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THE LURE OF COINS
Coins have kindled people's imagination and aroused their collecting instincts ever since the first crude examples were struck in Asia Minor more than five hundred years before the birth of Christ.
Coins are handheld works of art, miniature milestones along the march of time. Many times, they're stores of precious metal. Rare coins are worth far more than face value (the value stamped on their surface)--and far more than just their metal content--as collectibles. They can even be an exceptional investment. And, best of all, collecting them can be tremendous fun.
In a sense, collecting coins is like digging up buried treasure. The treasure isn't hidden underground, and finding it doesn't require a secret map, but still there's a sense of adventure, an air of excitement--and ultimately a thrill of discovery--in locating needed coins to complete a set (a group of similar coins containing one example from every different date and every different mint that struck the coins). For those who buy wisely and well, there's also an ultimate payoff, for collecting rare coins, like tracking buried treasure, has the potential to be a richly rewarding pursuit.
No longer the private preserve of wealthy princes, coin collecting today is among the most popular spare-time diversions in the world. Millions of Americans collect coins on a regular basis, and many others dabble in the field.
Most confine their collecting to U.S. coinage, but many use a broader frame of reference in terms of both history and geography, collecting coins from earlier ages--all the way back to ancient times--and from hundreds of other countries around the globe.
In recent years, the far-flung base of traditional collectors has been broadened substantially by newcomers who think of themselves not as pure hobbyists but rather as collector/investors. For them, the profit motive is important--and rare coins' profit performance has been excellent when they are held over time.
Frequently, people who enter the rare coin market as investors find the field's lure irresistible and cross over the line to become pure collectors. This gives them an opportunity to enjoy the best of both worlds--the fun of a fascinating hobby and the profit of a fine investment, too.
Although the instinct to save and savor coins is as old as coinage itself, coin collecting didn't reach the masses until the twentieth century. Prior to that, it was largely an indulgence of the nobility and scholars--people with time and money to devote to such a pursuit. As recently as the early 1900s, major U.S. coin shows seldom attracted more than a few hundred participants, and the major activity wasn't the buying and selling of coins, but rather the exhibiting of collections.
The democratization of coin collecting got under way in earnest in the 1920s and '30s. During that period, Americans were starting to find themselves with more leisure time (some of it enforced, during the 1930s, by the Great Depression). What's more, the United States Mint was turning out dozens of commemorative coins, which piqued people's interest and drew many thousands into the hobby.
Special holders for storing and displaying coins started to appear around that time, along with guidebooks listing the coins' value--and those set up a framework that made collecting easier for the many new devotees.
During the next few decades, rare coins evolved from a drawing-room diversion into a field with true mass appeal and a massive collector base.
The coin market's growth was hastened by developments at the Mint. In the 1950s, for instance, many new collectors became involved with coins by buying annual proof sets--sets of specimen coins--from Uncle Sam. The Mint resumed production of these in 1950, following an eight-year lapse, and by the end of the decade, sales had mushroomed from fewer than 52,000 sets in 1950 to more than 1.1 million in 1959.
In 1960, the growth became a full-fledged boom, largely on the strength of a single new "mint-error" coin. The coin in question was the so-called "small-date" cent. In the spring of 1960, sharp-eyed collectors noticed that there were two major varieties of current-year Lincoln cents, one of which had a perceptibly smaller date. It soon became apparent that the "small- date" variety was scarce--especially the version struck at the nation's main mint in Philadelphia. A nationwide scavenger hunt ensued, and coins became the object of widespread coverage in the media. That, in turn, drew many new participants to the hunt and to coin collecting, as well.
Just four years later, in 1964, the Mint introduced a new half dollar honoring President John F. Kennedy following his assassination--and that, too, stirred widespread interest. In 1965, the rising cost of silver forced the Mint to issue a new kind of dime and quarter: "sandwich-type" coinage made from copper and nickel, with no precious metal at all. The half dollar kept a reduced amount of silver until 1971, when it, too, became fiat money--money whose acceptance is based on public trust in the government, not on its own intrinsic worth. The dawn of clad coinage wasn't a happy time for collectors, but it did focus new attention on the rare coin field--and that, in turn, attracted more recruits.
