PART ONE
Numismatics is the study/collection of currency. Most people think it is restricted to coins, but it also includes paper currency. Though not strictly numismatic, some collectors also collect tokens, checks, stock certificates/bonds, and other instruments of barter. For instance, the Swedes for a brief period of time used stamped copper plates weighing up to 14 kg as money.
For the purposes of this datasheet, I will be focusing on Numismatics in the United States, though I will touch on differences throughout the world where I have knowledge to share. There are vast areas of expertise and focus within the numismatic field, so my knowledge is colored by my experience. I have seen a few gold/silver posts on RVF, so I am certain that at least a few of you have at least a passing interest in this area. Please feel free to add your own knowledge and opinions. My main field of study is in coins so this datasheet is geared to that area. While I will show you some of the avenues for making money, I must warn you that the rewards are often disproportionately small in comparison to the amount of time, money, and knowledge required. If you have an honest interest in this subject, I encourage you to continue reading. If you are reading this for an additional source of income, I believe that you will be disappointed, though I do my best to show you where money is currently being made.
I. Important Caveats
a. Never clean coins!
Cleaning coins is a huge mistake. One of the major determinants of the value of a coin is the amount of detail showing, otherwise known as its grade. Cleaning removes a layer of metal and thus details. It may also damage the coin further, but the end result is always visible to a trained eye. A cleaned coin is not considered gradable by most within the field. That is, if a coin shows the level of detail normally called XF-45 but is cleaned, a person would describe it as XF-45 cleaned, or a grading company would give it a details grade. This is unfortunate for two reasons:
1. Nobody will pay XF-45 money for the coin, and
2. The grade of the coin was higher before cleaning and would have been worth more money than XF-45 anyway.
One form of cleaning is called "dipping." Depending on the series, some dealers do this more or less regularly. I do not suggest this. Sometimes a coin may show a very small amount of undesirable tarnish or toning and the dealer will quickly dip the coin in a solution and then rinse it off. While this may be undetectable if done very quickly once or twice, there are many coins in some series which show the result of successive dippings by dealers and now have a dull appearance. The coin becomes ruined. Just don't try it. Also, with advances in high powered micro-photography, many more collectors have the ability to discern if a coin has had cleanings by looking at the surface metal with magnification.
The corollary to cleaning is "conservation." This is done without harsh chemicals and without abrasion. In some instances, a valuable coin develops a problem which needs to be addressed to prevent further degradation. An example of this is verdigris on copper coins. Verdigris is the copper corroding and turning green, like the Statue of Liberty, and will eventually destroy the coin. In this instance, the coin may need to be conserved. This is beyond the discussion of this initial datasheet and if you do have a valuable coin which needs conservation, I suggest letting a professional do it at NCS.
The only thing which I would recommend to any of you would be an acetone dip. Pure acetone will remove certain surface contaminants without reacting to the metal itself. It will also, due to its hydrophobic nature, remove moisture from the coin itself.
b. Buy the book BEFORE you buy the coin.
This is an oft cited mantra within the collecting community, and rightfully so. Much like buying a used car, you can get your ass handed to you by an unscrupulous seller if you don't know what to look for. If it sounds too good to be true, 99% of the time, it is. Understanding the coin and the coin market is crucial to success.
There are many good books which cover this need. The first of which is called "The Red Book." This book, specific to coins, gives an overview of each issue with additional information including: brief description, mintage, important varieties, and estimated values. It is important to note that values given are only estimates and can be higher or lower depending on a number of factors. Typically values given in the Red Book are higher than the market will bear.
This is not the only resource you will want to begin collecting. In order to properly grade a coin, it is important that you understand all of the factors which are taken into account. The best book for this is the "Official ANA Grading Standards for United States Coins." I will touch on the grading system used a bit later, but this book is an excellent reference guide. Additionally, the online picture reference from PCGS is very helpful, particularly in the higher grades. I will touch on grading again later.
If you decide to focus on a particular series, there are additional guidebooks which will help you with date and mintmark specific information. I prefer other books under the Red Book line, like this one.
c. Proper Storage Equipment is Worth the Investment
The main enemy to coins is heat combined with moisture. You wouldn't leave your cigars in a sauna, so why would you leave your coins in one? Desiccants, preferably reusable, are necessary to prevent unwanted tarnishing and damage. Placing items in a safe is not enough to prevent damage. Desiccants are a necessity.
Also needed are neoprene gloves. I know some collectors that shudder at the thought of using gloves and insist that every collector learn to hold a coin properly by the rim. I suggest neoprene gloves mostly because the oils from your hand will end up on the coin without gloves. These oils will cause unsightly tarnishing. I have a few from a previous collector that have his finger prints permanently tarnished onto the coin. I don't know if the terminology is well used within the field, but my friends have always referred to such conduct as "finger-fucking" the coins. See, this thread does belong on RVF!
A loupe is needed as well. This is a small magnifying device. You have probably seen jewelers use one to examine a diamond. I suggest getting acquainted with using one before going to a coin show and showing everybody that you are a novice by not being able to focus quickly. They will notice, it happened to me.
You must also figure out how you want to display your collection. Some people use pre-made albums. If you go this route, make sure you stick with high quality ones made by Dansco or Intercept Shield. I'm sure you are familiar with the Whitman folders that are popular with beginning collectors. These are the blue cardboard folders. Avoid these at all costs as the cardboard absorbs moisture easily and you have to push the coins in with your thumb. If you are wearing gloves this is not a concern, but the coins are not encased by plastic like they are with Dansco so they are prone to a curious visitor putting his/her oily fingers all over your coins as well as environmental damage.
