Return On Investment (ROI)

Cheers!

We hear that inflation averages 3% / year. The stock market will return a mean of 12%. I was wondering if there were any similar statistics involved with coin collecting?

ie, If I were to buy a PR70 slabbed coin, is there a basic ROI that I can use as a rule of thumb?

 

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Hello ...for whats its worth...It has always been speculation on ROI based on many different varaibles. There is never any promise of dedicated percentages of ROI on any investment. Coins (ones of investment grade) are cyclical as are most other markets. The precious metals tend to do well in times of inflation as a saftey hedge against it. Buying MS or PRF 70 slabbed coins is risky in my opinion as you will always need to find a buyer with any commodity. I have been collecting for 20 years and I go by this;

Buy the best coin that you can afford in the area of interest that you have. If and when you think of selling make sure you can live with the conditions of the current maket. What goes up..will most likely come down sooner or later.

For me a MS69 will provide profit potential and guard against the exponential loss you may take if trying to rid yourself of a MS70 that cost you 2 to 4K.
Be careful...be smart..buy low and sell high. Gold is at a 17 year high!

RickieB

 

Hey Frontein.

About the best thing I could suggest is to research some date from redbooks over the past few years, and you could probably figure some broad level of market increase. It won't be very reliable, because the redbook isn't a reflection of actual market results.

I would check back on average inflation and stock market return - your inflation figure seems low, and your stock market is way too high, but I guess it depends on what sort of aspect you're using. The CPI has gone up significantly more than 3% in the past decade, and the stock market - I think you'd be lucky to get 6% without assuming an enormous amount of risk - all that aside, and back to coins.

The problem that arises that it is a consumer market more than an investment market. You brought up the case of a PR70 coin. Well, markets may cool for proofs or high grades, and boom for key date mid grade - that's a result of consumers following trends in collecting. So if you are researching, I would limit your scope to a particular focus.

 

These are interesting comments. I have been told by a couple local hobbyists that slabbed and proof coins will ALWAYS have the highest ROI. But I guess when they said ALWAYS the brakes should have been pushed.

I appreciate the advice as I have most of my investments (401k, IRAs, etc) in the stock market. I primarily picked up coins again as a way to diversify. However, I find researching and buying coins to be addictive

 

very much.

careful, though - a lot of people have lost a lot of money treating coins as investments.

 

thanks for the help. Rick you mentioned trends in the coin market - key dates as opposed to proofs. Where do you think the market is right now?

I've decided not to invest a whole lot in coins - maybe $100 - $300 a month. Furthermore when the kids are old enough to learn history the coins will be a blessing. When I was growin up my great grandma had the coolest coin collection, boxes full of 19th century gold coins. It was always neat to hear the history of those coins. speaking of which, I need to look around and see where those boxes went

 

okay, I have another question as well. This is probably a stupid question, but I have learned through years of experience that stupid questions are necessary... What exactly does "key date" mean?

 

"Key dates" are years of issue, for a given coin, where either due to low mintage or lack of availability, demand greatly exceeds supply and therefore the value of the coin is much greater than for other issue years. 1909- VDB penny, for instance. 1889-CC Morgan. 1895-O Barber dime. Things like that.

"ROI" is a tough concept to nail down factually, and here's why:

Every investment is a subjective thing, because "value" is subjective. Gold is only worth money because we think it is. Stock prices only go up because investors are willing to pay more money for the stock. In many areas of investing, there are sufficient numbers of investors involved so that trends based on standardized human behavior can begin to apply - for most people, strong financial performance equates to "quality" in a company, so they tend to be willing to pay increased prices for stock.

Such is not the case with coins, yet. Although there are specific areas of confidence in the increased value (see "Key Dates" above), other areas are, IMO, bubbles which are guaranteed to pop as soon as the current frenzy dies down (see "State Quarters"). That's because many involved in coin collecting are doing it purely for investment value, without much knowledge of what makes a given coin intrinsically valuable. They're playing the demand game, and as we know, all waves eventually break on the shore.

On the other side of coin collecting are the die-hard collectors (term used in a complimentary fashion here), people who collect based on a love of collecting. These folks are generally well-informed, (rightly) confident of their knowledge of their specialty, and in many cases maybe willing to pay a little more for a coin they really want for their collection. They are also a little resentful of the "investment" types, who tend to introduce chaos and uncertainty into pricing and drive prices up, making it harder to complete a collection.

As if this conflict weren't bad enough, now we have Ebay, the Great Equalizer of Inflated Expectations and Reduced Intellectual Investment. As of this writing, there are over 108,000 current auctions of US coinage only on Ebay. In my area of specialization, Morgan Dollars, there are almost 15,000 current auctions. On the one hand, this is a great thing. There are far more coins available for same for me to pick and choose from than ever before.

