Hello and welcome back,

We hoped that you enjoyed the last edition of The Insider’s Edge. We received excellent feedback on the last issue, although we were not offered any 1885 3 Cent Nickels. This issue will contain some great investment advice and point out a few coins that many collectors have erroneously ignored. In Exposing the Myths, we will continue working through our list of the 10 Myths of Coin Investing, selecting another myth for detailed discussion. In the Blue Chip Picks column, we will discuss a solid gold investment pick that is poised for continued growth…..a piece that is NOT a bullion coin. The Find Me One column will disclose an underappreciated numismatic gold piece worth well over any printed wholesale or retail price guide listings. This edition will also feature a special interview with new American Numismatic Association Executive Director and rare coin dealer Larry Shepherd. He will provide valuable insight on his personal experiences in the rare coin business. 

The coin market has been extremely active throughout February and early March, even in the face of an economic recession. Collectors seem unfazed by the struggling economy, or even the upcoming tax season. Precious metals have been trading in heavy volume over the first quarter, often tying up considerable capital for dealers and investors. After a seemingly unending bull market that witnessed gold reaching $1030 per ounce and silver topping $21.00 an ounce, the market made its first significant correction this week. The sell-off was triggered by a number of factors. Here are the most significant:

·        The Federal Reserve cut the Federal Funds Rate by 0.75%, less than the 1-1.5% that the market was expecting. This supported the notion that inflation may be within desirable limits, and not as much as a problem as some analysts feared.

·        Oil prices dropped about 2.5% on news that Americans are driving less and using less fuel when they drive.

·        Partially as a result of the first two events, the U.S. Dollar gained significant strength, aiding in the precious metals corrections.

·        Demand for gold jewelry in the U.S. has reached its lowest level in years due to the higher gold levels.

These factors gave investors who had purchased metals at much lower levels ample incentive to take some profits, thus triggering the sell-off. Although many of the fundamentals that support the precious metals run over the past 5-7 years are certainly still in place, a market correction was inevitable. As of today’s release, both gold and silver are recovering nicely, with gold nearing $950 per ounce and silver over $18.00 per ounce.

The rare coin market may receive a boost from the break in the precious metals run. Many dealers, collectors and investors who had significant capital tied up in gold and silver have sold their positions. They now have funds available to pursue the rare coins, where they previously may have been holding out. However, the rare coin market remains extremely active on its own. The complaints from most collectors and dealer remain geared toward the lack of fresh, interesting material on bourse floors. Fresh pieces that have great eye appeal, an interesting providence, and/or perceived upside potential are selling for record levels at auctions and then disappearing into collections. These types of coins may not be seen publicly for upwards of a decade. 

Recent auction results have supported this sentiment. At February’s Long Beach Coin Convention, Heritage auctioned the Husek collection of early Large Cents with many rare Sheldon varieties included. The appearance of this fresh, high-quality copper resulted in a packed auction floor with record prices realized for many pieces. The sale totaled over $10 million, with 23 individual pieces bringing over $100,000. Led by a 1793 Sheldon-13 Liberty Cap Cent graded AU-55 by PCGS and a 1794 Starred Reverse Sheldon-48 Cent graded AU-50 by PCGS, these two coins realized an astonishing $632,500 each! Another recent auction demonstrating market strength was the winter ANA Sale in Phoenix. This auction, also conducted by Heritage, brought nearly $10 million. It was led by a 1907 Saint-Gaudens High Relief Wire Rim graded MS-69 by PCGS realizing $517,500.

Ultra rarities, key dates and other investment quality coins are stronger than ever, realizing significant profits for those prudent enough to purchase and hold them. Well-heeled collectors are desperately seeking out these types of coins and paying record prices when they surface. We believe that the growth potential for high end rare coins remains quite strong.

 

 

The secret to making money in rare coins centers around buying coins at cheap levels like the dealers do.

There may be no myth farther from the truth than this one. Unfortunately, it’s also one of the traps that most novice investors fall into. The cheaper you can buy the coin, the better off you are, right? WRONG!! Years ago,one of my early business mentors told me, “Good things are seldom cheap and cheap things are seldom good”. Let me illustrate this with a personal example, and show how this strategy applies to even a seasoned coin dealer.

