Featured Market Grading vs. Technical Grading

I know we have been over this bridge a million times, but recent comments by someone here have made me think about this whole market grading vs. technical grading thing and although I have tried to explain my point of view in the past, I don't think that I have done so well enough to make the point clearly as it is in my mind.


My point of view is that there are 2 schools of thought developing in numismatics lately. I am going to focus on the technical graders, because that is the side I think I fall to.

To a collector, there is less of a difference in opinions when a coin is technically graded (either detail is there or not) than any other way. There are STILL going to be differing opinions!!! It is a matter of opinion whether or not a coin is attractive (part of the technical grade) for example, but for the most part whether detail is on the coin or not is more of (but not completely!) a black-and-white issue, and one that I personally feel some comfort with. It was how I was originally taught to grade coins.

When a technical grader looks at a coin that for market reasons receives a higher grade than it's technical grade or receives lenience in grading due to market factors it doesn't make sense to us. I can understand it's value being high, but it's grade is more of a black-and-white thing to me. I personally don't think that the value of a coin should indeed influence it's grade. I think that is the cart leading the horse.

In the case of coins like the 1926-S Buffalo nickel, a coin with a full-horn is almost non-existant, and therefore if the coin is not uncirculated, it becomes a debate as to grade above VF because of the horn. I am NOT getting into the horn or no horn debate, except to say that technically graded, many would not receive the grade that they have because of the horn. If you were to say, for example, "Well, if you grade by the detail in (insert your favorite other buffalo detail here) you can see that the coin is only worn to (insert wear point here), but that is not how it is explained to us, we have been told that because there are none with full horn, that ones with 3/4 horn are now acceptable for XF grades. I think it is THIS issue that divides us.

So before all of the market graders tell me I just don't understand the world of numismatics, let me say that I work in the coin business in a VERY successful shop and I assess the value of coins every day. I understand market grading and that it IS a definate part of the way the coins are graded today. I can use the system, even if I disagree with it. I just tend to fall to the side of technical grading in this debate and think that what I espouse makes sense.

I think as we go into the future and as things always do, standards will change and grading will evolve again and many may look at the market graders much the same way that they look at technical graders now.

just my 2¢, I don't want to start a fight, (SERIOUSLY!) I just want to make a point for a group of individuals here that may have not clearly enough made their point...

 

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We must be in the same age group, starting collecting in the early 60s, you had uncirculated and proof coins from the mint, never had a numeric number assigned, then they put the coins in capsules, might as well seal the coin in poly, the grading service is only an opinion of the persons conducting the service, to me a proof coin from the mints is a grade 70, what is next, a 75 grade. Too much hype going around in this hobby, the neighbor purchase a gold coin grade 63 from a broker at paid in excess of 15k, actual value less then 3000, too many salesmen hyping up the values of many silver and gold coins.

 

I am new to this am educating myself through books and subscriptions to various sites. Tell if I am wrong the PCGS site has online grading photos. If I am looking at a coin example 1921 mercury at according to the online photos it grades at F12 If I send it in to be graded it could possibly grade higher due to the number of coins available? Am understanding you correctly?
Thanks,
Sandy

 

I agree on the technical grading. I have been collecting for years and that's what I grew up with. The "market factors" factors don't belong in grading since they are just a guess (a.k.a. SWAG) and unfairly impact market pricing. Perhaps in a few years that high grade given due to market factors will become worth less as whatever drove that grade becomes less important? How many times have we seen the prices of a particular coin go wild and then drop after the craze wears off? I figure that is where this may be headed.

There have always been hucksters in the coin business selling dipped coins as BU, "rare" VF common date silver dollars and overpriced gold coins as investments. Education is the best defense against that. For legitimate sellers, I figure the more they advertise, the more overhead costs are built into their pricing.

fisherwomen3325: A Mercury dime graded AU50 will be just that no matter if there is just one or one million in circulation. When you get into higher grades (like maybe an MS68) then everyone starts splitting hairs using CSC's green bean sticker, Eagle Eye Photo Seal, PCGS Plus and the like to assume greater value attached to that grade - yet, technically, there is no difference between that MS68 and one without all the extras.

