Wednesday, July 28, 2010

My Best Coin Investments: Sunken Treasure Ship Coins

Some of the best coin investments I have ever made involved shipwreck coins.

I am not and never have been a coin dealer, just a collector. So it was with some interest that I read an article by Susan Headley on titled "Before You Buy Sunken Treasure Ship Coins, Consider These Insider Secrets".

Now in fair disclosure, Susan is a friend of mine and I love most of her articles. And while her article on shipwreck coins has some great advice on how not to get ripped off, I do think there is more to the story.

I have been an active collector of shipwreck coins for a number of years, and I’d be surprised if you could count on more than one hand the number of collectors that have bought or sold more certified and graded shipwreck coins than me in the past 5 years. I don't know what it is, but I'm like a moth being drawn to the light when it comes to shipwreck coins.

The Value of a Shipwreck Pedigree

You’ll often hear that the value is all about the coin and not the pedigree. While I agree you should judge a coin by its merits, you cannot dismiss the value of a shipwreck pedigree on reliable 3rd-party graded coins.

I have experienced over the years that two equally graded coins in similar condition and appearance, but one with a shipwreck pedigree from a famous wreck, the shipwreck coin is going to command a premium above the non-shipwreck coin.

However, I must qualify this to say that this premium is on reliable 3rd-party graded coins (i.e. NGC or PCGS) and it does not include the popular "Shipwreck Effect" designation.

SS Brother Jonathan Shipwreck Coin
SS Brother Jonathan Shipwreck
1865-S $20 Double Eagle
Importance of PCGS or NGC Certification

Why is certification so important?

Prior to certification, the shipwreck pedigree was often in doubt. Before certification and the slabbing of coins, it used to be you'd buy a shipwreck coin that came in a nice display case with a certificate of authenticity (COA). But who was to say the coin was really from the shipwreck? Plus, who printed the certificate to begin with?

Would you pay a premium for something pedigreed in this way?

Unfortunately, many people did.

Shipwreck COAs on eBay

A few years ago, I came across an auction on eBay for shipwreck coin "Certificates of Authenticity." There were no coins in the auction, just the certificates. These were what constituted "proof" that a coin was from a shipwreck and here they were being sold on eBay without any coins. Anyone bidding on those certificates was surely going to pair them up with non-shipwreck coins to sell to unsuspecting collectors.

I would never buy a shipwreck coin whose proof lies solely on a COA.

S.S Yankee Blade coin from Q. David Bower's Collection

Four years ago, I came across an auction listing from a much respected dealer in the coin industry for an 1854-S $20 gold double eagle pedigreed to the S.S. Yankee Blade. The coin was being sold by Q. David Bowers from his personal collection. The listing made no reference to the pedigree being in doubt. It was stated in a way that made it sound like an undisputed fact.

And what a pedigree that is . . . the S.S. Yankee Blade shipwreck and Q. David Bowers in one coin!

But my understanding is that very little is known about the 1977 recovery of gold from the SS Yankee Blade and nothing has really been printed as to what exactly was found. So I asked Mr. Bowers, the owner of the coin and clearly an expert on the subject, about the coin and the pedigree.

In his response he stated:

"There are no 1854-S $20 coins that are directly attributed to the S.S. Yankee Blade, but it is presumed that all with slight seawater effect and with myriad tiny die cracks are from this source."

Hmm? He probably is right and all the 1854-S $20 gold coins with seawater effect and myriad tiny die cracks are probably from this shipwreck. But is it certain? Is it evidence enough to pay a significant premium for in essence a “shipwreck effect” coin? Will others in the future agree with this attribution?

Although I really wanted to add a S.S. Yankee Blade coin to my collection, I did not bid on the coin. In the end, I believe the coin went unsold in the auction.

SS Republic Shipwreck Effect Coin
"Shipwreck Effect"
1861-O Seated Liberty
Half Dollar
Buy Graded Coins and not Shipwreck Effect

That brings me to the "shipwreck effect" coins. Many of the certified and slabbed shipwreck coins don't have a grade on them but instead have a "shipwreck effect" designation.

Basically, these are the problem coins – the coins with enough damage to keep them from being graded. Without the shipwreck pedigree, these would be the so-called "body bag" coins that in the past grading companies would return to people without a grade.

These coins tend to be sold by mass marketers at greatly inflated prices to comparable non-shipwreck coins. These are the coins I would only buy for the novelty of owning one. I would never buy one with the expectation of getting all my money back.

In this case, the pedigree is what you are buying, and not the coin. However, there are instances where even damaged coins that are truly great rarities make for good investments, but these are the exceptions and not the rule.

SS Republic Shipwreck
1852-O $20 Double Eagle
Shipwrecks Can Cause Prices to Fall

This is where one has to be careful with 3rd-party certified and graded shipwreck coins. When the S.S. Central America shipwreck was discovered with thousands of mint state 1857-S $20 gold double eagles, prices definitely went down for that coin.

On top of that, many dealers charged premiums of 100% or more for the S.S. Central America pedigree. In this case, it would have been wise to wait until the discovery was priced into the market, and to avoid the initial hype that convinced many people to pay such high premiums.

Some of my best gains have been from S.S. Central America coins that I bought years after the initial release and well after all the hype had died down.

However, more recent shipwrecks such as the S.S. Republic or S.S. New York did not have large hoards of a single date and mint mark. Instead the coins were distributed across many dates, mint marks, and denominations.