Another alternative to displaying your coins is to use cardboard flips. These are foldable paper encasements with a thin plastic viewing film. They are relatively cheap and come in different sizes for different coins. The border size is nearly always 2 inches by 2 inches, but they are also made in other sizes to accommodate larger coins. These can then be placed in plastic album pages for three ring binders, or placed into cardboard boxes specially suited for the purpose.
The third alternative is to use "Air-tites." These are hard-plastic encasements which snap together and fit snugly around the coin. The cost for these, depending on the size, usually hovers around the .50 mark per coin. I don't suggest these except for modern bullion which you may want to keep in Brilliant Uncirculated condition depending on the issue.
A fourth alternative involves collecting graded coins. I will detail this later.
d. Collecting is not an investment, it is a hobby. Being the middle man is where the money is.
Did you know that Merrill Lynch started a rare coins fund in 1989? It was started because there was a boom in coin prices in the 70's and 80's. Of course, they were late to the party. Investors had a blood bath. The market goes up AND down. Not only that, but at the true high end, the only way to turn a profit is by having something ultra-rare locked in your collection for 40+ years. With that time frame, a simple index fund would have spun off more cash.
Being the middle man IS a potential for profit, however. Think of it as the vig. A steady 5% is all anybody ever asked for. If you can buy below the bid price and sell at the asking price, you have a potential for profit. This is how the so-called B&M, or Brick and Mortar, stores make their money. Also, if you can see short term market imbalances you can make a profit. These imbalances are usually in the modern coin market. More on that later.
e. There are many con-men and hucksters in this field.
It is somewhat difficult to explain all of the scams if you don't know the terminology. This section may be more useful after you learn a bit more.
The biggest two cons are cleaned coins and altered coins, though other scams exist. Altered coins are self explanatory. Say there is a coin with a hole in it. Obviously it is damaged and will be a tough sell. A con-man could melt a piece of metal into the hole and smooth it over while still hot. Then he sells it as original. It takes a lot of skill to do it without detection to most people, but it is detectable by collectors who are discerning.
Another scam is where people will buy a coin which is slabbed as cleaned. I will describe what "slabbed" means later, but now understand that it is encapsulated by a trusted third-party to be real. Well, the scammer will purchase the cleaned coin, then break it free from encapsulation and then sell it as if there were no damage. Sometimes this is done via bad pictures on e-bay, or if the cleaning was light enough and the mark is dumb enough, in person.
The other most common scam is through Chinese counterfeits. This is usually facilitated through Alibaba, the website not the RVF member. It is most common with modern bullion, though there have been a number of other fakes as well.
II. Factors affecting the Marketability of a coin
This section could just as easily apply to any collectable. It is important to note that there is a fundamental different between "value" and "price." Price is a fixed quantity, a set dollar amount. Value is a perceived abstract that exists in the minds of the seller and buyer. The two do not always equal one another, but identifying discrepancies may lead to gains over the long term.
a. Condition/Grade
The current grading scale used in American Numismatics is called the Sheldon Scale. The grades range from 1-70. It was originally created to describe the relationship of price of Large Cents in various conditions. A Large Cent in Mint State 65 (MS65) condition was priced at 65 times the price of a Large Cent of the same year. It was originally a relation of price, not condition. Today the Sheldon Scale is used to evaluate condition.
The numerical grades have word analogs.
1 poor
2 fair
3 about good
4 good
6 good
8 very good
10 very good
12 fine
15 fine
20 very fine
25 very fine
30 very fine
35 very fine
40 extremely fine
45 extremely fine
50 about uncirculated
53 about uncirculated
55 about uncirculated
58 about uncirculated
60-69 mint state
70 mint state (perfect coin with no flaws)
Proof coins are usually only graded from PR60 to PR70.
It is very important to understand the condition of the individual coin you are looking at. The books mentioned above as well as the PCGS photograde will help you see the differences. Depending on the other factors for the coin, there may be a very large jump in prices. Some coins have largely circulated and there are very small numbers of mint state coins available. This can lead to large jumps in price between grades. There are also certain coins that were produced in such quantity that there are no increases in price until the very top of the grading scale.
The conditions for grading a coin varies with the series. It has mostly to do with the amount of wear found in circulation. The high points of a coin wear first, so a coin in AU58 condition (About Uncirculated 58) would show the smallest amount of wear.
Coins in MS (Mint State) condition show no wear. They can, however, show what are called "contact marks." These are marks on the surface of the coin caused by being in contact with other coins, usually in a mint bag or during the minting process. All modern (post 1964) coins can be found in MS condition at affordable prices. There may be large price discrepancies between grades depending on the year, however. For example, a 1968 Red Lincoln Cent in MS66 condition may be worth $30, while the same coin in MS67 is worth $300 or more. Obviously there were tons of Lincoln Cents made in 1968, so the coin itself isn't rare... but there is a "condition rarity."
This brings me to another aspect of grading. Each series may have other additional factors which can increase the price. For the example I gave above, I specified that the 1968 Lincoln was red. Copper coins exist with three different color designations: Red, Red-brown, and Brown. Red cents are worth more because they look freshly minted. Red-brown coins are somewhere in between the spectrum of toning before they turn completely brown. These conditions are abbreviated after the grade. (MS66RD or MS65RB or MS63BN).