 

About 15 years ago, I was offered a coin collection, which at the time, was outside of the realm of what I could afford. Consequently, the seller allowed me to pick the coins within my budget. I opted for a mid-grade Morgan Dollar set and a group of generic gold coins, while forgoing a 1907 proof set and a GEM proof $5.00 Liberty. My reasoning was that the seller’s asking prices were too high on these latter items, and much more reasonable on the dollar set and the generic gold. Two weeks after I bought the deal, the bids on the generic gold coins collapsed and I was stuck staring at a significant loss. In addition, the two key Morgans, the 1889-CC and the 1893-S both body-bagged when sent to PCGS for encapsulation. Despite the fact that I bought this portion of the collection at approximately 10% back of the prevailing wholesale bids, when all was said and done, I lost over 15% on the transaction. On the other hand, the 1907 proof set sold to the next person that it was offered to, and traded hands three additional times (and each time at a profit) before I had even received the two Morgan Dollars back from PCGS. Ultimately, this set, which at the time seemed way too expensive, realized a 100% profit in a little less than a month! The story with the proof gold coin was even worse. At the time, the asking price on this coin was $10,000.00 which was in between PR-64 and PR-65 bid. I realized the coin was really nice, but the price just seemed too far out of line. A close business associate of mine bought the coin and proceeded to send the coin to PCGS for grading. Two weeks later, the piece came back graded PR-66 and he sold it for over $25,000.00. Again, this all happened before I even received my two no-grade Morgans back from the same service. Ironically, I saw this same coin several years ago in a Heritage auction, where it was now graded PR-67 Deep Cameo by NGC. The end result of cherry picking this collection was this: I lost $6,000.00 buying the cheap coins, where I could have just as easily made $20,000.00+ buying the right coins. It was a lesson well learned and a mistake I would avoid making again!

There are countless auctions and sales where I have overheard miffed potential buyers say, “He’s sunk in that coin” or “I can’t believe that he paid that kind of money for that”. Not to imply that you can’t overpay for a coin at auction, but more times than not, the coin that seemed too expensive ended up being the best buy.

So just how much does superb surfaces, intense original toning or extreme rarity add to the basil value of a coin? This can be a tough question, and outside of good old fashioned experience, there is really no universal way to answer it. For this part of the equation, a knowledgeable dealer in your corner can be your best ally.

I always get amused when I hear a collector say, “Yeah I need that coin, but every time I see one come up in auction, it brings 50% over what I’m prepared to pay”. Usually, that is a good sign that the collector is not prepared to pay enough. A good example of this would be an uncirculated 1893-S Morgan Dollar. I can’t tell you how many Morgan Dollar sets I have built for collectors over the years, but I would bet that it numbers close to one hundred. Yet, most have never owned an 1893-S. Or if they did, they compromised and bought a lesser example than what they should have. 1893-S dollars, especially uncirculated specimens, are not cheap. They never have been and they never will be. Consequently, when it comes to pulling the trigger on this decision, most collectors take a pass. For the few that both understand value and have the financial resources, it becomes quickly apparent that no date in the Morgan Dollar series has appreciated more over the last 10 years than an uncirculated 1893-S dollar. Will you ever buy one at bid? Definitely not. Do they make still make sense, even at a significant premium? Probably so.

The great collections (Norweb, Eliasberg, Garrett, etc) were not assembled by pinching pennies. Rather, they were built by meticulously picky collectors, who demanded the best and were willing to pay accordingly. The same holds true for the most successful dealers in the business. Is it any coincidence that the same dealer who is apparently always paying too much for certain coins is also the one who seems to own the thriving rare coin firm?

As a coin investor, you need to digest this. There are countless examples that expose the cheaper is better myth and there is not enough time to point them all out. If the coin seems right, then set your sights accordingly. If the coin seems like a concession, then let the price buyer jump on it, and take a pass. After all, you sometimes can and will pay too much for the right coin. But, you will always pay too much for the wrong coin!

 

 

During this recent surge in the precious metal’s market, many coin collectors and investors have turned their attention toward US Gold Coins. Coins with intrinsic value, such as generic pre-1933 $10 Eagles and $20 Double Eagles, are taking center stage. Many see the value in acquiring a 75 year old coin at slightly over its melt value. With gold prices hovering near $1,000 per ounce, even low end uncirculated pieces are now trading near their intrinsic value. With the higher gold prices, a great deal of collector/investor capital is tied into bullion based gold. Consequently, some rare numismatic gold pieces are being overlooked.