 

I agree with technical grading and market pricing. A grade should be based on condition of a coin and nothing else. Toning, luster, eye appeal should all change the value but not the grade.

 

Correct me if I'm wrong here, but aren't the historical origins of "technical grading" and "market grading" essentially one and the same?

With the rise of the collector market in the early 20th century, there was a growing call for a standardized grading systems with more meaning and specificity than the "Good" "Fine" "Uncirculated" "Proof" categories that predominated in the late 19th and early 20th Century. Enter William Sheldon, Numismatic legend, who developed the 70 point Sheldon Scale for grading Large Cents. The original intent of the scale was as a standardized method for calculating the value of large cents via multiplication. As I recall, there was a base value applied to particular coins, and then they were multiplied by whatever their grade number was, meaning that if you had some large cent worth 15 cents when it was barely identifiable (Basal-1), then if you had it in G4 it was worth 15cents X4= 60 cents, if you had it in MS-60 it was worth 15cents X60= 9 dollars. Certain characteristics were associated with each grade.

The system broke down, of course, because markets change and there are certain coins where the difference between EF and MS is much larger than for others; Sheldon liked to classify things, and like his attempt to classify humans into categories of endomorphs, mesomorphs, and ectomorphs based on their physical characteristics (with particular intelligence levels and other traits associated with each category) trying to make predictions based on mass groupings of things with widely varied origins tends to fall apart.

The coin market goes through fads- toned, blazing white, proof, uncirculated; also things like "eye appeal", that in addition to "color" also tends to include sharpness (and with very old coins, positioning) of strike.

This is further complicated by the fact that with the advent of grading agencies and the advance of technology, it is now MUCH more possible than ever before to look at the comparison group of coins for a particular year/mint/set of dies; I hope that grading agencies will make more of these than the "top 5" available to collectors in the future (imagine being able to see a high def photograph of every coin for a particular year and mint that had been graded OR rejected by NGC and PCGS; that would be relatively easy to do if it was something that the agencies prioritized). Additionally, it is now possible in many new ways to look at the surface of coins to determine "originality;" if the market ever turns towards originality and away from "dipped" coins (or those altered in other "non-abrasive" ways), the technology is there. If grading is reduced to a) amount of wear and b) number and length of abrasions (and maybe even something like "reflective capacity" if you wanted) you could program a computer to scan it and issue a definitive grade, and one day even make that technology available to the public. In any case, the market will still decide what it wants, and if someone is willing to pay 10,000 for a particular F-12 then that is what they F-12 is worth.

Whatever a grade from a grading agency means, the methodology should be widely publicized, standardized in SOME way, and free. If grades are simply an attempt to reflect "market value," that will always fail as market values shift. If a coin is upgraded from MS-63 to MS-65 because it has been "lightly dipped" white, or because it has beautiful toning that makes up for surface marks, then those grades will have little meaning when market values shift. Similarly, if for the case of the 1926 S Buffalo you describe, all F-15's get upgraded to VF30's, and all VF-30's become EF45's and all borderline EF's become AU's and THEN someone discovers a bunch of 26Ss with full horns, well, the market will change but you have a lot of mis-graded coins. I don't know if the die's used makes that scenario impossible, but similar things happened the the hoards of uncirculated Morgans were discovered. If we do reach a point when there is enough centralized knowledge about the dies used and the actual coins still in existence makes it possible to have grades for each year and mint (maybe even each die!) possible, then that's great, but that information should also be publicly available and free.

The real recent historical need for grades, and for professional agencies, is for so-called "blind transactions" where coins are being bought by people who can't see them (or see them well) AND to facilitate exchange between investors who don't know enough about coins to grade them/determine originality themselves. I think the first problem will disappear with technology- people already usually want to see coins even if they know the grade. The latter sector won't go away, and it's part of what keeps coin collecting exciting for a lot of people- the idea that because this is "inexact" and "no one really knows," that AU-58 coin (graded by a service as such or not) might ACTUALLY be an MS something, and an MS-63 (graded by a service or not) might ACTUALLY be an MS-65. There's not a huge margin of error, but there's a lot of money to be made in that margin. It can make collecting a bit like gambling, and grading agencies a bit like casinos (I say this as a long-time patron or both).

