Wednesday, June 23, 2010

Truly Rare Coins Never Go Down in Price . . . Do They?

A rare coin broker once told me that "great rarities never go down in price."

There is no doubt that the 1856-O $20 gold double eagle is considered a great rarity.

A little over 3 years ago, Greg Reynolds wrote an article explaining why the 1856-O is considered a great rarity.

The gist of it is that as the rarest of the Type 1 double eagles (1850-1866, no motto on reverse), there are estimated to be only about 25 examples in existence.  This means no more than 25 people can ever have a complete set of Type 1 double eagles at any one time.  It was not too long ago that I was privileged to be a member of this small group. (Image of my 1856-O)

Shortly before completing my set of Type 1 double eagles, a rare coin broker told me that "great rarities NEVER go down in price."  Headlines in major coin publications touting the latest auction results would lead you to believe that this is true. After all, if there is only 25 of something but more than 25 people want it, the price is going to go up. The belief is that as more and more millionaires are created each year, more of them will come into the rare coin market.

I've also heard it said "never say never."  What happens when financial turmoil takes some of those millionaires and returns them to the middle class?  What happens when, although there are only 25 examples of something, only 24 are willing to pay any price to have one?

One 1856-O double eagle allowed us to see just that.

In an October 23, 2008 Heritage Auction, an 1856-O graded AU58 was sold for $576,150 (Lot No. 3018). This coin was not only a great rarity, but it was also condition census with only one other example known to grade higher.

Less than one year later, on July 30, 2009, this exact same coin showed up in another Heritage Auction (Lot No. 1316).  This time the coin sold for a mere $460,000.  Assuming that Heritage's typical buyer's premium of 15% was subtracted from the sale, the owner only received about $391,000.

That's a loss of over $185,000 after only 9 months! 

Ouch!!!

I don't care how rich you are, a loss that size and that quick has to hurt.

So the next time a dealer tells you that "great rarities never go down in price," just point to the 1856-O double eagle and ask if they are willing to guarantee that fact . . . and eat the loss if they are wrong.

Tuesday, June 01, 2010

Is the Bullion and Rare Coin Industry an Industry Full of "F"s?


According to Fox News's Glenn Beck, the coin industry is an industry full of F's when it comes to Better Business Bureau ratings

In many industries, you're best customers are also your best references to securing new customers. When I did some landscaping at my home a few years ago, the company supplied me with a list of addresses where they had done similar work. Another was provided when I had a new roof installed on my home.

At my job, software companies competing to sell my employer a million dollar enterprise software package not only provided lists of companies that had already purchased the software, but they also provided the names of individual employees at those companies that I could call and talk to.

But in the coin industry, privacy prevails. If you want to make a large purchase from a coin company for the first time, you can't count on a list of customers that you can talk to about their experiences. It is an industry where companies don't want to give out the names of their customers, and their customers don't want them to either. I like to refer to it as numismatic paranoia.

So before we make that first purchase, many of us go out to the Better Business Bureau (BBB) to at least check a company's ratings.

But how reliable are the BBB ratings?
Recently a controversy erupted between N.Y. Representative Anthony Weiner and Goldline International. While defending Goldline in an interview with Fox's Bill O'Reilly, Fox's Glenn Beck (also a Goldline spokesperson) made the following comment, "[Goldline has an] A+ credit rating from the Better Business Bureau. . . . They’ve retained their A+ rating in an industry that is full of F’s."

Another website CoinLink posted an article that showed that out of 20 companies they looked up at the BBB, only one had an "F" rating. It was that rating which led me to finally comment on the controversy.

On CoinLink's list, bullion dealer Monex has a BBB rating of F while Monaco Rare Coins has a BBB rating of A. The funny thing is that they are one and the same company operating out of the same location. How can one be an F while the other be an A?

Personally, I don't put much stock in BBB ratings. I've spent over a decade working for 20+ companies, but I was paid by only one. My business card had one company name on the front, but if you flipped it over there were 20 more on the other side.

From the IRS's point of view, each company was a separate entity, but in reality they were all under one roof with the same owner. The products shipped from the same warehouse by the same employees, and although each company had it's own 800 number, the same people answered the phones for all.

Yet the BBB ratings for each of these companies ranged from an A+ to a D. A pretty wide range considering that the customers for each company were dealing with the same group of people.

So how do you find a trustworthy dealer?

From other collectors. Coin clubs are a great place to talk to other collectors, and to get their opinions. But coin clubs also tend to have local dealers as members, so they may be a little biased.

Personally, I think the best way is through online forums. There are plenty of online forums for coin collectors where you can hear both the good and the bad. I look at it as sort of a review system not unlike the product reviews you see on Amazon.com.