Other designations specific to a series include, "full bands," "full bell-lines," "full head" and "full step." These are specific to different series, and I only include them to show that each series is its own separate animal. These designations have to deal mainly with the "strike quality" found on the coin, or how well the coin was made. This can vary from mint to mint and from year to year even within a series.
Typically when discussing grade, people will pronounce the letters, especially for Mint State grades. They will say "MS65." It is also commonly abbreviated as such and I will continue to do so throughout the rest of this datasheet.
If you are dead set on numismatics, you should check out this excellent series from PCGS on grading:
https://www.youtube.com/watch?v=Apn-kYEl-Xw
There are a few videos, but that is the first.
b. Date/Mintmark
This is hopefully obvious. Mintmarks are placed in different locations on each series, sometimes changing within the series. You'd better know damn well where they are located. Some are easier to find than others if you don't know the series.
In the United States, There are currently only 4 operating mints: Philadelphia, Denver, San Francisco, and West Point. San Francisco and West Point typically only make coins intended for collectors, not for circulation. Past mints also included Carson City, New Orleans, Charlotte, and Dahlonega.
Typically, coins minted in Philadelphia show no mintmark, though there are exceptions. You are surely familiar with the Denver mintmark, D. San Francisco is an S, West Point is a W. Charlotte was a C, Carson City was CC, New Orleans was an O, and Dahlonega was also a D.
c. Supply (rarity- perceived or real)
I touched on this briefly already. Condition rarity can cause a jump in prices. There may also a large number of coins which are in "strong hands" and not being offered for sale at any price which increases the price. Supply is also called "population," as is the number of known examples in a grade for a given coin.
That being said, there are a number of coins which have low populations but are not actively sought out by collectors. This may change in the future and increase price. The reverse is also true.
d. Eye appeal
This is not just how well-struck the coin is, but whether the wear and/or contact marks are distracting. For example, an MS60 Morgan Dollar has quite a number of contact marks on it. Take a look at this example. Liberty's face has all sorts of contact marks including a few big ones that look like gouges.
But look at this AU58 Morgan. It shows just enough wear to keep it out of the MS range, but has superior eye appeal.
Another factor in eye appeal deals with how strong the strike is. A clean and hard strike gives clearer features. This is usually accounted for in the grade.
Toning is a big one. Right now, people love toned coins, but they have to be naturally toned. Ones toned artificially with chemicals stick out like a sore thumb. A few hucksters sell them on ebay. I think that is a bit advanced for this guide.
Toning varies from series to series but is particularly popular within the Morgan Silver Dollar series. This is because so many coins were minted and then sat in bank vaults. The bags they were in contained sulfur and coins in contact with them eventually exhibited a change in color. Some toned coins can bring huge amounts of money, while some are more subtle increases.
e. Special variety
Errors are the big variety in this category.
For example, take a look at this doubled die.
You aren't going to find one of those in the wild anymore, but there are all sorts of other varieties which are yet unfound. In recent history there have been a few cases where the mint accidentally used a proof die or older die for a new circulation issue with minor variations. The vast majority of these are tedious to find and not really worth your time looking for them. I don't think you want to sort through thousands of coins to find something worth $15.
f. Market Demand
There are a few instances where market influences make one or more coins cost more than the other factors would indicate. For example, many examples of Morgan Dollars minted in Carson City exist, many in uncirculated condition, but the price of these coins are much higher than Morgans of comparable mintages and conditions.
Another example is Proof Shield Nickels. I can get an 1882 Proof Shield Nickel in PR62 condition for less than $300, despite the mintage being around 3,100 coins. For comparison sake, an 1877 Indian Head Cent in MS62 condition is worth $4,000+. The survival rate of the 1877 is low, but a total of 800,000 were minted. The popularity of the Indian Head Cent series drives the price of the 1877 up, and the unpopularity of the Shield Nickel proof series drives the price down.
It is important to add another explanation here, which is the concept of a "key date." A key date, or key, is the rarest and most expensive coin for a particular series. A particular series may have multiple keys if there are low mintages or low survival rates.
g. Time
I could easily have fit this sub-section into one of the above, but I would like to emphasize the impact that time has on demand. As I've described, most of the money to be made is when there are short-term imbalances. For whatever reason, people are impatient and can't wait to give you money for a new product. After enough become available, the market cools and so does your profit margin.
III. Major Market Players
a. The U.S. Mint
Obviously the Mint produces all coins for circulation in either Denver or Philadelphia. They also produce a number of products each year which are either limited in the time period in which they are available, or limited to a total mintage amount. Most mint products are crap created for collectors. Typical purchases for collectors include proof coins, uncirculated coins, modern commemorates and special sets.
b. Third-Party Grading Companies
Originally third-party graders, or TPGs, came about through the need to authenticate rare coins worth thousands. Now authentication is not their major objective, it is grading. You can send a coin in and they will send it back encapsulated in what is called a "slab." it has a numerical grade assigned to it as well as information relating to the series and an identification number. There are only three legitimate players in the market: PCGS, NGC and ANACS.
Let me give you a brief rundown of the three. PCGS is considered the gold standard. A coin graded in a PCGS holder will be worth more than the same grade in either of the other companies' holders. The only exception to this is foreign coins. For whatever reason, NGC is the choice for European buyers. ANACS does their job very well, but they don't command a market premium. Both PCGS and NGC require annual memberships in order to submit coins and submitting a coin generally costs around $20 a piece, give or take. The submission fee is dependent on the value of the coin as well as a number of other factors.
