The benefits of investing in coins

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You didn't hear many people talking about precious metals as great investments until the past couple of years. I remember the same pundits talking about the same thing in the late 1970's. On the other hand, I did hear a bunch of people talking about real estate as a great investment until a couple of years ago. I didn't buy any of that then and don't buy the precious metal thing today. I don't consider the investment in bullion the same thing as collecting. It is an investment decision based on risk while coin collecting is more of a hobby.

 

I think if someone asks on a message board if investing in coins is a great investment then for them the chances are 99.9% the answer is no.

I still say some coins can be a great investment though, but it takes timing and patience. Those that bought the gold buffalo fractional coins from the mint last year did very well for example.

 

I think a problem that most people have who decided to invest in rare coins is that they don't realize the amount of information and expertise that exists in the field, meaning people on the other side of transactions are usually going to know the market better than you do. There are also transaction costs, insurance, storage (assuming you store them in a bank safety deposit box).

Travers' books, by the way, are interesting but as I recall they focus on the ability to make money by becoming a crackout artist, an art that in the best of times was hardly a sure thing. From what you read and hear, most crackout artists have gone into hibernation until the TPGs ease grading.

All in a way of saying, it's nice to hope not to lose money but I think Doug is generally correct and you should get into this hobby with the expectation that you will lose money by any fair measure. On the bright side, you won't have to worry about the tax consequences that Illini points out.

 

How many coin collectors actually sell their collections? They might sell a couple coins here and their but collections are usually sold by the heirs of the dead collector.

Most of these heirs are not collectors and most collectors dont document their collections so most collections are sold ad hoc for whatever seems reasonable at the time. They never reach their full investment potential so the point is moot.

Do your heirs a favor and leave them information as well as boxes and albums full of coins otherwise the investment value is a non factor and all of these discussions are useless.

 

....1989 was a BAD year for all those thousands of people who thought they were beating the stock market with their certified MS Morgans....

 

I feel bad for collectors and coin dealers who took a bath on these, but the people whe entered the coin market temporarily to make a quick buck get no sympathy from me. Not doing research on risky investments is a risk they knew could be disastrous.

 

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." -- legendary securities analyst Ben Graham.

 

Two ways I see coins as an investment:

A)Short term flipping
B)Long term value/price appreciation

 

I disagree that investing in coins is a losing proposition - it doesn't have to be. Doug, you mentioned collectors who try to sell their collections end up taking a loss. That may be true for an entire collection because only one or two coins in most collections are rare.

However, when I get asked the question about what coin is a good investment, which I get a lot, I advise them if they truly want coins for investment purposes, then buy the best quality key dates they can afford. Forget all the other dates in a series, concentrate on quality key dates only. If you were to graph pricing guides for key dates over the past several years, you would see a steady upward line.

1877 Indian cents alone increase in value about every few months or so. A few years ago, the 1909-S vdb in Good was selling for $400 or so. Now, that same grade sells for $650+ and that's one of the lowest grades. Only two years ago, I was selling 1909-S vdb in VF for $800, now that same grade sells for $1200.

Even the 1955 double die has gone up tremendously in the past 5 years. I bought a few in certified AU58 about 4-5 years ago for $800-$900, and now I can't buy one in the same grade for much less than $1700-1800.

So IMO "investing" in coins can be profitable if you buy the right coins.

(Note: the coins and grades discussed above assume a problem-free coin.)

 

In 2005 I "discovered" eBay. Silver had climed to around $7/Oz, but I took a chance and bought a whole bunch of Unc dime, quarter, and half rolls from the '50s for about 20% over "melt". I didn't know if silver would stay at that "lofty" price, but hoped the numismatic value of the coins would minimize the downside risk. In hindsight, it turned out to be a pretty good investment.

Last year, I bought an unopened US Mint box of eighty (80) 1962 P&D Mint Sets. I paid $22 per set for the lot. They retail today at $25 per set. Some may say this was a dumb investment. Perhaps, but I'm betting these sets will appreciate nicely over the next 20 years...time will tell.

There are coin values out there if you trust your instincts and take a chance. :thumb:

 

This was an outstanding reply to my post. Double Kudos. I will definitely think on all that you have written here and attempt to partake of your wisdom. I also hope other new coin collectors will read this and learn from it:smile

 

I would also like to say my response was more so because I felt it a little cold when you responded like this. I do trust that you have a great deal of wisdom to share and learn from and I thank you for giving such a detailed explanation for us all to think on and not just blowing up on me which I half expected you were going to do:whistle:

 

If knowledge of coins would make one a good investor in coins then there would be alot of coin investors here. Instead we have alot of knowledgeable coin collectors here. This is for two reasons:

#1- The majority of these people have this knowledge about coins because of love for hobby. The key word is hobby.

#2- Armed with this knowledge most of these collectors realize the fact coins are not usually that good of an investment. If it were any other reason they would be investing.

Also is it worth the time and effort? Let's say I get-up next Saturday morning and drive to a coin show and spend the better part of the driving to and from the show and looking at coins to buy as an investment. So I spend 6 to 7 hours and gas to purchase three coins I think are a good investment. I spend five thousand dollars on these three coins. I want to buy the highest grade possible to expect a better ROI.

Six months to a year later I sell the three coins for a ten percent profit of $500.00. Was that good ? Let's say not bad at all. I post the results of my purchase and sale here on Coin Talk, and get congradulated by many.

What I didn't post were my previous two outings and more or less the same thing with one difference. The other two on one I broke even and the other I actually had a loss of two percent.

