Collecting versus Investing

Discussion in 'US Coins Forum' started by HawkeEye, Jul 17, 2017 at 3:58 PM.

  1. HawkeEye

    HawkeEye 1881-O VAMmer Supporter

    Over the past months there have been a lot of posts here and on VAMworld about the prices of coins. It seems that there are many who believe the prices have all declined so I decided to do some in depth study of the 1881-O Morgan Dollar, our specialty. This information will not be indicative of all prices, nor will it be perfect for all Morgan Dollars. But it is directionally correct and probably helps sort out what has been happening and why we feel the way we do about prices. I WANT TO BE SURE AND GIVE PCGS SOME CREDIT HERE FOR HELPING ME RECONSTRUCT THE PRICES. I HAD MOST BUT NOT ALL AND THEY FILLED IN THE BLANKS.

    http://www.1881o.com/pricing.html

    The above link shows the analysis by grade for the past decade, and here is what I believe we can learn from this past decade. (There a few pictures missing where we have no representative coin for a grade)

    As the financial markets declined sharply there was a flight to other assets and coins benefited in the higher grades where prices spiked. But the usual wisdom of buying the best and holding did not work because as other markets recovered it was the higher grades that suffered the most. If you bought and held (a collector) coins at MS64 or lower in this series you have done quite well and as a collector you feel differently than a pure investor.

    If you bought above grade MS64 you had only a 50/50 chance of your assets maintaining their value. Since the dollars at play above MS64 are large you could have suffered significantly since those coins that dropped did so in a spectacular fashion and those that rose did so modestly. We might also conclude that the introduction of the + grades has had an uneven effect, probably because of demand and the unpredictability of a coin grading as a +. For example, grade MS65DMPL suffered the most and dropped almost $28,000 from the high. A similar loss was seen with the MS66 which dropped almost $10,000.

    As always with coins, something fun to dig into!
     
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  3. Endeavor

    Endeavor Supporter! Supporter

    Nice website. I too find it fun and interesting to study the "investment" side of collecting. It looks to me though like the creation of + did affect the pricing (when looking at prices since 2007. When did they start +?

    Have you also studied the correlation between value and price of silver? I don't think there is much affect because rarity overwhelming trumps melt value, but it's still interesting to see if there is any affect or pattern.

    Thanks for sharing.
     
  4. beef1020

    beef1020 Junior Member

    I'll second the thanks for posting the write up, very interesting read, and not what I expected from the thread title.

    I believe there is a large correlation between the price of silver/gold and collectable coins, but not in sense you are thinking. I believe huge run ups in silver and gold get a lot of people interested in coins. This flood of interest drives up prices for a while, until the interest wanes. I believe we are on the waning side of the last cycle, where people who got into the hobby 5-10 years ago have had their run and are not slowly leaving the market.

    Combine with baby boomers aging out, I am not bullish in the near to medium term on the coin market. I believe we will continue to see demand slowly trend down. As a collector, I welcome the slowdown, I can add more to my collection.
     
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  5. Endeavor

    Endeavor Supporter! Supporter

    Yes, I agree that any affect from metal price on the value of a rare coin (high numismatic value vs melt value) would be made indirectly by drawing more people into (or away from) coins. It's at the extreme prices (near high/low) that it should be noticeable.
     
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  6. HawkeEye

    HawkeEye 1881-O VAMmer Supporter

    While I think there is some relationship with metal prices, it seems to play more with gold that silver because of the high intrinsic value of gold. With an 1881-O Morgan (and others) an MS64 is about $175 so at most the silver value would be less than 10%. At the MS65 level it is less than 1%. So it seems to me that it is more psychological than financial when silver spikes, and even then it seems to go to things like Silver Eagles and Maple Leafs.
     
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  7. green18

    green18 Sweet on Commemorative Coins Supporter

    Very simply, I don't want to invest when it comes to collecting. Investing requires work, research, and an ear to the ground. Why the devil would I go there? I'm looking to enjoy myself, so to me, Investing and collecting are mutually exclusive.
     