Currently, a large portion of submissions to these companies seem to be modern bullion. In my opinion, graded modern bullion is a waste, but some dealers have made continual profits with bulk submissions of bullion. A certain percentage statistically will always come back as MS70 and MS69, each of which commands enough of a premium in the market to make the dealers money. Quite silly, if you ask me.
There are a few ways that these companies can screw you. The main one is in resubmissions. Each company only has a very small number of graders. While these people are professionals with years of experience, they are looking at each individual coin for a very small period of time, say 30 seconds for a common modern day issue. For some of these coins, a difference in grade between MS66 and MS67 could mean a difference between $30 and $1500. If it cost you $20 to submit a coin with a shot at MS67, how many times would you resubmit it in hopes of a profit? Sometimes, a lot.
There are other TPGs, but stay away from them. The TPG in distant fourth place is ICG, but they are whores and will grade anything too high. Additionally there are a few unscrupulous people who have set up slabbing services in their basement and overgraded coins for the purpose of fooling collectors. This is the specific reason that E-bay banned the listing of coins in slabs from companies other than PCGS, NGC or ANACS. There are a few people who have legitimately tried to grade coins with a new business, but none of them can gain market share. If you run across something in a slab not from the big three, either run away or look very, very carefully.
c. Nationally Recognized Dealers
I say nationally recognized because I want to make a distinction. These guys are the big players. The ones that can only really exist in big cities. These are the dealers with normal inventories exceeding eight figures. I can offer no advice for these dealers other than to say that they always have key dates in stock.
d. Local Brick and Mortar Dealers
These can be hit or miss. Knowledge of collecting as well as Game come into play. Not every dealer can be your friend, I have certainly been burned. In this category I also lump in Pawn Shops and Jewelers. You can't find a deal at a Jeweler unless it is an independent shop, and even then it is sketchy. Pawn shops sometimes mismark key dates or important varieties as they don't have time to specialize. Otherwise their coins are too expensive.
e. Online Dealers
This is divided into three main segments. You have auction houses which deal online, private E-bay sellers, and private dealers with their own websites.
Private dealers with their own websites typically deal in higher end coins and make money off of commissions. They are respected in the community to varying degrees. You won't get a deal from them. One example is David Lawrence. He runs auctions but also has coins for sale. There are also other private dealers that deal mostly in bullion, or graded bullion. Often times these dealers will sell on e-bay and then again on their own website. Their eBay prices are almost always higher, though if you purchase enough through eBay you may have some "eBay Bucks" to spend which will make things cheaper. This combined with some credit card rebates can make this a viable method of making purchases which can then be converted into cash. A few examples of these dealers include APMEX, Silvertowne, and Modern Coin Mart. I wouldn't buy any classic coins from these dealers and I don't like graded bullion, but if you enjoy modern graded coins or modern graded bullion, those dealers usually have them before other dealers.
Auction houses, like Heritage or Stack's Bowers are good places to sell if you get that coin worth $5k+. I would rather give them 15% than have a local dealer try and scalp me. This would be where I would go if I couldn't sell a coin to my local connections. There are also local auction houses that typically list online. They may or may not yield something good. Usually not.
f. Huckster Corporate Sycophants
These are the people who sell coins on TV. They are always selling for 130% of the actual market price. There are a few other ones as well. Some advertise in magazines and have introductory offers on gold or silver bullion. They will then call you and attempt to sell you graded coins for way more than they are worth. Anything sold on TV is junk.
g. Local Hobbyist Dealers
This is a mixed group. Some are great people who started selling because of a lifelong hobby, others know less than you and are complete shitheads.
Local dealers can be good sources of information and also sometimes coins. You have to use your personality with these people to get into their good graces. Most of these dealers are only local and run side hobby/businesses at monthly coin shows. Most of them don't travel to any of the major country-wide shows, but a few of them do. Those are the guys you want to know. Ask about the F.U.N. show and the Long Beach Expo. These are the two big ones in the U.S. If a local dealer went, you probably have somebody good.
The other guys are the type who will sell at a flea market at inflated prices. Avoid. Avoid. Avoid. Not only will you never get anything at a fair price, but they are often assholes too. These guys aren't above altering a coin to improve its appearance and outright lying to sell a coin. A few locals are also glorified bullion dealers.
Some of the local dealers are only dealers because they were hoarders for so long. Their collection became so big that the only way they can get any return at all is by selling it piece by piece. The other option is for their collection to be sold off after they die and they would rather get the cash while living. Depending on how savvy they are, some of their inventory may be mismarked as they don't have the time or inclination to keep up with market changes.
h. Collectors
These are the people that you will be selling to. You are going to have to meet them the old fashioned way, or else sell to them online. I suggest discretion in meeting people, but use your charm. This is where Roosh's elderly rambling opener works best, as most collectors are 60+ years old. There isn't a whole lot of new blood in the hobby, which is another reason I'm not an advocate of buy and hold "investing" in numismatics.
Never sell to this crowd at a coin show. Dealers paid money to get a table and will have you kicked out for selling there. Additionally, don't shit where you eat. Collectors can be sources of coins as much as they are purchasers. Keep the two groups separate as best you can.
In the next Part, I will discuss the specific types of collections people build and ways to exploit market inefficiencies for profit.
