Webster’s
defines “rare” as something not frequently found; scarce; uncommon
or unusual. The word “rare” as it is used in the numismatic
industry has a more vague meaning. Because a coin’s rarity is
relative, many coins are referred to as “rare coins” even though
there may be 500,000 of that specific coin in existence. For
example, 484,000 specimens of the famous 1909s VDB Lincoln Cent
were minted, and more than 4,000 have been certified by the
leading third-party coin grading services, yet that coin is
deemed to be eminently rare and desirable.
A coin can
be “rare” because of a relatively low mintage, a low survival
rate, and/or because nobody wants to sell the specimens they
have. Demand also plays a role in a coin’s rarity. If there
is only one specimen of a coin and ten people want it, it is
“rare” relative to the demand for it.
The condition
is very important. Although there is no specific grade to exclude,
the general rule of thumb is that a higher grade coin from a
certain series will usually be in greater demand and will outperform
the lower grade example of the same coin in terms of appreciation.
Today, several
third-party services exist which can objectively determine the
authenticity and condition of coins. The two largest of these
are the Professional Coin Grading Service (PCGS) and the Numismatic
Guarantee Corporation (NGC). These companies encapsulate the
coins to protect them from future damage and assign a unique
serial number to each coin, so that its identity may be verified.
Both PCGS and NGC issue a written guarantee of their conclusions
on the authenticity and condition of the coin. Their opinions
and guarantees are widely respected in the rare coin industry.
While there
are currently two teletype/computer trading exchanges in existence
for coins, these trading systems are not the heart of the industry.
Generally speaking, the coins traded on theses systems are the
more common coins that exist in large quantities or the low
end coins in a particular grade. At this time, the heart of
the numismatic community is the great demand that exists for
attractive and truly rare coins. these coins are usually purchased
on a sight-seen basis among the most knowledgeable dealers and
collectors.
Quality
rare coins can be purchased for as little as $300 or as much
as $2,500,00. The price range for a large percentage of the
high quality rare coins is between $1,000 and $25,000.
Liquidity
refers to the ease with which the coins can be sold. While rare
coins are illiquid when compared with futures contracts or securities,
they are by far the most liquid “collectible.” Most coins can
be sold (if you are a motivated seller) within one to seven
days in the United States.
Yes. As
with any economic good, rare coins are subject to the laws of
supply and demand. While more popular rare coins have a more
enduring demand, and are therefore less likely to decline in
value, by 1996, some rare coins were trading at 15-20% of their
1989 highs. Nevertheless, there are examples of where, despite
the previous bear market, rarities have brought prices in excess
of anyone’s expectations.
Coins can
be kept anywhere they are protected from theft, mechanical damage,
or harsh environmental conditions. The chemically reactive nature
of copper and silver in coins can cause them to corrode and
tarnish severely, seriously impairing their values. A dry area
with an even temperature works best to maintain the coins’ conditions.
The two most popular places for storing coins are in safety
deposit boxes or in home safes.
Yes. Coins
can be insured under your home owner’s policy or you can purchase
a separate policy. Coin insurance is also available from the
American
Numismatic Association, 818 North Cascade Ave., Colorado
Springs, CO 80903-3279.
Different
types of coins have different collector bases. While high quality
coins may be found in all metals, gold and silver coins are
often the most sought-after by collectors and investors alike.
Nickel coins have a fairly liquid market, while copper coins
tend to be somewhat unpredictable because they are difficult
to maintain in good condition (humidity affects them more).
Coins can
be obtained from all these sources. Auctions can provide interesting
information and access to major rarities; shows can allow for
easy comparison shopping; and dealers can assist you in building
a collection.
The coin
grading services each have a network of authorized dealers who
can assist you in getting coins graded. These dealers can help
you by prescreening your coins and determining which ones are
worth submitting to the grading services. They can also counsel
you about the best level of service to use and the best time
to submit your coins. Professional Coin Grading Service (PCGS)
and Numismatic Guarantee Corporation (NGC) are the two largest
coin grading services. generally speaking, it costs $25.00 to
$50.00 to have a coin graded (unless you want next-day service).
Coin grading
is not an exact science. Grading opinions may vary, and mistakes
can occur. This is why it is important to become educated and
to build a relationship with a reputable dealer, to ensure that
such mistakes do not occur with your coins.
High quality
coins can be obtained from numerous countries, and many collectors
follow each series. Currently in the United States, U.S. coins
are most actively traded because collectors are more familiar
with U.S. coins than they are with non-U.S. coins, making U.S.
coins more liquid than coins from other countries. Because of
a general lack of knowledge of coins from other countries, major
non U.S. rarities may trade at a fraction of what a comparable
U.S. coin might cost. Some investors believe that non-U.S. rarities
may represent key opportunities for future appreciation, and
also be worthwhile additions to their collections.
No. Dealers
are as individualized as coin collectors. While the majority
of dealers are ethical and honest (as with any other field of
endeavor), each has a different personality and style which
may or may not blend well with your own. Some may be struggling
to make a sales quota to cover expenses daily, while others
may be looking to the long run to build a solid customer base.
