TPGs, grading and the logical progression of slabbing

Doug made an excellent point about TPG graded coins in another thread and rather than hi-jack that thread, I decided to take the thoughts he gave me on that subject and start a new thread.

Here is my premise:

A buyer grades a raw coin and purchases it. He then submits it for grading. When the coin doesn't receive the grade he expects he cracks it out and re-submits it until either: he is convinced that he was wrong, or the TPG gives his coin the higher grade.

The thing is that this also happens with the already slabbed coins. Buyers look for coins that they believe are under-graded, crack them out and re-submit them until they receive the same result.

A more recent phenomenon is the CAC sticker telling you their opinion on whether or not the TPG was correct (a grader grading a grader) when the person grading it all along has to be the buyer.

As we work this to it's logical conclusion if all coins finally end up slabbed with grades, the eventuality is that a majority if not all of the coins will end up being over-graded rather than correctly graded. So once again, people will turn to a new verifier of grades and the cycle will continue to spiral.

The only way to not get caught up in this cycle is to learn to grade for yourself. You shouldn't take or worse yet need someone else's opinion to tell you what the grade is, educate yourself so that you can grade it accurately save yourself the time and money of TPGs and stop worrying about what someone else says about your coin.

That way you can enjoy it instead of needing constant validation on your purchase. This is a hobby, not a game, and although it can be a business it is certainly not an investment. Hobbies are to be enjoyed, but if you are constantly worrying about the price that you paid, when can you enjoy them?

 

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If coins, over time, seek overgraded holders, how can we, as collectors, ignore this when many of our potential purchases are now overpriced and therefore not acceptable those of us who do know how to grade and price coins?

Said another way, while we can do all we want to educate ourselves, if coins presented for purchase are overpriced/overgraded, what have we really accomplished to stop coins from being overpriced/overgraded?

 

I feel it's more accurate to say the vast majority of slabbed coins will be over-graded or correctly graded... only a small portion will be undergraded.

And that's where we're at right now.

One of the things working against the OP theory is that submitting is expensive. Most coins don't warrant being slabbed at all, and a great many more don't warrant multiple slabbing attempts.

For the vast majority of coins, it just doesn't make sense to resubmit more than once, if at all. The cost of each attempt viz the added sales price of the next grade up viz the odds of upgrade on each attempt simply don't add up for most coins; no one is continually submitting them to eventually get an upgrade.

And if they are, they're taking a bath.

Example - consider 1925-D $2.5 Indian sliders. It's a real crap shoot as to whether a given coin comes back AU58 (about $230) or MS61 (about $300). That's only a $70 difference vs $30 grading fees plus shipping fees plus time (important for flippers). Is it really worth gambling ? IMO - no... the odds just don't add up, unless you are very convinced it's undergraded (which is atypical).

What's more, when one does get an upgrade, it's often "low end for the <new> grade". Many buyers recognize it as such, so such coins tend to trade on the low end of their grade scale, thus mitigating any upgrade gains.

Now, I know there are some coins where continual resubmission might be worth it, and I know there are folks who do that. But those coins are the small minority.

The OP said "a majority if not all of the coins will end up being over-graded" due to resubmission, and for the vast majority of issues / grade ranges, that's not so. It's economically infeasible to resubmit ad infinitum.

 

Widespread agreement on that !

One thing to consider - we're all learning. Even the best say they're still learning. So their is no point at which "I've arrived" and "know how to grade". Grading skill is a continuum - a sliding scale.

It's like being weaned. Originally, one starts off on Mama's Milk. As one grows older, one can fend for themselves. Likewise, as one grows older and more experienced, the TPG grade means less and less; we need less and less support from the TPG opinion.

The TPG grade makes it a little safer for newbies to reach the "jumping off point"; if one were expected to be an expert before buying anything, there would be no hobbyists.

 

I think the third party grading guarantee works to prevent this progression from occuring to some extent. If everything ends up in an "overgraded" holder, then the collectors would be submitting tons of coins under grade guarantees to collect their checks.

 

You just presented a very good argument for the formation of CAC.

 

This is exactly why I don't have many slabbed coins & mostly collect silver & gold proofs from the mint , if I receive a beautiful coin that looks great why do I need a third party to put a number on it. I'am a collector so could care less about what a grader thinks , I think grading is strictly business & dollars and cents oriented , if you are a seller/dealer then I guess grading companys are a necessary evil , just my 2 cents worth : )

 

I'm not so sure that I agree with that. The more over-graded coins there are, in a sense, the more that becomes the standard (and over-graded coins don't stand out). And the more that becomes the standard, the harder it is to show that such a coin is over-graded and that the TPG's guarantee should cover it.

 

While that might be true, I am constantly amazed at the coins that are resubmitted and how many times they are resubmitted. Often, it is NOT a matter of (common) sense, but rather, dreams of big scores.