However.....

You don't need to know squat about coins to buy or sell on Ebay, and that concept is proven daily by the links we post and laugh at here. It enables the "investment" types to "invest" more easily without actually knowing what they're doing due to sheer availability. It's an anonymous interaction, allowing people to morally justify acting in a much less moral fashion than they ever would in a face-to-face relationship.

This sheer quantity of availability, the ever-increasing numbers of people who are getting into the coin trade, and the gradual dilution of the average knowledge level of the participants, makes me unwilling to offer anything but cautionary advice concerning coins as an investment.

There's no way, to my mind, to accurately estimate what's going to happen to coin prices in the future. I am generally optimistic that, in a broad fashion, prices will continue to increase at a favorable rate if only because of all the "investment" types increasing demand, and their numbers are increasing daily. However, these people don't know what they're doing, and as a result there will be spikes in places you'd never expect spikes, and this weill be happening on a scale that dwarfs anything the more experienced collectors among us have seen. It's a volatile environment, and the only guarantee is that something will be happening. Too many uncertain factors are involved to make any broad generalizations at all.

My advice, if you're interested purely in investment value: stick to key dates, long-established rarities, and gold.

It's unlikely that you'll be able to keep an objective outlook for long, though. One of these days, you'll hold a Morgan with a perfect cheek, or a St. Gaudens, or a Liberty half, and you will be assimilated.

 

I have a feeling that the coin market is going to fall sometime soon...
Most of the time the market is up for about 5 years at the most (it's called a Bull Market) and then it falls...the way coins are now...its been up for longer than it has been before...so I think its going to come down..how much I don't know...as for me..I'm still buying coins...key dates and non key dates...I'm a collector and not one that will only buy when the market is up.

Speedy

 

I will keep buying my silver no matter what the POS does, so in effect I get the 'dollar cost averaging' long term price just like the stock buyers. I'll bet I get a lot more enjoyment out of looking at my coins than they do looking at their stock certificates...lol!

 

What Super Dave said!!

 

Super Dave - Nice post. Very informative.

There are probably two ways to make money in coins. (1) Become an expert, know what you are doing, buy key dates and other rarities, or assemble unique collections. (2) Do something simple, such as buying gold and silver coins near spot prices.

Personally, I view coins as a substitute for buying a foreign currency such as Canadian dollars or Euros, and not as an investment in the stock market sense of the term. Don't expect stock market type returns from a coin, but expect to preserve the purchasing power of the money invested in coins. So I'm more of a (2) trying to become a (1) but not making much progress at it -- yet. It is very tough with a lot of incredibly talented people in the hobby.

 

I read all the above posts & they are all quite accurate but overlooked one point that you need to be aware of and that is if you are looking to buy PR70 or any grade (slabbed coins) you need to research the grading companies.
There are many and one company's PROOF70 may be anothers PR65 which WILL affect the value of the drastically.Coins aren't shares of stock that are identical,they are very subjective.You can look at 2 coins graded the same side by side & you'll pick one over the other.As will your potential buyers down the road if when you try to recoup your ROI.
Like Warren Buffet(not Jimmy) says buy what you like.But remember Billions of people drink Coke every day so that stock is a steady investment(maybe).But coins are different because there aren't as many coin collectors as stock investors so if you buy the wrong coins you may not find buyers.Which is why collecting should be looked at as a hobby that maybe you'll make a few bucks on but not as retirement money.
Good luck and I liked Super Dave's line be carefull with coins you may be assimillated.Bob

 

Good point, hwdbob. In my world, there are two givens about grading:

1) There are only four grading companies which can be trusted to grade consistently, and none of them are close to perfect. It's only MS65 if I say it is, in other words. Grade the coin, not the slab.

2) "PR70" is a scam, not a grade. I wouldn't touch a coin of that grade.

For me, the higher MS grades are the way to go. If I'm to eventually profit on a coin, I'd rather make $10 each on 10 coins than try to make $100 from one. It spreads my risk more thinly, reduces my initial investment per coin, and widens the potential group of buyers.

 

That 12% on the stock market is no longer valid. It has been flat for the past 5 or 6 years. Those 12% days are long gone

 

There is a rare coin index, I seen it, someone here must know it. If I come across it I will post it.

 

Here is a LINK to what I think you are talking about. Good site, and a great guy.

 

well, I do believe the stock market will pick up eventually. After black Tuesday it took well over a decade for stocks to have value again. Stocks are a LONG term investment, and just because they have been dead for 5 or 6 years doesn't mean a whole lot. By the time I pull them out in 30 or 40 years they will have netted a good profit. Stock investing is a hobby of patience

 

You may be right or we may have a new paradigm
http://finance.yahoo.com/q/bc?s=^GSPC&t=5y&l=on&z=m&q=l&c=