Numismatics is the study/collection of currency. Most people think it is restricted to coins, but it also includes paper currency. Though not strictly numismatic, some collectors also collect tokens, checks, stock certificates/bonds, and other instruments of barter. For instance, the Swedes for a brief period of time used stamped copper plates weighing up to 14 kg as money.
For the purposes of this datasheet, I will be focusing on Numismatics in the United States, though I will touch on differences throughout the world where I have knowledge to share. There are vast areas of expertise and focus within the numismatic field, so my knowledge is colored by my experience. I have seen a few gold/silver posts on RVF, so I am certain that at least a few of you have at least a passing interest in this area. Please feel free to add your own knowledge and opinions. My main field of study is in coins so this datasheet is geared to that area. While I will show you some of the avenues for making money, I must warn you that the rewards are often disproportionately small in comparison to the amount of time, money, and knowledge required. If you have an honest interest in this subject, I encourage you to continue reading. If you are reading this for an additional source of income, I believe that you will be disappointed, though I do my best to show you where money is currently being made.
I. Important Caveats
a. Never clean coins!
Cleaning coins is a huge mistake. One of the major determinants of the value of a coin is the amount of detail showing, otherwise known as its grade. Cleaning removes a layer of metal and thus details. It may also damage the coin further, but the end result is always visible to a trained eye. A cleaned coin is not considered gradable by most within the field. That is, if a coin shows the level of detail normally called XF-45 but is cleaned, a person would describe it as XF-45 cleaned, or a grading company would give it a details grade. This is unfortunate for two reasons:
1. Nobody will pay XF-45 money for the coin, and
2. The grade of the coin was higher before cleaning and would have been worth more money than XF-45 anyway.
One form of cleaning is called "dipping." Depending on the series, some dealers do this more or less regularly. I do not suggest this. Sometimes a coin may show a very small amount of undesirable tarnish or toning and the dealer will quickly dip the coin in a solution and then rinse it off. While this may be undetectable if done very quickly once or twice, there are many coins in some series which show the result of successive dippings by dealers and now have a dull appearance. The coin becomes ruined. Just don't try it. Also, with advances in high powered micro-photography, many more collectors have the ability to discern if a coin has had cleanings by looking at the surface metal with magnification.
The corollary to cleaning is "conservation." This is done without harsh chemicals and without abrasion. In some instances, a valuable coin develops a problem which needs to be addressed to prevent further degradation. An example of this is verdigris on copper coins. Verdigris is the copper corroding and turning green, like the Statue of Liberty, and will eventually destroy the coin. In this instance, the coin may need to be conserved. This is beyond the discussion of this initial datasheet and if you do have a valuable coin which needs conservation, I suggest letting a professional do it at NCS.
The only thing which I would recommend to any of you would be an acetone dip. Pure acetone will remove certain surface contaminants without reacting to the metal itself. It will also, due to its hydrophobic nature, remove moisture from the coin itself.
b. Buy the book BEFORE you buy the coin.
This is an oft cited mantra within the collecting community, and rightfully so. Much like buying a used car, you can get your ass handed to you by an unscrupulous seller if you don't know what to look for. If it sounds too good to be true, 99% of the time, it is. Understanding the coin and the coin market is crucial to success.
There are many good books which cover this need. The first of which is called "The Red Book." This book, specific to coins, gives an overview of each issue with additional information including: brief description, mintage, important varieties, and estimated values. It is important to note that values given are only estimates and can be higher or lower depending on a number of factors. Typically values given in the Red Book are higher than the market will bear.
This is not the only resource you will want to begin collecting. In order to properly grade a coin, it is important that you understand all of the factors which are taken into account. The best book for this is the "Official ANA Grading Standards for United States Coins." I will touch on the grading system used a bit later, but this book is an excellent reference guide. Additionally, the online picture reference from PCGS is very helpful, particularly in the higher grades. I will touch on grading again later.
If you decide to focus on a particular series, there are additional guidebooks which will help you with date and mintmark specific information. I prefer other books under the Red Book line, like this one.
c. Proper Storage Equipment is Worth the Investment
The main enemy to coins is heat combined with moisture. You wouldn't leave your cigars in a sauna, so why would you leave your coins in one? Desiccants, preferably reusable, are necessary to prevent unwanted tarnishing and damage. Placing items in a safe is not enough to prevent damage. Desiccants are a necessity.
Also needed are neoprene gloves. I know some collectors that shudder at the thought of using gloves and insist that every collector learn to hold a coin properly by the rim. I suggest neoprene gloves mostly because the oils from your hand will end up on the coin without gloves. These oils will cause unsightly tarnishing. I have a few from a previous collector that have his finger prints permanently tarnished onto the coin. I don't know if the terminology is well used within the field, but my friends have always referred to such conduct as "finger-fucking" the coins. See, this thread does belong on RVF!
A loupe is needed as well. This is a small magnifying device. You have probably seen jewelers use one to examine a diamond. I suggest getting acquainted with using one before going to a coin show and showing everybody that you are a novice by not being able to focus quickly. They will notice, it happened to me.
You must also figure out how you want to display your collection. Some people use pre-made albums. If you go this route, make sure you stick with high quality ones made by Dansco or Intercept Shield. I'm sure you are familiar with the Whitman folders that are popular with beginning collectors. These are the blue cardboard folders. Avoid these at all costs as the cardboard absorbs moisture easily and you have to push the coins in with your thumb. If you are wearing gloves this is not a concern, but the coins are not encased by plastic like they are with Dansco so they are prone to a curious visitor putting his/her oily fingers all over your coins as well as environmental damage.
