In an interview, NGC Chairman Mark Salzberg discusses coin grading, highlights of his career, favorite market segments and more. Read the full interview with Maurice Rosen, published in the Rosen Numismatic Advisory, here.
[Plainview, NY] – GETTING A LEADING FIGURE of any major industry to open up for the record, telling you what’s under the hood, readily admitting to any serious shortcoming, or acknowledging any meaningful degree of validity to his or her corporate critics just isn’t going to happen easily. Straying from the party line can be a reckless departure as these people usually stay within comfortable bounds, protecting their turfs and warding off attorneys. Of course, while you can’t always fault such a stance; neither can you fault astute listeners for wanting more.
In our little corner of the world I try to break through such resistance when I interview a prominent individual for the RNA. While I did, get a few peaks under the “grading service hood” when I interviewed Mark Salzberg, how successful I was overall is for you to decide.
Numismatic Guaranty Corp. (NGC) was founded in 1987 by John Albanese, one year after PCGS began its operations. I was one of the first graders hired by John, working on a part-time basis from 1987 to 1991. Mark Salzberg, a long-time friend of John, joined NGC in 1988 as a partner and grading finalizer. A few years later he took control of NGC after John sold his interest in the firm. When NGC began, it wanted to be thought of as a “boutique” firm, and graded coins conservatively, with many NGC coins bringing premiums in the market compared to rival PCGS.
With the market slump that began in 1990, that relative advantage was lost, and both services strived to increase market share and deal with the softer and more challenging marketplace. While there have been several competitors over the years, PCGS and NGC remain by far the top two grading services, with the third and lower placed services still far behind. NGC is the Official Grading Service of the ANA and PNG. Their website is NGCcoin.com.
Mark and I covered a lot of territory, from overgrading, to doctoring, to abusive pricing, from ancient coins to modern coins. Mark clearly comes through as someone firm in his beliefs, devoted to deliver high-quality products with the assistance of a world-class staff, and to leave his mark as an innovator and standard bearer of progress in an industry he truly loves. My first pitch to Mark was a hardball, which I assume hits home with some investors.
MR: It bothers me that some good folks have a very bad experience trusting grading services and coin dealers when they realize that their supposedly well-selected coins are really very low-end or overgraded, worth well below bid levels. They bought into the promises of slabbing only to become its victims. How do you respond?
MS: NGC doesn’t price coins in the market and we’re not communicating the merits of an individual coin directly to a buyer. Neither do we buy or sell coins. Were simply describing their condition, and by doing so independently, collectors are much more victors than victims. Over time there also have been factors that effected the perception of grading. Some say it’s gradeflation but I call most of it a learning curve.
For example, the other day an Augustus Humbert $50 slug was submitted to us. We graded it some 15 years ago as a VF 35. The coin, was fully lustrous, looked very nice and I was perplexed. We put it through the normal grading process and the consensus was the coin is an AU 50. How did that happen? We could have first looked at the coin not understanding strike as well as we do now. We may have been overly cautious about a rim bump; these large coins can easily get knocked around. The politically correct thing to do might have been to grade it EF 45 but we held to AU 50. Our goal here to is look at coins as we see them the first time, not to be affected by any politics. We’re paid to grade the coins and since 1987 have graded 20-million of them. We’ve advanced on a learning curve; anyone who says there isn’t one is wrong.
As for the coins you think are overgraded, I think that charge applies mostly to generic coins. Unfortunately I’ve seen a lot of overgraded coins from other grading services. You also have to consider our industry’s marketers, for example the ones who complain that MS 65 Saints are liberally graded. Part of that perception may concern flashy 1923-D and 1927 Saints. The market was telling us that it’s okay to have a few more marks on these flashy coins because they qualify to be market-acceptable. Viewed technically, you may be critical of the marks but the flash carries the grade. So, is this gradeflation or a reaction to the market that causes us to adjust?
The same can be said prior to the introduction of third-party encapsulated “slab” grading in 1986/87, when you had two big marketmakers who loved heavily-toned coins and would buy them for gem-65 money. Now those coins are considered 63s and 64s because they don’t make today’s 65 grade. Over the last 25-years since NGC has been in business, PCGS and NGC have graded a combined 40-million coins. We’ve learned a lot and the market has grown tremendously. We have a proven model at NGC and offer a guarantee on our product that works.