If you had waited until after the initial release to get the coin you wanted, you may never have gotten the coin at all. If you were able to get the coin later on the secondary market, there’s a good chance that you paid significantly more for the coin than when it was initially released.

They Don’t Have to be Mint State

One point in Susan’s article that I do specifically disagree with is the following:

“If you are buying treasure ship coins as an investment, keep in mind that only the highest grade coins are recommended. As a general rule, this means buying MS-64 or better specimens that have been graded and slabbed by a reputable grading service.”

I believe Susan’s statement is no longer valid because it focuses on only one shipwreck, that of the S.S Central America. Thousands of similar dated San Francisco mint coins meeting her requirement were recovered from that shipwreck alone.

But since that time, other shipwrecks have been found that now render this statement invalid. Those shipwrecks include the S.S. Brother Jonathan, S.S. Republic, and the S.S. New York.

Out of the many shipwreck coins that I have bought, very few met the MS-64 requirement. In fact, many of my best investments were AU graded coins.

The important thing is to buy a shipwreck coin that is "graded" by NGC or PCGS. It is the grade and the coin’s appearance that will allow you to determine what the shipwreck premium is for that coin versus a similar non-shipwreck coin. If a non-shipwreck coin is considered a good investment, then a shipwreck coin in the same grade and similar in appearance should also be a good investment, provided that the shipwreck premium is not too high.

SS Republic Shipwreck Coin
SS Republic Shipwreck
1858-P $20 Double Eagle
Some of the Best Collections Include Shipwreck Coins

About 4 years ago, I wrote in an article that if you wanted to create one of the finest collections of $20 gold double eagles, you would have no choice but to include shipwreck coins.

With the discoveries of the S.S. Republic and S.S. New York shipwrecks, that now holds true for $2.50 quarter eagles, $5 half eagles, and $10 eagles as well.

So do not automatically rule out shipwreck coins if you are putting together a rare coin collection that is also an investment. Many of my best gains on the sale of my coins came from shipwreck pedigreed coins. I couldn’t imagine my collection without them.


At 7:44 PM, Anonymous Anonymous said...

Hello. Thank you for this informative article. I would appreciate a bit of clarification concerning the SS Central America shipwreck coins if you have a moment. In 2008 I bought an 1857S PCGS or NGC (can't remember which, and it's at the bank) certified and slabbed Liberty AU58 from what I believe to be a reputable, nationally well-known company. I am now afraid that I overpaid for the "pedigree." I paid $4270 when it was listed on the price guide as $2090 and was told it would probably take about 5 years to break even on the investment. It is now listed on NCG as $2810, which at least is showing progression. Do you think I overpaid?

At 12:39 PM, Blogger A.C. Dwyer said...

Unfortunately, whether or not you overpaid is not a black and white question.

Personally, I'd never pay a 100% premium for a shipwreck pedigreed coin over a non-shipwreck pedigree assuming that both coins are fairly graded equal and have nice eye appeal. That's just way too big a hurdle to overcome.

But then not all coins in the same grade are equal.

Many of the 1857-S $20 coins in AU58 have been cracked out of their holders and submitted to grading agencies to try and get upgraded to MS-61 or MS-62. In these cases, people who know how to accurately grade coins tend to bid up prices on these coins.

Unfortunately, unscrupulous dealers then sell fairly graded AU-58 coins pointing to these higher prices as though they reflect the price of your coin when they don't. I've seen this happen on multiple occasions.

So I have two answers to your question, "Do you think I overpaid?"

If your coin is a crack-out candidate that would probably grade MS-61 or higher if resubmitted to either NGC or PCGS, then no you probably didn't overpay.

If your coin is a fairly graded AU-58, then yes I believe you overpaid.

I hope your coin falls under the former and not the latter. Good luck.

At 3:41 PM, Anonymous Anonymous said...

Thank you so much for your thoughtful reply. The coin looks "pretty" to me, but what do I know? Do you have any pointers that would indicate it might be worth a try for resubmitting? And how does one go about submitting a coin for grading, anyway? The representative who sold me the coin still contacts me periodically wanting to "update my portfolio." Should I ask her about resubmitting?

At 12:15 PM, Blogger A.C. Dwyer said...

One thing you could do is post a picture of the coin (holder and all), and post it online and ask if collectors think the coin is fairly graded. Make sure the images are in focus and include both sides of the coin.

One place to post the images would be on the "show and tell" area at Collectors Weekly.

You'll see I've posted images from my collection at this website. It's a great place to post photos and ask questions.

To create your photos, some older scanners do a pretty decent job of imaging coins in holders. The newer scanners don't work so well and images tend to be blurry.

Also, most digital cameras have a "macro" mode that lets you take close-ups of an object. That's how I take photos of my coins. You want to make sure the pictures show any scratches, dings, toning, or other imperfections in the coin's surfaces. The more accurately the photo depicts the coin, the more accurate people's opinions on the grading will be.

Another choice would be to take your coin to a local coin club meeting and ask for their opinion. I trust the opinions of my fellow collectors more than I do dealers.

If the opinions come back that the coin is worth a shot at resubmitting, you could contact the dealer that sold you the coin to have them resubmit it for you.

If you do post photos somewhere, add a comment here with a link. You can also contact me directly by clicking the "About me" link above and then click the "Contact Me" link near the bottom of that page.

At 1:46 AM, Anonymous Anonymous said...

Thank you so much! I will try to post pictures soon. I had a recent computer crash and have not been able to reinstall my Nikon transfer program yet but hope to do so soon, so that I can upload pictures once again.


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