, as coins are ILLIQUID and an OEF PM would have to SELL into a potential illiquid and/or falling market to raise cash. A CEF PM wouldn't have to sell anything as the fund trades on the exchange during the day and you buy and sell just like a stock (with stock trading not taking or sending $$$ to the company in question).

    I would only set up a vehicle under a CEF structure....maybe as non-traded vehicle like the Blackstone BXREIT that has been in the news of late....with gated withdrawal limits.

    Would need to keep cash in the portfolio....precious metals ETFs....and the more "liquid" coins, if that term is applicable (like Saints, Morgans, Busts, Walking and Seateds -- all stuff that is popular).
    You might want to pay a dividend but it might be an ROC (Return of Capital). A volatile asset that moves in spurts is not something that generates steady returns or income.
    Understand that while they and you or me might WANT to make money, this is an asset class that is HIGHLY SPECULATIVE and can go DECADES without generating positive returns.
    Ummm...you HAVE to get bogged down in that because whether the fund is public or private you can run afoul of the SEC Act of 1940 if you don't.

    The same problem exists today that existed in 1989: coins are a highly illiquid asset class that can't easily be sold to raise cash to meet redemptions (hence the CEF structure is preferable or a gated partnership). You also won't be able to put billions to work in coins -- you'd jack up the prices -- and might have to limit this to $100 MM or so, maybe less.

    Also, would you buy common coins (like MS-65 and MS-67 Saints) or would you go for high-priced "Trophy" coins like the 1933 DE and other Top 20 most-expensive U.S. coins (I assume it'll be U.S. coins ONLY).
     
    Last edited: Dec 29, 2022
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  3. GoldFinger1969

    GoldFinger1969 Well-Known Member

    If you eliminate timing bias by using rolling time periods.....I doubt that precious metals can outperform stocks or bonds in 5 years out of 30.

    For coins, it might be 2 or 3 years on average out of 30 and that's with boom periods like the 1970's or times when coins got dragged up by gold/silver rising.
     
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  4. GoldFinger1969

    GoldFinger1969 Well-Known Member

    I have saved some of the news articles from 33 years ago so I'll have to double-check, GD...but as I recall it was more the EXPECTATION that Merrill Lynch and Kidder Peabody were GOING to be getting involved with big cash raises and that is what drove up the prices on the electronic teletrading systems or whatever they were called back then.

    There may have been 1 small fund that actually raised the cash and bought coins but I'll have to check. My understanding is that at least with the Big Kahunas, they never got past the discovery phase.
     
    Last edited: Dec 29, 2022
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  5. GoldFinger1969

    GoldFinger1969 Well-Known Member

    The Trophy Coins that the super-rich buy usually only generate mid-single digit returns over long periods of time (i.e., 1933 DE and 1908-S Norweb Saint).

    Even the Bass Proof Double Eagle that was sold a few years ago and bought for $3,000 before gold had risen in the 1970's only generated about a 12% return.

    Outstanding for coins or illiquid assets, but nothing that stocks can't match or even bond funds with an income component. And Bass' purchases benefitted from buying before the once-in-a-lifetime spike in silver and gold during the 1970's which can NEVER be repeated whatever increases may come from normal supply and demand.
     
    Last edited: Dec 29, 2022
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  6. GoldFinger1969

    GoldFinger1969 Well-Known Member

    Depends on when they started and when they sold...the holding period for coins or PMs determines if you made $$$ or more likely lost $$$, especially after inflation.

    Again....using rolling time periods to eliminate timing bias....coins and precious metals are generally BAD investments.
    Certainly that has been the case over the last 30-40 years. For folks who bought before the 1970's and were savvy buyers or got lucky, this might not apply.
     
    Last edited: Dec 29, 2022
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  7. GoldFinger1969

    GoldFinger1969 Well-Known Member

    Yes, but those are dealing with assets that participate in the growth of the real economy. Both stocks and bonds generate dividends and income, which is about 40% of the long-term return from stocks and 100% from income investments.

    Hedge funds deal in LIQUID investments not ILLIQUID speculations.
     
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  8. GoldFinger1969

    GoldFinger1969 Well-Known Member

    A 7,000% investment return over 52 years works out to just over 8% a year (using 900 as the starting point for the PCGS 3000). That's way below the S&P 500 with dividends reinvested.