I work in assessment, primarily in higher education, and I can tell you that anytime you try to categorize something subjective (an English paper rather than a math problem set) there are going to be margins (students with a B+, one point away from an "A", kids with an A-, one point away from a B), and those students in those margins are going to want to know why (and if they are below, they are going to push for the extra point!). Teachers also tend to have issues with "eye appeal"- how nice the handwriting is, or the spelling is , or the vocabulary is, or how long the response is rather than how correct and complete the answers are). The best practice I have seen in this area is the use of rubrics, publicly available and clearly explained, that delineate levels across multiple categories (weighting some more than others, if necessary) and use the results across all of those categories to arrive at a grade. My guess is that most graders are doing something like this mentally, or aspire to, but don't make make those standards clear and explainable in a meaningful way.

 

well thought out and developed argument!

While Sheldon's system (as you pointed out) breaks down due to changes in markets over time, the current idea of Third Party Grading is a grade reflective of the coins state of preservation and eye appeal rather than value. IOW, the Sheldon system has been applied to a more technical approach.

The idea of market grading is not the grading of coins based solely on their value, but rather bumping up the grade or relaxing the grading standard based on the value of the coin. A "preferential" treatment from the TPG based solely on the fact that the coin is valuable or rare.

 

Well for what its worth i would like to say that most if not all serious collectors already know who is the most relieable Graders.I myself prefer A.N.A.C.S. but the other Big 4 i honor also .However anything under these 5 i wont even look if i am purchasing .This is just a small mans opinion I also compared 3 of the 5 when i was choosing a Grade in 2008 .hence anacs worked best for me at that time and to tell you truth they have only gotten better in my opinion which is why i just sent a group but we wont be able to see them here because i am only allowed none to 1 picture per album because my pictures are supposedly to big .and i wont degrade my pics to post them here but you can see them ALL on my eb%%

 

5?!? PCGS, NGC, ANACS (I disagree that they are top tier), ICG (definitely not top tier) and .... ?

who are the 5 of which you speak?

 

i stand bye ANACS,NGC,PCGC as top 3 its my opinion and my money.Also never had a coin from these 3 de-value..There isnt 5 and that i mispoke of.Unless you add our own Govt Mints and/or a 1st Class non-Govt Mint..These 2 would make the five...

 

I am an old enough whom I could trust the name of a company or the person who will certified my coins.. Then I came with the name of Mr. Alan Hager because he is the one who invented the coin slab.

 

For a good analysis of technical grading vs. market grading (at least for early copper), get a copy of http://www.eacs.org/GradingGuide/GradingGuide.html

 

I wish the grading scale was simplified. The Sheldon scale has too many grade levels. A simplified scale would better allow a collector to fine tune their own opinion of a grade and value. A scale would still be needed for TPG's that offer financial compensation for an error or omission. However, I believe an authentication service could also do well into the future. That is a service that basically tells you whether the coin is authentic or counterfeit. That's it. I think this type of service could really do well as more and more people begin to lose faith in TPG grading standards. I know people are already starting to question TPG's standards and in some cases motives. Just look at the ANA show last year and the launch of the 50th Anniversary Kennedy Labels fiasco, for example. In the end money corrupts ALL.

Sometime last year I proposed a new and simplified grade scale (see below).



This was just a quick draft I came up with. It might not be perfect, but you get the idea. I also think the wording on something like this is much less confusing - especially for the layman.