So now were these three trips of coin investing worth it? I think not.

Some people got very lucky in '09 flipping coins bought from the mint, and that is great for them. But, I think these circumstances only happen on rare occasions when the planets are in proper alignment. Most of the people here that made a few hundred flipping '09 coins were just as shocked by it as a lot of the readers.

The real estate market in Florida is horrible right now, but there are people making a fortune from it right now. Their story gets published in the paper and some individuals run out and try this themselves. They make a purchase on a home or condo that is definitely underpriced and they buy it for $0.58 on the dollar that it sold for during the peak. The problem is they are now $200,000.00 in debt and have to rent it out, that is how they planned on paying the mortgage until the market rebounds.

They soon find they can't rent it for anywhere close to the monthly payment, let alone association fees. A real problem is lurking because the air-conditioning two months from now is going kaput that will cost $3000.00 to fix.

My point is that people do make money investing in coins. The problem is if it were that easy and worth the time and effort many people here would be doing it. It is not nothing less than a fact most collectors that have been around for many years say coin investing is not the all that good, they know what they are talking about.

 

That was very interesting Doug, should be Coin Talk required reading for all new members, so many come here these days with the idea of coin investing.

I'm sure though to someone like the Penny Lady she is right. That is her business and she is involved in coins I presume daily. I go to work to do what I do and she goes to work to do what she does, coins. I have no doubt with her exposure it is available to her to buy, sell, collect, and invest in coins.

But to the "weekend warrior" who is very knowledgeable in coins it is extremely difficult even with some fortunate good luck at times. There are many people here that have a significant above average knowledge of coins and make no attempt to be a coin investor. There has to be a fundamental reason for this and I think also it is because coins are not good investments.

The majority of my collection I have had for several years, and a year or so ago I know that say 40% of those coins were worth equal or more than what I paid. I'm not sure now because the market has withdrawn some, and I really don't care. My point is I'm sure if I figured in the inflation, taxes, and etc. they only appeared on the surface to be worth more.

 

Doug, I don't disagree with you but your way of looking at coin investing IMO is a very narrow and pessimistic viewpoint. It is clear that you are not fond of any coins as an investment, and meaning no disrespect, to me, your discussion seems to slant the facts to favor your opinion. The figures I used were actual and realistic and were only for a few dates. Every coin series has its key dates, so there are many other types of coins that I'm sure would have similar results.

And in my post above, I was NOT discussing "rare" coins - I said "key date." So your rebuttal to my point was somewhat skewed because I think there is a difference between rare coins and key date coins. IMO, key date coins, though expensive, are still considered attainable by regular collectors and/or investors, whereas the same is not necessarily true for a truly rare coin.

And when it was time to sell the key dates a few years down the road, or even long term, key dates are always sought after, especially by dealers, meaning there is always a market for them, even in "down" times like now. Many key dates have increased at least 50%, some 100% in as little as 10 years' time. And most investments are or should be for the long haul, not a quick turn around. How can you argue with that kind of return?

Of course timing is an issue in ANY investment you make, stocks, real estate, whatever. So that is NOT unique to coins. And in my discussion, I used the prices for key date coins over the past several years - not this past ONE year. But if you want to use this past year graph as an example for coins, I'm sure it would like very similar if someone had invested in stocks and real estate, actually, I'd bet it looks quite a bit worse. So again, the past year hasn't been a good year to invest in much at all, not just coins. Similarly, the other "down" years you mention were again NOT unique to coins.

And if someone is looking to make an investment whether in coins or anything else, I'm assuming he/she has set aside a certain amount of money for this purpose, so I don't think we are talking about the "average collector" as you mention in your example.

As with any investment, of course the investor should do some homework and research and not just rely on an advisor. Perhaps an MS67 key date is not as good of an investment as an MS65 or even an AU of the same type of coin. Doing some auction history research will help determine this.

One last thing to consider that makes investing in coins more attractive is that if the investor happens to like coins, it makes investing in coins even more enjoyable and personal. I would think that can be an important distinction because that person most likely will show more interest and be more thoughtful and perhaps even more knowledgeable about this type of investment than with stocks or real estate or any other type of investment that is strictly for financial purposes, and in which the investor may not have any experience or interest. He/she may even enjoy doing research, asking questions, reviewing past auction results, etc. to have a better understanding of their coin investment.

Ok, Doug, go ahead and let me have your retort - I'm ready! hya:

 

The long term graph above looks like a spike because of the way it is drawn and the scale. But if you play around with the percentage increases over some of the longer time periods, it turns out that for most of the time the graph just tracks the inflation rate fairly closelym [within 2% or so]. As for the multiple year down periods, they aren't much different from what is experienced in the stock or bond markets.

That said, I believe it may be more accurate for this discussion to say that coins aren't really an investment in the stock market sense of the word. They are much closer in character to saving money with some inflation protection.

 

I think both Doug and Charmy are correct, if thats even possible. I can see how investing in coins can be a dangerous venture for those who don't know coins, and the returns are often far less than traditional investments, but there are the exceptions as pointed out. My biggest problem with coins as an investment is the fact that in order to make that profit I'd have to sell, and I'm not a seller, I'm a collector. as I'm sure most of us here are, we like coins and like to keep them. I'd be heartbroken to part with an investment grade coin, thus I'd never realize the investment potential. Stocks are pieces of paper, and I'm not attached to them in any way, so when I sell or trade them it's just that...selling. People forget those two sides to investing. Buying and selling. It's not an investment without the two.
Guy~