  8. Paddy54

    Paddy54 Variety Collector

    Besides today's standards Ken aren't the ones we grew up with..... what most don't understand is that like other things of "Value" there's a market and those whom control that market are the ones making the money. I am glad to be at this point in life....enjoying a hobby for over 50 years.
    Yes have made a few good buys and sells.
    I also have screwed up lost or broke even....that's life. But at this point I am content with the ride....no need to super size it....no need to keep up with the Jones.
    When it's all said and done ya can't take it with you! So appreciate what ya have now,enjoy the ride, as one never knows when or where the road will end.
    If you want a career in investment go to school get a degree ,then hang it on your wall....as unless you got street smarts that degree ain't worth the paper it's printed on.
    Experience is the key to success the next is understanding your downfalls learning from them, and know that more is learned and retained from mistakes then triumphs. They are short lived life experiences ......Like the day I scored the hat trick in a LaCrosse game in 1972 that was top of the mark. Today just a memory .
     
  9. green18

    green18 Sweet on Commemorative Coins Supporter

  10. orifdoc

    orifdoc Well-Known Member

    I don't think you can have any sort of emotional attachment to coins and be "investing" at the same time. Unless you're a dealer, it's more likely to be speculating than investing anyhow.
     
  11. Paddy54

    Paddy54 Variety Collector

    One of my favorite groups.....better sound from the studio then in concert......but no matter what got to ask the question "Are you with me doctor Wu?" LoL and did Katie Really lie?
     
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  12. green18

    green18 Sweet on Commemorative Coins Supporter

    One of my favs.........but I'm no doctor. Far from it. Let us all beware of 'spindoctors'.......yet, some of that, people buy.
     
  13. Paddy54

    Paddy54 Variety Collector

    I don't believe that that group ever did an album that I didn't buy..... nothing beats being behind the wheel and Bodhisattva hits the air waves..... look out I can get you across DC before the song ends :)
     
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  14. Endeavor

    Endeavor Supporter! Supporter

    I don't think they are or have to be mutually exclusive. The very reasons you state (bolded quote above) is why I think they could be a good combination. The key is to find the common ground between what has investment potential and what you enjoy collecting. It can be easily illustrated with a Venn diagram. I find if you do something you enjoy, you are more likely to be better at it. Just my observation.
     
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  15. Endeavor

    Endeavor Supporter! Supporter

    You can have emotional attachment, you just can't let the emotions blind you. When you think about it, everything you do is emotional. Even when you hate something it is emotional (negative emotion).

    So any way you feel about an investment, good or bad, you just can't let it control you.
     
  16. HawkeEye

    HawkeEye 1881-O VAMmer Supporter

    I think this is true only if you are looking for short term profits. What the data showed is that for the normal collector things worked out. Most will never spend $10,000+ for a coin and look for dates/mints/varieties well below that price point. In my example you would have done well if you never risked more than $195 on a single coin. It was the speculators who were hurt, not the true collectors.

    It also shows that economics still works and if you can wait for the bottom of an economic cycle you can buy the higher priced coins (some can anyway).
     
    Last edited: Jul 18, 2017 at 6:31 AM
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  17. GDJMSP

    GDJMSP Numismatist Moderator

    OK, but the link you provided only shows the record for one coin in various grades. And you can find all sorts of things by looking at 1 coin. Can ya find some that have done well ? Yes, of course. But you can also find some that have not done well.

    As for this -

    Is that really true ? This is what I mean - instead of looking at one coin I think you need to look at the market as a whole to find the real answer, the true answer as to whether or not collectors have been hurt, or just the speculators have been hurt. So let's do that, and use info provided by PCGS just like you did.

    This is the market as a whole since they began tracking it.

    [​IMG]


    As a whole, the market is now the lowest it has been since 2003. That makes it kinda hard to say that collectors have not been hurt for if you bought coins after 2003 then you are losing money on them.

    Let's also take a look at the Morgan and Peace dollar market as a whole. This is since they began tracking it.