Another alternative to displaying your coins is to use cardboard flips. These are foldable paper encasements with a thin plastic viewing film. They are relatively cheap and come in different sizes for different coins. The border size is nearly always 2 inches by 2 inches, but they are also made in other sizes to accommodate larger coins. These can then be placed in plastic album pages for three ring binders, or placed into cardboard boxes specially suited for the purpose.
The third alternative is to use "Air-tites." These are hard-plastic encasements which snap together and fit snugly around the coin. The cost for these, depending on the size, usually hovers around the .50 mark per coin. I don't suggest these except for modern bullion which you may want to keep in Brilliant Uncirculated condition depending on the issue.
A fourth alternative involves collecting graded coins. I will detail this later.
d. Collecting is not an investment, it is a hobby. Being the middle man is where the money is.
Did you know that Merrill Lynch started a rare coins fund in 1989? It was started because there was a boom in coin prices in the 70's and 80's. Of course, they were late to the party. Investors had a blood bath. The market goes up AND down. Not only that, but at the true high end, the only way to turn a profit is by having something ultra-rare locked in your collection for 40+ years. With that time frame, a simple index fund would have spun off more cash.
Being the middle man IS a potential for profit, however. Think of it as the vig. A steady 5% is all anybody ever asked for. If you can buy below the bid price and sell at the asking price, you have a potential for profit. This is how the so-called B&M, or Brick and Mortar, stores make their money. Also, if you can see short term market imbalances you can make a profit. These imbalances are usually in the modern coin market. More on that later.
e. There are many con-men and hucksters in this field.
It is somewhat difficult to explain all of the scams if you don't know the terminology. This section may be more useful after you learn a bit more.
The biggest two cons are cleaned coins and altered coins, though other scams exist. Altered coins are self explanatory. Say there is a coin with a hole in it. Obviously it is damaged and will be a tough sell. A con-man could melt a piece of metal into the hole and smooth it over while still hot. Then he sells it as original. It takes a lot of skill to do it without detection to most people, but it is detectable by collectors who are discerning.
Another scam is where people will buy a coin which is slabbed as cleaned. I will describe what "slabbed" means later, but now understand that it is encapsulated by a trusted third-party to be real. Well, the scammer will purchase the cleaned coin, then break it free from encapsulation and then sell it as if there were no damage. Sometimes this is done via bad pictures on e-bay, or if the cleaning was light enough and the mark is dumb enough, in person.
The other most common scam is through Chinese counterfeits. This is usually facilitated through Alibaba, the website not the RVF member. It is most common with modern bullion, though there have been a number of other fakes as well.
II. Factors affecting the Marketability of a coin
This section could just as easily apply to any collectable. It is important to note that there is a fundamental different between "value" and "price." Price is a fixed quantity, a set dollar amount. Value is a perceived abstract that exists in the minds of the seller and buyer. The two do not always equal one another, but identifying discrepancies may lead to gains over the long term.
a. Condition/Grade
The current grading scale used in American Numismatics is called the Sheldon Scale. The grades range from 1-70. It was originally created to describe the relationship of price of Large Cents in various conditions. A Large Cent in Mint State 65 (MS65) condition was priced at 65 times the price of a Large Cent of the same year. It was originally a relation of price, not condition. Today the Sheldon Scale is used to evaluate condition.
The numerical grades have word analogs.
1 poor
2 fair
3 about good
4 good
6 good
8 very good
10 very good
12 fine
15 fine
20 very fine
25 very fine
30 very fine
35 very fine
40 extremely fine
45 extremely fine
50 about uncirculated
53 about uncirculated
55 about uncirculated
58 about uncirculated
60-69 mint state
70 mint state (perfect coin with no flaws)
Proof coins are usually only graded from PR60 to PR70.
It is very important to understand the condition of the individual coin you are looking at. The books mentioned above as well as the PCGS photograde will help you see the differences. Depending on the other factors for the coin, there may be a very large jump in prices. Some coins have largely circulated and there are very small numbers of mint state coins available. This can lead to large jumps in price between grades. There are also certain coins that were produced in such quantity that there are no increases in price until the very top of the grading scale.
The conditions for grading a coin varies with the series. It has mostly to do with the amount of wear found in circulation. The high points of a coin wear first, so a coin in AU58 condition (About Uncirculated 58) would show the smallest amount of wear.
Coins in MS (Mint State) condition show no wear. They can, however, show what are called "contact marks." These are marks on the surface of the coin caused by being in contact with other coins, usually in a mint bag or during the minting process. All modern (post 1964) coins can be found in MS condition at affordable prices. There may be large price discrepancies between grades depending on the year, however. For example, a 1968 Red Lincoln Cent in MS66 condition may be worth $30, while the same coin in MS67 is worth $300 or more. Obviously there were tons of Lincoln Cents made in 1968, so the coin itself isn't rare... but there is a "condition rarity."
This brings me to another aspect of grading. Each series may have other additional factors which can increase the price. For the example I gave above, I specified that the 1968 Lincoln was red. Copper coins exist with three different color designations: Red, Red-brown, and Brown. Red cents are worth more because they look freshly minted. Red-brown coins are somewhere in between the spectrum of toning before they turn completely brown. These conditions are abbreviated after the grade. (MS66RD or MS65RB or MS63BN).