 

At what point do we get another party that grades the original grader's grade?

To me it makes very little sense to submit a coin for grading more than once unless an uptick in the grade carries a substantial premium in the price of the coin. Re-submitting 3 or 4 times makes almost no sense at all.

 

A resubmission makes sense if the estimated probability of the upgrade, multiplied by the added value of the upgrade is greater than the grading fee and postage. So, if a coin is valued at $100 at its current grade and (only) $200 at the next grade up, if the grading fee and postage amounts to $35, I'd have to feel fairly confident that it would upgrade, in order to consider trying it. On the other hand, if the spread went from $100 to $1000, instead, I wouldn't need to feel nearly as confident about the chances for an upgrade, in order to try it.

That said, I see many submitters get big eyes for a resubmission offering large score potential. But at the same time, they seem blind to the reality that based on its actual merits, the coin stands no realistic chance of an up-grade. The reality is that it doesn't matter how huge the upside is if it's not going to be realized. And all the while, the grading/re-submission fees are wasted.

 

Several years ago. It is called CAC.

Just going through Lincolns 1909 - 1919 (I stopped at 1919), every date has at least one grade jump where it is VERY profitable to resubmit. Most have several grades in multiple colors and that does not even count getting an upgrade on the color.

 

Agreed. That's Hard Math, and hard to dispute.

And here's a key notion... "estimated probability of the upgrade" requires a great deal of numismatic skill.

This whole "crackout game" should be played as a game of skill or not played at all.

I used to look at The Numbers... I would look for a big break point on Price vs Grade (i.e. MS64 $900, MS65 $4,000). I would buy the lower grade, crackout, submit, and cackle "BWAHAHAHAHAHAHA !!!! I'll be rich ! Do you hear me ? RICH !!!!"

Until the coin came back the same grade as purchased.

Or lower. :crying:

Very, very few slabbed coins are upgradable for the reasons stated in this thread. Everybody in the world knows about The Crackout Game, so most of the slabbed coins are thoroughly picked over. It requires Strong Eyes to spot an upgrade.

 

Aside from the fact that many of us think grading tightened up BEFORE the market started dropping about a year and a half ago....

Hardly any of "those MS66 and MS67 coins - the kind that I complain about all the time and say that they have been over-graded" will be down-graded. That's because they won't be resubmitted, other than in their holders. And the chances of a coin down-grading when it is resubmitted for an upgrade, are incredibly remote. So the fact that such coins aren't down-grading doesn't tell us anything about market grading or the lack thereof.

 

I think that this statement makes my point:

As more and more coins reach the "Peter Principle" of coins, my scenario looks more and more possible.

 

If the premise is true, and it probably is from the expert observations here, then over time the market prices for coins at a particular grade should drop closer to the price in the next lowest grade to adjust to the liberal grading. So many coins slabbed as, say, MS66 that deserve MS65 should begin to sell closer to MS65 prices. Maybe that's a small part of the reason why prices are dropping. People ARE buying the coin and not the slab.

It is also an incredibly short-sighted business practice for TPGs to vary grading over time to match what they perceive as market conditions. All they have to sell is their expertise and consistency, and if either is doubted by the customer base, the brand name could suffer permanent damage.

 

I can't really comment on the TPGs tightening or not, I don't have enough direct experience to comment one way or the other.

That said, I have on many occasions stated that TPGs price coins. However, when I do, I generally also say they "rank" them, because I think that's an easier way to think about it, and not subject to the logic you used above.

Regardless, when I say that the TPGs price coins, what I mean is that they look at a coin and say that coin is worth the price of a 67 (as an example). While the price of a 67 can change, the particular coin in question has the qualities that make it worth 67 money in the market -- thus the term "market grading" which I view as a synonym to "pricing" coins.

The TPGs still grade a coin worth 67 money as a 67 coin -- no sudden shift has occurred, at least from where I sit.

And that's quite different from the argument that you made in trying to shoot holes in the "TPG's price coins" logic that I have often typed in this forum (and honestly believe to be the case).

Said a bit differently, just because prices are dropping doesn't change the standards of the market, just the price point.

As always, I am open to alternative explanations.

Respectfully...Mike

 

I agree. Thanks for the correction.

I will submit that for most coins over $1000, the delta between grades averages more than 2x, so while part of me agrees with your logic, the other part of me says that it would be very wise to understand the price of the next grade up and next grade down as to limit your liability.

Said another way, for every AU indian quarter eagle where the spread is 1.3x (and frankly that's really the bullion value creating an artificial floor) there's a MS 65 proof seated half dollar where the spread is 3x, and it would be in everyone's best interest to understand the upside AND downside of the grade opinion (and resulting price opinion) when considering a slabbed coin for purchase.

I suspect you'll agree, but happy to discuss further regardless....Mike