A great example of an overlooked gold coin with excellent growth potential is the 1883 $2 ½ Liberty Quarter Eagle. Advanced collectors are generally aware of the tough quarter eagles from 1880-1885. However, the coins most often discussed are the 1881 and 1885 coins, primarily due to the fact that they both have mintages of fewer than 1,000 pieces. At a mintage of 1,920 examples, 1883 $2 ½ Liberty receives far less recognition than the 1881 or 1885 Quarter Eagles. An examination of the PCGS/NGC population reports, though, would indicate that a much lower percentage of the 1883’s mintage was saved than either the 1881 or 1885. This may have been due to the deep economic depression occurring in 1883. Considering the purchasing power of $2.50 in 1883, many collectors could not have afforded to save these coins.

An evaluation of PCGS/NGC population data supports my belief that the 1883 quarter eagles are undervalued. Population reports show a record of only 107 total pieces graded at PCGS and NGC combined. Only 28 total uncirculated 1883s have been graded between both services. Choice pieces are nearly impossible to find, with only 2 MS-63s and 3 MS-64s shown in the combined populations. The only gem example in the census is a single MS-66 graded by NGC. Even the Harry Bass U.S. Gold collection, which had many of the finest gold pieces known, only had two About Uncirculated 1883 $2.50’s. 

To place the population of the 1883 quarter eagle in perspective, compare it with another popular date gold piece, the 1911-D $2.5 Indian. The 1911-D is the unquestioned key date of the $2.5 Indian Set, with an original mintage of only 55,680 pieces. Compare the CDN Greysheet wholesale bid levels for the 1883 $2.5 Liberty and the 1911-D $2.5 Indian.

One can see that the 1911-D, on average, is priced about three to five times as much as the 1883 in all represented grades. Now, let’s examine the combined PCGS/NGC total populations of the two coins in identical grades.

This population data should raise a few eyebrows about the relative rarity of the 1883 $2.5 Liberty. With a mere 28 total uncirculated 1883 quarter eagles graded compared to 3,461 uncirculated 1911-D $2.5 Indians, the 1883 is about 120 times as rare as the 1911-D in uncirculated condition. Of course, the population reports do not account for resubmissions, but there is no doubt that the 1883 is MUCH rarer than the 1911-D. However, the 1911-D $2.5 Indian is much more popular as a key date in the only complete-able (by most people’s standards) U.S. gold set. On the other hand, few collectors focus on collecting $2.5 Liberties by date. This might explain why the 1883 is so overlooked. 

Those collectors with interest in better date Liberty Quarter Eagles often gravitate toward the 1881 and 1885 dates. Their appeal is partially derived from their original mintages of 640 and 800 pieces respectively. Although the 1881 and 1885 pieces seem to be undervalued in their own right compared to other rare U.S. gold coins, compare their values and populations to the 1883 $2.5 Liberty. 

Analyzing the population and pricing data, the 1883 $2.5 compares very favorably with the lower-mintage 1881 and 1885. For example the 1881 and 1883 have the same MS-62 population. Yet the 1881 is nearly four times as expensive as the 1883. The 1883 $2.5 has the lowest MS-60 population, yet is by far the least expensive of the three dates in MS-60.

The available information seems to indicate that 1883 $2.5 Liberty is a coin worth purchasing and holding for the long term. When dealing with single digit population coins like this, a few aggressive buyers can rapidly cause prices to increase. Auction records show that these coins rarely appear on the market, with only 10 uncirculated examples sold over the last 10 years. However, these rare pieces that have surfaced through auctions seem quite affordable. The MS-60-63 coins have ranged from $1,800 - $4,000. At these prices, I believe that uncirculated 1883 $2.5 Quarter Eagles are a great long term buy. This rare date is recommended in all grades, and especially so in MS-60-62. After reviewing all of the data, it’s no mystery as why this is my Insider’s Edge Blue Chip Pick.