    Look again at GDJMSP's chart. You have 3 huge rises/spikes/bubbles in 50 years which does NOT make for a sustainable long-term investing environment. You need to market time in an illiquid sector which is EXTREMELY difficult.
     
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  9. mrbreeze

    mrbreeze Well-Known Member

    @GoldFinger1969

    Really appreciate your thoughts and taking your time to apply your knowledge. You have brought a high degree of information and intelligence to this proposition. As was erroneously thought, I’m not trying to start a fund or convince people to put money in a fund or convince people that investing in coins is wise or not wise. I have my own reasons why I don’t think it would work but you have highlighted a lot of areas I wouldn’t even get to in my thought process. The only thing I would add is that I would consider the whole numismatic market as part of any investment, again which I am not proposing is good or bad or even legal. All coins would be considered (world and US) as well as books, investments in companies, auction houses, us mint products, foreign mint products, precious metals, basically anything tied to the numismatic market. I’m not sure that changes a lot of what you have highlighted, but my thought would be that it would smooth out the rough years and provide more consistent performance over the life of the fund. Again, let me reiterate, I am not starting a coin fund. I am not asking anyone to change their mind about coin investments. I do not endorse or propose anybody consider investing in coins as a retirement vehicle. The things I know, through personal experience and observation, is that coins can make money and I think it costs people money to just accept the fact that they will lose money in coins.
     
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  10. mrbreeze

    mrbreeze Well-Known Member

  11. GoldFinger1969

    GoldFinger1969 Well-Known Member

    Understood, Mr. B, I enjoyed this back-and-forth debate. :D

    The #1 problem with this is what just happened with the Blackstone REIT: you can't invest in ILLIQUID assets and have a LIQUID investment vehicle.

    This is compounded by the fact that the asset class -- coins -- maybe has a market cap of a few billion dollars for the most popular coins in top condition....and you want to open it up to a 1-time flow of a large amount of money...OR....continual flows of money.

    That's like asking a giant stock fund like Fidelity Contrafund or Magellan at its peak decades ago to invest in a microcap stock :D...they can't, it's too small for them.
     
    Last edited: Jan 20, 2023
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  12. charley

    charley Well-Known Member

    At this period of collecting and the Market:

    HODL.!
     
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  13. mrbreeze

    mrbreeze Well-Known Member

    That article points to the one thing I have felt all along that is problematic. @GoldFinger1969 You also highlighted almost the same issue, but from the top side of the equation - scale. I think the sweet spot is exactly where the article leads you to believe. But, how would you replicate that individual’s success to the tune of 100s of millions? Very difficult to do if not impossible.
     
  14. Howard Ryan

    Howard Ryan Member

    I melted down my collection and forged into the perfect sword.
     
  15. GoldFinger1969

    GoldFinger1969 Well-Known Member

    It's an interesting article which makes some good points....but I don't think it's practical to ask coin collectors (hobbyists) or numismatists (professionals) to "create a market" for an underserved niche in the market. Yes, that IS what stock researchers do....try and find UNDISCOVERED stocks that are cheap. But there, you can get paid to wait -- dividends -- and you can see small inflows into your stock or sector while awaiting to be discovered (i.e., NFLX).

    Get-rich quick or Get-rich slowly columns on coins will just not work IMO -- like daytrading, they will have a FEW winners but MANY MORE losers.

    Ironically, I do think that if gold and/or silver are substantially higher 5-10 years down the road they will drag up anything tied to gold or silver except specific coins with huge numismatic premiums (they should go up anyway, though they may lag the bullion rise).

    If gold goes up to $3,000 -- and I could be conservative there -- in the next decade, then it's going to drag up any generic Saint or Liberty DE or any other gold coin. MS-63 to MS-65 Saints will be $4,000 to $5,000 depending on the numismatic premium then established. OTOH, maybe a pricey MCMVII HR Saint won't be affected if you paid $30,000 for it when gold was $2,000/oz.

    BTW, Patrick Heller has some VERY GOOD columns that are good reading, including the one "Some U.S. Coin Prices Have Soared." But he's a bit conspiratorial about stuff like price-fixing, COMEX futures, etc.
     
    Last edited: Jan 20, 2023
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