Other designations specific to a series include, "full bands," "full bell-lines," "full head" and "full step." These are specific to different series, and I only include them to show that each series is its own separate animal. These designations have to deal mainly with the "strike quality" found on the coin, or how well the coin was made. This can vary from mint to mint and from year to year even within a series.
Typically when discussing grade, people will pronounce the letters, especially for Mint State grades. They will say "MS65." It is also commonly abbreviated as such and I will continue to do so throughout the rest of this datasheet.
If you are dead set on numismatics, you should check out this excellent series from PCGS on grading:
https://www.youtube.com/watch?v=Apn-kYEl-Xw
There are a few videos, but that is the first.
b. Date/Mintmark
This is hopefully obvious. Mintmarks are placed in different locations on each series, sometimes changing within the series. You'd better know damn well where they are located. Some are easier to find than others if you don't know the series.
In the United States, There are currently only 4 operating mints: Philadelphia, Denver, San Francisco, and West Point. San Francisco and West Point typically only make coins intended for collectors, not for circulation. Past mints also included Carson City, New Orleans, Charlotte, and Dahlonega.
Typically, coins minted in Philadelphia show no mintmark, though there are exceptions. You are surely familiar with the Denver mintmark, D. San Francisco is an S, West Point is a W. Charlotte was a C, Carson City was CC, New Orleans was an O, and Dahlonega was also a D.
c. Supply (rarity- perceived or real)
I touched on this briefly already. Condition rarity can cause a jump in prices. There may also a large number of coins which are in "strong hands" and not being offered for sale at any price which increases the price. Supply is also called "population," as is the number of known examples in a grade for a given coin.
That being said, there are a number of coins which have low populations but are not actively sought out by collectors. This may change in the future and increase price. The reverse is also true.
d. Eye appeal
This is not just how well-struck the coin is, but whether the wear and/or contact marks are distracting. For example, an MS60 Morgan Dollar has quite a number of contact marks on it. Take a look at this example. Liberty's face has all sorts of contact marks including a few big ones that look like gouges.
But look at this AU58 Morgan. It shows just enough wear to keep it out of the MS range, but has superior eye appeal.
Another factor in eye appeal deals with how strong the strike is. A clean and hard strike gives clearer features. This is usually accounted for in the grade.
Toning is a big one. Right now, people love toned coins, but they have to be naturally toned. Ones toned artificially with chemicals stick out like a sore thumb. A few hucksters sell them on ebay. I think that is a bit advanced for this guide.
Toning varies from series to series but is particularly popular within the Morgan Silver Dollar series. This is because so many coins were minted and then sat in bank vaults. The bags they were in contained sulfur and coins in contact with them eventually exhibited a change in color. Some toned coins can bring huge amounts of money, while some are more subtle increases.
e. Special variety
Errors are the big variety in this category.
For example, take a look at this doubled die.
You aren't going to find one of those in the wild anymore, but there are all sorts of other varieties which are yet unfound. In recent history there have been a few cases where the mint accidentally used a proof die or older die for a new circulation issue with minor variations. The vast majority of these are tedious to find and not really worth your time looking for them. I don't think you want to sort through thousands of coins to find something worth $15.
f. Market Demand
There are a few instances where market influences make one or more coins cost more than the other factors would indicate. For example, many examples of Morgan Dollars minted in Carson City exist, many in uncirculated condition, but the price of these coins are much higher than Morgans of comparable mintages and conditions.
Another example is Proof Shield Nickels. I can get an 1882 Proof Shield Nickel in PR62 condition for less than $300, despite the mintage being around 3,100 coins. For comparison sake, an 1877 Indian Head Cent in MS62 condition is worth $4,000+. The survival rate of the 1877 is low, but a total of 800,000 were minted. The popularity of the Indian Head Cent series drives the price of the 1877 up, and the unpopularity of the Shield Nickel proof series drives the price down.
It is important to add another explanation here, which is the concept of a "key date." A key date, or key, is the rarest and most expensive coin for a particular series. A particular series may have multiple keys if there are low mintages or low survival rates.
g. Time
I could easily have fit this sub-section into one of the above, but I would like to emphasize the impact that time has on demand. As I've described, most of the money to be made is when there are short-term imbalances. For whatever reason, people are impatient and can't wait to give you money for a new product. After enough become available, the market cools and so does your profit margin.
III. Major Market Players
a. The U.S. Mint
Obviously the Mint produces all coins for circulation in either Denver or Philadelphia. They also produce a number of products each year which are either limited in the time period in which they are available, or limited to a total mintage amount. Most mint products are crap created for collectors. Typical purchases for collectors include proof coins, uncirculated coins, modern commemorates and special sets.
b. Third-Party Grading Companies
Originally third-party graders, or TPGs, came about through the need to authenticate rare coins worth thousands. Now authentication is not their major objective, it is grading. You can send a coin in and they will send it back encapsulated in what is called a "slab." it has a numerical grade assigned to it as well as information relating to the series and an identification number. There are only three legitimate players in the market: PCGS, NGC and ANACS.
Let me give you a brief rundown of the three. PCGS is considered the gold standard. A coin graded in a PCGS holder will be worth more than the same grade in either of the other companies' holders. The only exception to this is foreign coins. For whatever reason, NGC is the choice for European buyers. ANACS does their job very well, but they don't command a market premium. Both PCGS and NGC require annual memberships in order to submit coins and submitting a coin generally costs around $20 a piece, give or take. The submission fee is dependent on the value of the coin as well as a number of other factors.