 

Apparently none of our readers were able to locate a business strike 1885 3 Cent Nickel for me, so let’s try to locate another incredibly elusive coin that does not receive its due respect, the 1886 $20 Liberty Gold.

With a mintage of only 1,000 pieces, this coin’s rarity is plainly obvious to even a novice collector. But, just how tough is it? Quoting David Akers from his quintessential book, “United States Gold Coins – An Analysis of Auction Records, Volume 6” he states, “The 1886 is one of the rarest dates of the entire Liberty Head Double Eagle series. Overall, it is a little more rare than either the 1881 or 1885…In my opinion, only about 15-18 business strikes exist.”

To date, PCGS has graded a combined 23 pieces in all grades, followed by NGC with a total of 24. That gives us a population of 47 pieces for PCGS/NGC combined in 20+ years of grading coins. Assuming that upgrade candidates and crossovers probably account for a 25% duplication in the census numbers, we are down to a population of approximately 35 pieces. I would have to guess that the majority of 1886 $20s have surfaced, as there were apparently none in the European bank hoards. Additionally, since 1886 $20s have a high value associated with them, we are going to presume that most have filtered through the grading services for the all-important authentication process. Perhaps, Akers survival numbers seem a bit conservative, but not by a great deal.

Auctions certainly support the rarity of the 1886 business strike $20, as their appearances are much less frequent than their proof counterparts (a RARE coin in its own rite). In the last 10 years, there have been 23 separate auction appearances for this date, 8 of which appear to be duplicate coins. As amazing as this sounds, since 1997, most 1886 $20s appear to have found their way onto the auction block, with some coins appearing 2 or even 3 times within that period. The low price realized was $9,200.00 for an NGC XF-40 specimen sold in a Heritage auction in July, 1997 and the high price was $69,575.00 for a PCGS graded AU-55 specimen sold by Heritage in January, 2007. Several theories emerge from this data.

First and foremost, 1886 $20s are not viewed by many collectors as keepers. Perhaps they lack the sexiness of a stand alone rarity or the mystique of a certain mint mark. Maybe it’s the fact that few high grade examples exist and most known pieces are heavily abraded with very little eye appeal. Or, it could be just a plain and simple lack of understanding and appreciation for just how rare this coin really is. But, the numbers do not lie. With approximately half of the graded population transferring ownership over the last 10 years, this date, as Rodney Dangerfield would say, just gets no respect.

Perhaps more importantly to our readers, the 1886 $20 seems grossly undervalued. Saying for the sake of argument that there are approximately 35-40 survivors, the 1886 $20 is just slightly less rare than an 1894-S Barber Dime or an 1838-O Reeded Edge Half. It is MANY times rarer than an 1879 Stella or a high-grade 1895 Morgan Dollar. Yet, it consistently sells for much less than any of these aforementioned rarities. In my opinion, these comparisons make a compelling argument of why this date should rank high on an investor’s target list.

Let’s examine for a second at what this particular coin DOES have going for it. Obviously, it has a ridiculously low original mintage. Apparently, very few coins survived. The piece represents an example of our country’s largest regular issue gold coin, which is a gigantic positive. For collectors assembling date sets, this is the only available issue for the 1886 date, with no branch mints issuing $20s. This is a rarity that has flown under the radar for years, neither getting the appreciation or respect that it deserves. And perhaps most importantly, the price-rarity correlation appears way out of kilter.

So, go ahead and find me one! And just to prove that I really do believe in this coin, I would offer a premium of 50% over current Greysheet Quarterly III Bid for any PCGS or NGC graded specimen. I would love to think that a business strike 1886 $20 might come my way as a result of this offer, but I am not going to hold my breath!

Our Insider’s Edge interview this month features dealer, Larry Shepherd of Simco Numismatics. Larry’s background as an investment banker gives him a unique perspective about the future of the rare coin market. Prior to founding Simco in 1989, he was co-CEO, director and managing director of Irwin Union Capital Corp. He also served as executive vice president of Irwin Union Bank and Trust. He became vice president of National City Bank in Dayton, Ohio, when he was only 25. Most recently, Larry was chosen from a field of over 30 candidates to become the new Executive Director of the American Numismatic Association.