    [​IMG]


    The Morgan and Peace dollar market is now lower than it has been since the last bull market started in 2001. The last time it was this low was in the late 90's. So if you've bought Morgans or Peace dollars since '98 - you've lost money. On paper anyway. And that's almost 20 years, certainly not what I would refer to as short term.

    And this is the last 10 years for the Morgan and Peace dollar index.

    [​IMG]


    Looking at those PCGS graphs kinda paints a different picture. I think it would be impossible to say that collectors have not been hurt.
     
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  18. HawkeEye

    HawkeEye 1881-O VAMmer Supporter

    Dang my PC logged me out and I lost my reply, but here goes again! If my other post shows up it will be similar, but not identical.

    You are right that my analysis only covers the 1881-O Morgans and I did not mean to imply more that conclusions I believe we can draw from those statistics. In other conversations with Morgan collectors and investors the data supports what I have heard. I am an individual collector and to a lesser degree an investor. For every type/variety/year/mint it seems that there is a price point where investors come into drive the pricing and average collectors must exit the stage.

    In the top charts the big spike back in the 89/90 era was probably caused by Black Monday and the S&L crisis. If you bought back then, then as the chart shows you will probably never recover short of the Zombie Apocalypse. The index would have to triple to make you whole. Like the Hunt Brothers, those investors have come and gone. Average collectors could not have driven the coin market that high and I assume rarely or never influence pricing on an individual basis. Many of those investors may have passed into the great beyond, so it is just too far back.

    The PCGS 3000 cuts across all types/varieties/mints/grades, but focuses on the upper end of each. PCGS (and maybe the other TPGs) focus primarily on MS/PR coins and the 3000 Index is a reflection of that fluctuation. In just the Morgan area they focus almost exclusively on grades MS63 and up. Only the 93-S gets them off that and even there they include seven grades with a combined value of $1.3 million. Just the MS65 sells for $650,000 and only investors will ever see or own one. A type set of Morgans in MS65 now goes for $3.2 million and most of us will never see that. In my opinion there is little reason to believe the 3000 Index would play out differently for different coin types. PCGS would not track the trend of a Lincoln penny that sells for a dollar, it is irrelevant to the index.

    The Morgan/Peace chart may speak directly to the point I was making. The big spike back in 08 was probably due to the stock market crash that sent big investors in other directions looking for safe havens. These investors don't come in and buy 1,000 MS63 coins at $80 each. They buy an MS68 something for $80,000 in a single transaction and drive the short-term upper end prices up because of demand and scarcity. At one time several of the brokerage firms tried to bundle rare coins as securities. For sure these were investment grade and the buyer never saw the coins.

    I believe the drop in the Morgan/Peace index since 2015 is a similar event. As investor confidence has returned people have moved back to the stock market and away from alternatives. You also have the problem of the large numbers of Baby Boomers who have not planned for retirement and need to liquidate coins to live on as they age. The boomers need income producing assets, not long-term capital gains. Long term for them is years, not decades. There may be more sellers than buyers for quite a while if this is true. The big investors often care less about the hobby and move big dollars, and those are in the top grades. I believe the true collectors are in it for fun, education, and association with like-minded people. A collector who loses 25% of a $100 purchase lost lunch money; an investor who lost 25% of a $650,000 purchase will probably look for a more stable investment.

    But you made me think and I like that. From my perspective the data I presented is representative of the markets and what Morgan collectors and investors have seen over the past decade. You see it differently and I respect that. Thanks and have a good evening.
     
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  19. Endeavor

    Endeavor Supporter! Supporter

  20. GDJMSP

    GDJMSP Numismatist Moderator

    It seems that every time I use these graphs somebody tries to explain away their significance, their validity, by saying that the PCGS indexes are not a valid indicator of the "true market".

    Well HawkeEye, the point your missing is this, the coins that the PCGS indexes track are the coins that are most collected, the coins that make up the majority of the coin market. That's why those coins were chosen when the indexes were created.