Currently, a large portion of submissions to these companies seem to be modern bullion. In my opinion, graded modern bullion is a waste, but some dealers have made continual profits with bulk submissions of bullion. A certain percentage statistically will always come back as MS70 and MS69, each of which commands enough of a premium in the market to make the dealers money. Quite silly, if you ask me.
There are a few ways that these companies can screw you. The main one is in resubmissions. Each company only has a very small number of graders. While these people are professionals with years of experience, they are looking at each individual coin for a very small period of time, say 30 seconds for a common modern day issue. For some of these coins, a difference in grade between MS66 and MS67 could mean a difference between $30 and $1500. If it cost you $20 to submit a coin with a shot at MS67, how many times would you resubmit it in hopes of a profit? Sometimes, a lot.
There are other TPGs, but stay away from them. The TPG in distant fourth place is ICG, but they are whores and will grade anything too high. Additionally there are a few unscrupulous people who have set up slabbing services in their basement and overgraded coins for the purpose of fooling collectors. This is the specific reason that E-bay banned the listing of coins in slabs from companies other than PCGS, NGC or ANACS. There are a few people who have legitimately tried to grade coins with a new business, but none of them can gain market share. If you run across something in a slab not from the big three, either run away or look very, very carefully.
c. Nationally Recognized Dealers
I say nationally recognized because I want to make a distinction. These guys are the big players. The ones that can only really exist in big cities. These are the dealers with normal inventories exceeding eight figures. I can offer no advice for these dealers other than to say that they always have key dates in stock.
d. Local Brick and Mortar Dealers
These can be hit or miss. Knowledge of collecting as well as Game come into play. Not every dealer can be your friend, I have certainly been burned. In this category I also lump in Pawn Shops and Jewelers. You can't find a deal at a Jeweler unless it is an independent shop, and even then it is sketchy. Pawn shops sometimes mismark key dates or important varieties as they don't have time to specialize. Otherwise their coins are too expensive.
e. Online Dealers
This is divided into three main segments. You have auction houses which deal online, private E-bay sellers, and private dealers with their own websites.
Private dealers with their own websites typically deal in higher end coins and make money off of commissions. They are respected in the community to varying degrees. You won't get a deal from them. One example is David Lawrence. He runs auctions but also has coins for sale. There are also other private dealers that deal mostly in bullion, or graded bullion. Often times these dealers will sell on e-bay and then again on their own website. Their eBay prices are almost always higher, though if you purchase enough through eBay you may have some "eBay Bucks" to spend which will make things cheaper. This combined with some credit card rebates can make this a viable method of making purchases which can then be converted into cash. A few examples of these dealers include APMEX, Silvertowne, and Modern Coin Mart. I wouldn't buy any classic coins from these dealers and I don't like graded bullion, but if you enjoy modern graded coins or modern graded bullion, those dealers usually have them before other dealers.
Auction houses, like Heritage or Stack's Bowers are good places to sell if you get that coin worth $5k+. I would rather give them 15% than have a local dealer try and scalp me. This would be where I would go if I couldn't sell a coin to my local connections. There are also local auction houses that typically list online. They may or may not yield something good. Usually not.
f. Huckster Corporate Sycophants
These are the people who sell coins on TV. They are always selling for 130% of the actual market price. There are a few other ones as well. Some advertise in magazines and have introductory offers on gold or silver bullion. They will then call you and attempt to sell you graded coins for way more than they are worth. Anything sold on TV is junk.
g. Local Hobbyist Dealers
This is a mixed group. Some are great people who started selling because of a lifelong hobby, others know less than you and are complete shitheads.
Local dealers can be good sources of information and also sometimes coins. You have to use your personality with these people to get into their good graces. Most of these dealers are only local and run side hobby/businesses at monthly coin shows. Most of them don't travel to any of the major country-wide shows, but a few of them do. Those are the guys you want to know. Ask about the F.U.N. show and the Long Beach Expo. These are the two big ones in the U.S. If a local dealer went, you probably have somebody good.
The other guys are the type who will sell at a flea market at inflated prices. Avoid. Avoid. Avoid. Not only will you never get anything at a fair price, but they are often assholes too. These guys aren't above altering a coin to improve its appearance and outright lying to sell a coin. A few locals are also glorified bullion dealers.
Some of the local dealers are only dealers because they were hoarders for so long. Their collection became so big that the only way they can get any return at all is by selling it piece by piece. The other option is for their collection to be sold off after they die and they would rather get the cash while living. Depending on how savvy they are, some of their inventory may be mismarked as they don't have the time or inclination to keep up with market changes.
h. Collectors
These are the people that you will be selling to. You are going to have to meet them the old fashioned way, or else sell to them online. I suggest discretion in meeting people, but use your charm. This is where Roosh's elderly rambling opener works best, as most collectors are 60+ years old. There isn't a whole lot of new blood in the hobby, which is another reason I'm not an advocate of buy and hold "investing" in numismatics.
Never sell to this crowd at a coin show. Dealers paid money to get a table and will have you kicked out for selling there. Additionally, don't shit where you eat. Collectors can be sources of coins as much as they are purchasers. Keep the two groups separate as best you can.
In the next Part, I will discuss the specific types of collections people build and ways to exploit market inefficiencies for profit.