Shepherd’s interest in numismatics began at the tender age of 10, when he started collecting circulated Mercury dimes, separated from change by a neighborhood grocer. Years later, Shepherd became interested in the U.S. Classic Commemorative series, with an emphasis on coins with beautiful original toning and phenomenal eye appeal. In 1991, he became the first living person to have a collection pedigreed by PCGS. Today, whenever a commemorative with the “Shepherd” pedigree does appear on the market, there is an intense fervor to acquire it. This is quite a testament to the quality of these pieces from a collection that was dispersed almost 17 years ago. When it comes to a discriminating eye, Larry Shepherd has garnered the respect of numismatists throughout the hobby. We present to you, this month’s interview with newly appointed Executive Director of the ANA and dealer extraordinaire, Larry Shepherd.

Larry Shepherd: Coins have proven to be a great investment over the past several years. The decline in the value of the US Dollar has helped to make coins an attractive investment. With the excessive amount of money being created, the current economic conditions are similar to the late 1970s, with inflation concerns along with an economic recession. Liquid assets have been increasing in value, while illiquid assets have been declining in value. There is presently a great deal of distrust in financial institutions. From a person with a financial background, I do not like what I see in the state of financial institutions. Typical Wall Street and Real Estate investments are not proving valuable at present, and the current state of economic conditions makes rare coins an attractive investment.

Another item of note is that the decline of the U.S. Dollar is bringing an influx of European investors into the U.S. rare coin market. For European investors buying with Pounds or Euros, U.S. coins are actually cheaper today than they were several years ago. This influx of international investors is creating a stronger investor base for U.S. rare coins.

LS: The novice coin investor should take it slow and be patient. Impatience leads to mistakes and poor investment decisions. A novice investor should find a dealer that they trust and work with them. Be careful not to jump into rare coin investing without a good fundamental understanding of the market. Learn about the coins you are purchasing and learn to grade coins. When buying a rare coin, buy the coins; do not simply buy a grade on a holder. 

LS: My background as an investment manager provided me with the right approach to buy and sell rare coins. This background taught me the value of gaining knowledge in whatever I am working with. One needs to have knowledge in coins and understand that rare coins, like any asset, have risk associated with them.

My success in rare coins came from understanding Premium Quality coins within an assigned grade. Coins that are profitable are not coins you purchase at wholesale bid. Premium quality coins are always premium quality coins, and they always tend to bring strong prices when an individual goes to sell them. An investor should target PQ coins with great eye appeal. Premium coins will normally cost more than average coins, but they tend to be the better investment over the long term.

LS: Many areas of US coinage have great upside potential. Early Bust type coins and other early 19th century US pieces still seem attractive if you buy quality pieces. Morgan Dollars and Classic Commemoratives seem to have upside potential at present. Both areas have historically been popular among collectors and tend to move in cycles. Both areas have been soft over the past several years. During this cooling cycle, some premium quality coins have languished alongside their common counterparts. There are some great values in these PQ pieces and an opportunity to acquire some of these coins at low prices. Be on the lookout for high quality, fresh coins in these areas, as there have not been many great Morgans or Commemoratives on the market recently.

LS: The rare coin market has a very good future. There is a very limited supply of quality, rare coins and that supply is diminishing. Too many coins have been tucked away into collections over the past 12-15 years, and these coins are rarely appearing on the market. Most of the coins on the market are the less desirable and more common pieces. The available supply of rare and desirable coins is nonexistent. As a result, a lower tier of rare coins that were not attractive 10 years ago are now attractive to collectors due to the lack of availability of the highest tier pieces.

LS: There are both internal and external problems in the rare coin market. The external problems center around the dangerous economic standpoint we are at. There is no way of knowing if the economy will tend toward an inflationary or a recessionary situation. This is likely the most dangerous economic situation this country has faced since the Great Depression. However, risk also creates opportunity. In an inflationary economy, rare coin values have the potential to go through the roof. 

The main internal problem in the coin market is the present lack of supply of quality coins. Another major problem is the gradeflation among the grading services. There are many overgraded coins floating around the market in TPG holders. Coins that were graded MS-68 in the late 1980s were outstanding coins that were truly special. However, with business strike coins, the grading services tend to cap their grades at MS-68. So while these great coins from the 1980s have remained in MS-68 holders, gradeflation has resulted in many coins that were previously graded MS-65 or 66 now appearing in MS-67 or 68 holders. These coins do not have the same appeal as the coins graded the same under a more conservative grading standard, and they do not bring the same prices at auctions. This situation proves confusing for the novice investor, especially one who watches auction results and sees two of the same coin, each graded the same, sell for vastly different prices.