The 1970s witnessed continued growth, and also a new direction in the marketing of coins. For the first time, many dealers were reaching beyond traditional collectors to lure noncollectors, especially wealthy professionals, into purchasing rare coins as an investment. Instead of building collections, buyers were now assembling portfolios.
Again, the federal government played a pivotal role in stimulating interest in coins. First came the sale of surplus silver dollars by the General Services Administration. Most of these dollars were low-mintage coins from the Carson City Mint, and their release to the market in a series of ballyhooed sales did much to raise public consciousness of rare coins in general and Morgan silver dollars in particular.
In 1974, the government gave coins another big, though indirect, boost by lifting the long-standing ban on U.S. citizens' right to buy, sell, and own gold bullion. That sparked new interest in bullion-type coins such as South Africa's Krugerrand, and the interest carried over into numismatic coinage, or collectible coins, as well.
Coin prices rose throughout the 1970s--steadily at first, then dramatically. In 1972, for the very first time, a single coin changed hands for $100,000. The sale was a private transaction, and the coin was an 1804 silver dollar.
By 1979, that seemed puny. As the decade neared a close, in November '79, a Brasher doubloon--a gold piece minted privately in 1787 by New York City jeweler Ephraim Brasher--was gaveled down for a stratospheric $725,000 at an auction of rare coins from the famous Garrett Collection.
For nearly a decade, that remained the highest price ever paid for any single coin at a public auction. The record was finally broken in July 1989, when an 1804 silver dollar brought $990,000, missing the million-dollar mark by just a single bid.
In 1990, a rare U.S. gold coin was sold in a private transaction for more than $1.5 million. The coin was a 1907 double eagle, or $20 gold piece, designed by famed sculptor Augustus Saint-Gaudens. While all Saint-Gaudens double eagles are considered to be magnificent works of coinage art, this one was distinguished by both its exquisite sharpness of detail (it's said to have "extremely high relief") and its virtually flawless condition.
In 1996, for the very first time, a U.S. coin changed hands at public auction for more than a million dollars. The coin was a 1913 Liberty Head nickel--one of only five examples known--and it broke the barrier by a wide margin, selling for nearly $1.5 million. (In 2001, this same nickel was sold at auction for $1.84 million.) The very next year, that record was exceeded when an 1804 silver dollar brought more than $1.8 million. Both coins came from the same collection, formed half a century earlier by a Baltimore banker named Louis E. Eliasberg, Sr. In August 1999, a Proof-68 1804 dollar brought $4.14 million at public auction. I was one of the underbidders.
Low mintage and high condition are the two main ingredients buyers seek in a coin, and these are combined with supply and demand to determine its market value. While rarity is important, the stress in recent years has been on quality. Investors covet nothing but the best, and are willing to pay for it. Consequently, coins command far higher premiums in pristine mint condition than in grades only slightly lower. There are even degrees of pristineness: the Mint State range has 11 different grades, with premiums rising steeply as a coin ascends the scale.
Coins are now graded on a scale of 1 to 70, with 1 representing a coin that is barely identifiable as to its type and 70 signifying a coin that is absolutely perfect. The use of numbers to designate grades is a practice of relatively recent origin. In the past, collectors used words instead, describing coins as "uncirculated," "fine," and "good," for example. These were less precise, but were adequate for the needs of a less sophisticated marketplace. The numbers now in use do correspond to descriptive words. For instance, coins graded 60 to 70 are said to be Mint State.
To assure that buyers and sellers get coins that have been accurately graded, independent third-party grading services have come into being. These companies, operated and staffed by knowledgeable, reputable experts, have effectively removed the risk that coins may be overgraded and therefore overpriced on the basis of grade.
The "grading revolution" began in 1986 with the establishment of the Professional Coin Grading Service (PCGS). The following year, a second major grading service--the Numismatic Guaranty Corporation of America (NGC)--opened its doors.
These companies provide unbiased opinions regarding the grade, or state of preservation, of coins that are submitted for their review. They then encapsulate each coin in an ionically sealed, tamper-resistant hard plastic holder (or a "slab"), along with a paper insert indicating its date, type, and grade.