 

I would agree that there is market grading, but it isn't as widespread as one thinks. In my opinion, key dates are definitely the recipient of market grading. For instance, 1889CC Morgans are often graded more generously than coins of more common dates. On the other hand, an 1884s, which is not rare in circulated grades, but quite uncommon in uncirculated is oft times graded harshly, compared to others of more conditional high supply. So, the market grading aspect can oft times work both ways--to the advantage of the owner of the coin, and against at other times. Very often, the TPG does not want to risk making the coin an expensive coin, unless it is very clear that the specimen in question is solidly the higher grade that one expects. Likewise, certain dates are often slabbed, when questionable if they would grade due to damage, if they were more common. Market grading is an obvious inconsistency, but an understandable one, as often, the value can be 10 times that of one grade lower. Likewise, the TPG can be reluctant at times to give the benefit of the doubt when doing so makes the coin market as a very expensive coin.

 

The problem with just 4 grades is that there would be just 4 prices.
In reality, there is a continuum of coin condition (excluding damage, bag marks, toning, etc.). The question is how much gradation there should be to illustrate a coin's condition. If I can use adjectival grades, my recommendation would be:
Poor-1, Fair-2, AG-3, G-4, G-6, VG-8, VG-10, F-12, F-15, VF-20, VF-25, VF-30, VF-35, EF-40, EF-45, AU-50, AU-55, AU-58, MS-60, MS-63, MS-64, MS-65, MS-67, MS-69, MS-70.
Each of those 25 grades and sub grades can be distinguished(at least up to MS-69) by either eye or a low power loupe.
The other thing to remember is that Grade is just s starting point to justify price (or bragging rights).

 

I like your post, but I don't think that having only 4 grades means having only 4 prices. I think the grade should only be used to describe the amount of wear on a coin in general. From there a buyer and seller determine the coin's precise grade and value in their mind. Unlike Sheldon scale where very finite grades are assigned and distinguishing one grade from the next is very subjective and differences in price are tied into this subjectivity.

In summary, I don't think prices should be bound to a number grade. I think buyers and sellers should determine what a coin's value is to them (while using the general condition/grade as a guide only) and then offer accordingly. Nowadays I find substantial differences in prices are tied to grades where the difference in those grades are too insignificant and too subjective.

 

What we are trying to do is rate or describe two different aspects of a coin using one system. What we are doing with technical grading is describing the physical characteristics of a coin regardless of market price. I also think the grading system should be universal and applicable to all coins. A field is a field, a relief is a relief, a rim is a rim, so on and so forth. I think a second grade should be developed that addresses rarity and technical condition of the series. One coin might get a MS64 with R70 and another, more numerous coin of the series in the same technical condition might only get a R12. By the same token all MS64's are in the same physical condition, even across different series coins.

 

I still like my daughter's grading scale from back when she was 5...

Pretty
Okay
Yuck

 

As most of you know, I'm very new to coins and grading. Like most in the hobby, I want to learn how to grade like the best of them. I do not want to rely on what the label says on the holder. And with a few bumps in the road ironed out from when I started, the process is becoming more clearer to me every time I look at a coin. And my biggest issue was I was looking at coins with blinders on. Descriptions and pictures are a great tool in your grading toolbox, but even they can be misleading and/or not showing the whole picture. Every coin is different and no two coins will look identical, within a grade. It wasn't until certain written descriptions really sunk in, and the biggest one for me was this.....

MS70: A flawless coin AS IT was minted.

So to me, a coin, whether it was struck with early or late state dies, well or weakly struck, has a chance at being a MS70, if all other aspects of the minting process, and there after are uphold for that grade. I do not feel a die set that shows signs of wear, or if the dies were not set up in the coining press properly, would be considered flaws. It's part of the minting process "issues". Some might accept coins with those issues, but most will not, but I don't feel they have anything to do with a coins grade.

The good part of the coin community would say that a Lincoln wheat cent, would need full seperation lines on the wheats, to at least grade VF20. Ive seen uncirculated cents with no seperation lines because of wear or grease, so does that mean that coin can not grade higher that a F15? I don't think so. It might not be a good representative of a uncirculated coin, but it's still uncirculated by the grading description MS60.

 

The proposed "new scale" is merely a return to the old Poor, Good, Fine, Very Fine, Extra Fine, Almost Uncirculated, Uncirculated old days. Grading was beyond subjective in those days (most collectors who propose using word grading did not collect or were not alive in those days). It would be a huge retrogression from the Sheldon Scale.