Look for the dealer who has your best long-term interests in
mind. You might ask him questions like, “How long have you been
in the business?” “Where do you get your coins?” “Why do you
think I should buy that particular coin?” Due to the confidential
nature of the business, even the best dealers may only be able
to supply you with a reference or two. As an alternative, press
releases about the broker from unbiased sources could be requested.
The rare
coin industry, like many others, falls under the Federal Trade
Commission's jurisdiction. Also, to the extent that sales occur
through the U.S. Mail, the U.S. Postal system may have something
to say about the way business is conducted. Both sets of regulations
are fairly broad and therefore prohibit such things as fraud
and theft, etc., but as yet, the thousands of rules and bureaucratic
red tape that govern the futures and securities industries do
not apply to rare coins. To some extent, because of the international
nature of the coin industry, it is difficult for any one government
to regulate the industry - it might chase the business out of
the country. For the time being, it’s still caveat emptor!
For collectors
and investors, rare coins are “capital assets” (see Internal
Revenue Code Section 1221); therefore, any gain or loss upon
their sale is treated as a capital gain or loss. Such gains
or losses are reported on Schedule D of the individual’s Form
1040 tax return.
No. Under
current tax laws, individual sales of rare coins do not need
to be reported to the Internal Revenue Service by the dealer’s
purchasing them. Each individual seller is obligated to report
gains or losses on his/her own tax return.
Coins can
perform very well as an investment, or they can perform very
poorly, depending upon their quality and the timing of their
purchases. Attractive coins purchased at reasonable prices in
the right grades and complete sets can be very easy to sell
at a profit. On the other hand, ugly, overgraded and overpriced
coins can generate a substantial loss upon sale.
By way of
example, Mr. Louis Eliasberg, Sr. endeavored to collect every
date, mint, and denomination of U.S. coin. He was successful.
Not only was his collection complete, but his specimens were
of the highest “investment type” quality. Estimates value his
total purchases at $400,000 (purchases from the 1920s
thru the 1950s). When his coins were sold at public auction
in 1996 and 1997, the proceeds exceeded $44 million,
representing more that a 200% annual return.
By way of
contrast, common-dated Barber Quarters dated between 1892 and
1916 were trading at $5,000 on June 2, 1989, in MS 65 condition
and are currently available at $1,200. common date $20 Liberty
gold coins (Proof 65) were trading at $52,000 on June 2, 1989,
and on June 2, 1997, they were $20,000.
There are
several reasons to purchase rare coins. First, they aren’t making
them any more. The supply is limited and, in some cases, shrinking,
which means that their prices are primarily affected by demand
and inflation. If prices realized for rare coins at auctions
are any indication, demand is on the rise, because inflation
has been relatively low lately and prices realized went up during
the first half of 1997.
Secondly,
they are portable and not as traceable as some other media of
exchange. You can carry a rare coin worth $500,000 in your pocket
without anyone knowing it. In other words, they are a “private”
investment.
Lastly,
they can be fun to collect. Some coins are pretty, and the older
they are, the more history can be associated with them. Some
people enjoy researching what was happening in Peru in 1838,
Transylvania in 1588, or the United States in 1792 when they
buy a coin from those lands of that vintage. Collecting sets
can also be a rewarding challenge for some collectors.
Knowledge
is very important in the rare coin business. is a coin AU 50
or MS 60? It makes a tremendous difference in it’s value, but
how do I grade a coin? How to grade U.S. coins by James L. Halperin
may prove helpful. The American Numismatic Association (ANA)
offers free coin-grading seminars at their annual convention
and has a monthly publication for those who join the association.
A Guide Book of United States Coins (The Red Book) by R.S. Yeoman
comes out every year (1997 was its 50th edition) with prices
and pictures. If coins are graded by a grading service this
greatly reduces the need to be able to grade coins yourself.
Current
periodicals, such as Coin World and Numismatic News can keep
you in touch with current market conditions. If you are primarily
interested in U.S. coins, Walter Breen’s Complete Encyclopedia
of U.S. and Colonial Coins is exceptionally useful. For world
gold coins there’s Gold Coins of the World, revised and edited
by Arthur L. and Ira S. Friedberg.
The information
contained herein has been compiled from collector/investor/dealer/
wholesaler sources believed to be reliable.
We make
no representation or assurance as to the accuracy or completeness
thereof. The rare coin market is volatile and involves risk;
therefore the contents of this booklet are intended for use
only by individuals aware of, suited to, and financially able
to bear the risks associated with purchases of the kinds described
herein. Opinions expressed herein are statements of judgment
only. Past performance cannot be viewed as assurance of future
performance. Thomas M. Pilitowski, his affiliates, principles,
employees, and clients may from time to time have positions
in coins mentioned. All contents hereof are qualified by this
disclaimer, and any suggestion to the contrary is of no effect.
How can I invest in Rare Coins, when I don't know
anything about them? 21 questions and answers about investing
in Rare Coins, Rare Coins Collections.