    For example, in the Morgan and Peace dollar index, yes they track every Morgan, every date & mint, in grades ranging from 63 to 66 and a some but not all of them in 67. And those are exactly the grades in which most collectors collect those coins. The overwhelming majority of all Morgans being collected are graded from between 63 and 66, with some 67s thrown in there.

    To see the proof of this all one needs to do is look at the pop report. Look at the numbers for the totals of MS grade coins. The overwhelming majority of all Morgans graded are either 63 or 64. In point of fact, the number of coins for either one, 63 or 64, all by itself, far surpasses the total of all other grades combined. And when you combine the number of coins graded 63 & 64 together - well, that pretty much IS the market.

    upload_2017-7-19_8-46-25.png


    Now look at the numbers for the VF20-AU58 coins.


    upload_2017-7-19_8-47-25.png



    There is no comparison, the truth of what I am saying is right there and plain to see.

    So it's pretty dang hard to claim that the PCGS index isn't a valid indicator of the true market for Morgan dollars. In fact I'd say it's impossible to make such a claim given the facts. And keep in mind, none of this is "my information". Every bit of it comes directly from PCGS themselves.

    And no, none of this information reflects the reason or reasons as to why the coin market moves up or down. But then the reason doesn't really matter. The only thing that really matters, in this discussion anyway, is what the market is actually doing !
     
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  21. HawkeEye

    HawkeEye 1881-O VAMmer Supporter

    I did not say they did not track them all, only that the PCGS3000 is an investors index and actually proved my point not disproved it.

    As to tracking them all I obviously know that since for the 81-O I showed them all. But there are a lot of problems with the population report (and to some degree popularity) and we all know there are a lot of issues. No TPG can track crossovers and crack outs, so the population reports for coins above about AU58 are somewhat suspect. In all likelihood collectors would not resubmit a coin below AU58, so those population numbers become more solid the lower you go.

    Most Morgans graded are as you said in the MS63-MS66 range, but that is a function of mint production and PCGS pricing. When it cost more to grade a coin than they value it after grading, then submitting the coin for grading is pointless. In many cases this can happen at mid AU grades. Morgans were never intended to be widely circulated and storage methods, conditions, and production quality all dictate grade. Few made it to the upper grades because of bag damage.

    I also don't think you can look at the MS grades generically since perceived Mint production does impact rarity. None of us know what coins were melted by the Pittman Act, so rarity is also directionally correct only. An MS64 81-O has a totally different rarity than an 81-S MS64 because of the number graded. This is an indicator of rarity but no guarantee. Ask those bitten by the Redfield hoard release about rarity and then think about a discovery of 93-S hoard and what it would do to collectors and investors. It would still be rare because of the original Mint designated production run, but maybe not super rare in the top grades.

    For every Morgan date/mint there is a price point where investors come in and it is easy to spot. For every coin the value goes up by a fraction until you hit the investment point. Then it goes up exponentially from there. This is a function of rarity but it prices a lot of pure collectors out of the market. In my example on the 81-O web site I peg this transition in the MS65 range where the price goes from roughly $175 for an MS64 to $1270 for an MS65, and then on to $2715 for an MS65+, etc.

    If I am a collector, and looking for varieties, I can stop about MS63 and acquire them for $75. Only when I cannot find them would I move up the grade/cost scale. If I am an investor I have no interest in any coin below MS65 because buying in quantity is just too hard. I am probably an unusual collector because of the narrow focus and working to produce a full VAM and grading set. By the end of the year I will probably hold about 5% of all PCGS graded 81-O Morgans. This is an unwise investment, but a great collection. I am doing it for educational purposes and to help others. If I wanted to invest in 81-O Morgans I would have bought about 3 or 4 MS65DMPL or higher coins. I would be cussing because I would have lost a lot and learned nothing other than to invest in something other than coins.

    Take any Morgan date/mint and do the same analysis and I think the same facts hold. There is an collector/investor break point and it is the investors not collectors that are suffering the most.

    Great discussion and thanks.
     
    Last edited: Jul 19, 2017 at 9:14 PM
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