Together, PCGS and NGC have certified millions of coins. They also have made a valuable contribution to the marketplace by issuing regular "population" or "census" reports telling how many coins of each type and date they have certified in each different grade. These have become valuable reference tools in determining rarity and value. Other grading services have also been founded.
Fun and profit can and do overlap in the rare coin field. Consider the case of New York City lawyer Harold Bareford, a man who approached rare coins as a pure collector but whose acquisitions proved to be a marvelous investment.
Bareford began acquiring coins just before World War II and remained an active buyer for several decades. He seldom paid more than a few hundred dollars, but he bought with great care, insisting on the ultimate in quality.
In all, he spent about $40,000 assembling sets of U.S. coins struck from gold and silver. Shortly after his death in 1978, the coins were sold at auction and brought a combined total of $3.1 million. One coin--a specimen-quality 1827 dime--had cost Bareford $20 in 1947. Not much more than three decades later, it brought his estate an eye-popping $29,000.
Bareford's insistence on quality was the key: He always demanded the best at a time when other collectors were content to settle for less. And during the years when he was buying coins, prices were laughably low by current standards.
Can similar huge profits still be achieved by people buying rare coins today? Only time will tell, but Harold Bareford's story has a rather intriguing footnote: Bareford stopped buying U.S. coins in 1955, years before the market began to really boom.
He thought they were getting too expensive.
FIGURING OUT WHAT IT'S WORTH
What's it worth?
That's the first question most people ask when they see an old or unusual-looking coin. They take it for granted that something so intriguing must be worth a lot of money.
Many times, they're right--but not necessarily for the reason they believe. Coins don't gain added value simply because they're old; you can buy Roman coins from the time of Julius Caesar for just a few dollars apiece. Nor does odd appearance always command a premium; a great many coins with dramatic minting mistakes, although they may be terrific conversation pieces, bring very little as collectibles.
THREE KEYS TO VALUE
Three basic factors determine just how much a coin is worth--or, on the other hand, how much it isn't worth. The first of these is the grade of the coin--its level of preservation. The second is the coin's collector base--the number of collectors who covet it enough to pay a bonus price for it. The third is the coin's availability--the number of examples that exist.
The grade of a coin is the most important factor, and because it is so crucial I'll be dealing with this subject in much greater detail in the next chapter. I do want to give you some basic guidelines now, though, on how a coin's grade and value are intertwined.
When asked to describe their coins, the uninitiated often like to say they're in "good condition." They're using that expression in a general sense, of course, but to knowledgeable collectors the term "good condition" has a very specific meaning--and that meaning is just the opposite of what most laypersons think. Among the established grade levels, Good is one of the lowest, not the highest: It signifies a coin that has passed through a great many hands and undergone heavy wear but still possesses all the basic elements needed to identify its design.
As I explained in Chapter One, experts grade U.S. coins on a scale of 1 to 70, with 1 representing a coin that can barely be identified and 70 denoting a coin that is sheer perfection. The coins that enjoy the greatest demand and bring the biggest premiums are those that have never passed from hand to hand; these are said to be in "uncirculated" condition and identified by grades within an eleven-number Mint State range. This range is at the top of the 1-through-70 spectrum, covering the numbers from 60 to 70.
Perfection is highly prized by many coin collectors and investors. They will pay a great deal more for a Mint State coin than they will for a similar coin that is worn ever so slightly--even when that wear is all but undetectable without the use of powerful magnification. What's more, they will frequently pay several times as much for one Mint State coin than they will for a second Mint State coin just one or two numbers lower on the grading scale.
Prices rise sharply in grades above Mint State-65 (MS-65, for short). As coins approach the perfection denoted by the grade of 70, their prices very often approach the stratosphere. You may find, for example, that a coin with a value of $500 in MS-65 condition is worth ten times as much in MS-67--and one hundred times as much in MS-69. This difference reflects the fact that hardly any exist in the highest grades. People who collect these coins are willing to pay top dollar for top quality not only because the coins are breathtakingly beautiful in these very high levels of preservation, but also because they're flat-out rare.
Excerpted from The Insider's Guide to U.S. Coin Values 2011 by Scott A. Travers Copyright © 2010 by Scott A. Travers. Excerpted by permission of Dell, a division of Random House, Inc.
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