Rare Coin Investing

Smart Finance

Investing in rare coins requires an understanding of many small numismatic markets. Not all rare coins trade in the same way. Unlike bullion coins that accurately trade in the same direction as the precious metals they’re made of, rare coins possess an intrinsic collectible, or ‘rarity,’ value in addition to the precious metals’ composition.

Money Wise

To determine the rarity premium attached to any coin, perform research. Consult with a knowledgeable, experienced dealer. Monaco Rare Coins has been in the business of precious metals and rare coins business since 1987. A rare coins dealer can help the investor determine how many examples of an exceptionally rare coin exist, and how many have come to market in the past 10 plus years. The investor must know the supply of a particular coin, if at all possible. Gauging the quality, size and intensity of demand is key to concluding a purchase or sale at the best possible price. Some rare coins are so rare, and so desirable, that rare coin investors and dealers pay exceptionally high prices to own a single coin. Owning an especially desirable, rare coin implies the ability to liquidate the coin at auction at some future time. Some coins, although exceptionally rare, are not driven by investor demand.

Rare coin markets. Rare coin investors seek to understand the edge in any coin market. Knowing how a rare coin has come to market–the ‘supply side’–is important information. Assessment of investor demand is essential: what kind of investor wants to own this coin? Investigation of the coin’s market price is key before entering into negotiation to buy or sell. A coin with many known examples is more price-sensitive than a coin with few examples. Buying or selling a coin for which a supply exists also implies liquidity and the ability to dispose of the coin on demand.

Research the market before purchase or sale. Enter into a buy or sell discussion about any coin after researching the market for that coin. Without performing this investigation, a trading partner may offer at a disadvantageous price. Take the trading partner’s venue into account when calculating a bid or offer. An auction house must pass along overhead (preparing the sale: a catalog, auction site and labor costs) to the buyer or seller. Very rare coins are often sold at auction. Hearing about the super-secret private auction for such a coin is unlikely. If uncertain about the market for a rare coin, don’t bid.

Buying and selling rare coins. When buying or selling a very rare coin, the dealer making the market must make a profit. Understanding any coin’s market parameters should allow for each trading partner to profit from the transaction. Successful rare coin investing involves the development of making fair trading partner relationships. Trading partners should present themselves professionally. For that reason, don’t over-promise, bluff or lie to another individual coin investor or dealer. After making a bid or offer, conclude the sale by upholding your part of the agreement. Conduct business with the coin’s owner or the owner’s senior agent when possible. (Always make best efforts to determine the coin’s owner: in some cases, a dealer may ask another dealer to assist in making the market for a rare coin. However, the owner of the coin may agree to sell the coin at a better price.) Avoid emotional exchanges with the trading partner, and communicate in simple language. If concluding a transaction involves the offer of a certain figure, tell your trading partner. (Remember, though, that the rule-of-thumb among some traders is ‘Let the other party make the first offer.’)

Settle rare coin purchases immediately or as soon as possible. Like stock market purchases and sales, the rare coin dealer expects prompt settlement of rare coin purchases. Write a check or make electronic settlement of the purchase immediately, if possible, to lock in the price negotiated with the dealer. In most cases, the rare coin dealer acting as seller’s agent holds the rare coin until disposition. If that’s the case, the seller receives notice of the sale and any agreed upon proceeds, less commission.

Stay flexible to win at rare coin investing. The importance of knowing the market for any rare coin cannot be overstated. Negotiating with a trading partner for a particularly desirable coin can sometimes appear deadlocked. If the dealer offers $1,000 and you offer $900 (and not a penny higher), the transaction may fail. Ask the dealer to facilitate the transaction, perhaps by offering an actively traded coin at an advantageous price, and agree to purchase the rare coin at $1,000. Acquiring coins at the best-cost basis requires trading partner flexibility along with a willingness to let the trading partner capture profit in the transaction.

Non-local rare coin investing. Most experienced rare coin investors understand the importance of buying and selling certified rare coins. Questions about identification, authentication and condition are answered by the independent grading agency used by the seller or buyer. Larger rare coin dealers understand the importance of maintaining a good reputation, and want to offer quality rare coins at fair prices relative to the market.
Problems can occur when dealers rely upon the services of a lesser-known independent grading service. Determine how important client satisfaction is to the dealer before completing the transaction.

“Graded coin fraud” is a known problem for Internet buyers and sellers of rare coins. Auction sites may offer the potential to find rare coin bargains, but unethical sellers use auction sites to unload third tier-graded coins. Asking questions about the coin’s supply may result in a story about an estate sale or inheritance. A quick comparison to PCGS-graded coins makes the auction look like an attractive buy. Unfortunately, the seller may misrepresent coin quality with ‘over-graded’ certification. In some cases, the seller won’t communicate with the auction buyer after the trade is complete. Auction sites typically don’t want to get involved with trading partner disputes about collectibles like rare coins.

Independent coin grading/encapsulation service companies are commonly considered to belong to one of three ‘tiers:’ 1) PCGS and NGC are considered first tier; 2) ANACS and ICG comprise second tier; 3) all other grading companies (e.g. PCI, SGS, ACG, NTC, INB, others) are third tier. A dealer claiming PCGS pricing for coins graded by another independent grader’s holder is a red flag in rare coin investing. Don’t bid on coins presented in this manner.

In other cases, unethical dealers offer ‘unslabbed’ (uncertified by an grading service) coins on the Internet. Unless the buyer is an expert in knowing the market for the rare coin in question–and possesses significant knowledge related to authenticating the rare coin in question–such transactions usually result in buyer dissatisfaction.

Rare Coin Investing
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