LS: The role of this relationship is very, very important. On the selling end, collectors often feel that they will get more money in an auction than from the dealer who sold them the coins. However, collectors need to look at all coins, not just the handful of coins that set record prices. Many coins at auction sell for wholesale bid or less. Auctions do a very good job of showing the highlights of their sales, not the results of each coin. When selling a set or collection, a collector should consider the dealer(s) who helped them build the set. I have personally purchased coins at auction that came from sets that I helped customers build. Many times, I have bought these for far less than my maximum bid. I would have paid the client more than the auction realized, plus saved them the auction fees.

LS: I have personally sold tens of thousands of coins in both PCGS and NGC, as well as other holders. No grading service has a monopoly on overgraded coins. There are overgraded, as well as undergraded, coins in all holders. A collector/investor looking for coins in just one holder is tying their own hand in completing a set. I recently had a coin upgraded a point from ANACS to PCGS. The coin was exceptional looking in the ANACS holder, but ignored. In the PCGS holder, a dealer purchased it within minutes of a show opening. 

An individual should not pass on a coin simply because it is in the wrong holder. We put too much emphasis on the plastic that a coin is in, and not enough emphasis on the coin in the plastic.

LS: There are many things going on behind the scene that will have a positive impact on the numismatic market for the would-be-investor over the next 2-3 years. However, I cannot discuss these items at present.

LS: There is still upside potential in ultra high-end rarities at present. The true classic rarities will always be in great demand, and have great potential for the future. The area that I am concerned with is coins that are condition rarities. Condition rarities with high prices that are not truly rare coins may have some issues. I do not believe that they have the same upside potential that the classic rarities have.

LS: The best bet for the smaller investor is to buy the best coins that they can buy. This individual is much better off purchasing 2-3 really nice coins, than 50 average, less expensive coins. If buying for pleasure, then purchase the coins that you like and enjoy them. But, for long-term potential, buy fewer, nicer coins. Nicer coins will always appreciate more than common issues.

LS: I wish everyone could be forced to take a numismatic course. Before spending real money, learn the hobby and the types of coins that you are buying. It helps to specialize in a specific series and learn as much about that series as possible. An investor should find a trustworthy dealer who will treat them fairly and stand behind the coins they sell. Investors trying to buy cheap, especially through Ebay or individuals they do not know, are dealing in a minefield. Do not buy coins indiscriminately. Learn the business practices, buybacks and areas of expertise of the dealer you are working with.

END OF INTERVIEW

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This month, another one of Rob Lehmann’s articles was published as the front page feature for The Coin Dealer Newsletter-CDN Monthly Supplement. This piece featured a detailed analysis of the scarce New Orleans Morgan Dollars from 1893-1897. For those of you that do not subscribe to CDN, a copy of the article appears below.

Furthermore, a FREE copy of the March 14, 2008 Monthly Supplement (a $4.00 value), will be forwarded to any of our readers who supply us with a large size SASE with $1.25 postage affixed.

If you like what you have been reading in the Insider’s Edge and want to build a personal rare coin portfolio, we strongly urge you to contact us at The Reeded Edge. Our firm specializes in structuring personalized numismatic portfolios, targeting the same type of coins that we have been reporting in this publication.

The last fifteen years have witnessed the rare coin market outperforming virtually every other investment medium. The good news is that this market continues to be very bullish. Great numismatic opportunities still exist, if you know where to find them. The professionals at The Reeded Edge have over 25 years of experience, helping people just like you, acquire world-class coins.

Please call Robbie Jenkins today for your free personalized consultation @ 301-724-0400 or email me directly at robbie@reedededge.com.

We would like to thank you for taking the time to read The Insider’s Edge.  If you ever have comments or inquiries about The Insider’s Edge, rare coin investment questions, or are looking to begin building your own numismatic portfolio, please do not hesitate to contact us.

Individuals can subscribe to The Insider’s Edge by sending an email to insidersedge@reedededge.com.

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