MR: I agree, there’s been a learning curve at work. I believe that the early years of NGC and PCGS saw conservative grading because they were young companies out to prove themselves, get market share, introducing a new concept. You yielded a lot of power and had to be careful, earn your “oats,” so to speak. Does this make sense?
MS: Initially we were very conservative, but again you have to consider the pricing level at the time. For example, the Greysheet price for a so-called MS 65 Barber Quarter was about $3,000, way over what a realistic MS 65 was trading at in the marketplace, about $1,500. So the coin that we graded MS 65 was probably a 66 or 67 to equate to the coin that was necessary to fulfill the $3,000 price. We were grading based on value as well. Today’s pricing is substantially more efficient leading to a more efficient market. To put this into perspective, I have personally looked at over five million coins. Take dated gold coins. That’s an area in which not many people prior to 1986 specialized. At NGC we have seen thousands of such coins in a variety of grades and dates; so one learns from this vast exposure. Factors such as strike and luster that can be unique to certain dates and varieties must be learned, and we’ve done that. So the dated gold coins that we graded, say EF 45 during our early years may be today’s mid-range or higher AU.
MR: Where do you think we are now on that learning scale? Have we leveled off?
MS: I think we have. After doing this job for almost 25-years, I know the most important thing for NGC to do is put the right grade on the holder. Period. I’ve worked with an incredible team here that’s mostly been in place for 15-years now. Through-and-through they are top-notch talent and have been for decades. Sure, we’re still learning all the time, but 20+ million coins in, we’re definitely at the top-end of the learning curve.
MR: Mark, in the minds of some folks PCGS is preferred over NGC. This is seen in the market as well as with auction prices for equally-graded coins of the same issue, and with a comparison of sight-unseen bids. How do you respond to this?
MS: Actually, I see it as NGC-graded coins being good values. I believe our coins are as good or better. A lot of what people are referring to is the registry phenomenon. I have a concern of an irrational exuberance for plastic. If you want to fill a hole in your registry set, and you’re not critically looking at the coin, shame on you because over a period of time there are things that the consumer needs to look at. Number one he should buy the coin not the holder.
Number two, he should work with a very good dealer who is knowledgeable, has a track record and looks out for your best interests. Thirdly, and more importantly, you should become your best expert by learning about coins. So, for the coins that may bring more in PCGS holders, over a period of time their prices should come down to more realistic levels.
We’ve had extraordinary high price levels for copper coins because there was a registry group that was “drinking the Kool-aid” and putting ridiculous prices on them. There was a recent auction result for a 1944 Walker in MS 68 of $110,000. That’s insane, especially since the coin came out of our MS 67 “star” holder! That’s dangerous because the coin winds up with a collector at, say $120-125,000, and I can assure you that there are going to be more MS 68 1944 Walkers made if a service is honestly grading the coins. If a grading service has software that flashes that you just graded a 1944 Walker in MS 68, the pressure is there for the final grade to be lowered to protect the first coin’s value, maintaining the perception that that service’s coins are worth more.
MR: I have a concern about the success of CAC and the new “+” graded coins by PCGS and NGC and their possible influence on the pricing of coins not so blessed as being high-end for their grades. If more consumers vie for these perceived superior coins might that not exert downward price pressure on the unblessed ones? The Greysheet reports bids for the current leading standard, which in many cases are CAC coins.
MS: I have a completely different view. CAC is a verification service, a completely different model than a grading service. They have a trading network. They are owned by retailers and others, with a track record of 3-years and a couple hundred thousand coins. CAC stickers coins they consider solid-for-the-grade. John Albanese, head of CAC and a good friend of mine, puts stickers on coins he likes, for which he’s willing to support the bids he makes on his trading network. But he’s only seen a small percentage of the graded coins out there. To think that a coin without the CAC sticker is necessarily in some way inferior to one with the sticker is ridiculous. There are plenty of PQ coins in holders without the CAC sticker. These nicer coins tend to be worth more in the market today and they’ve always commanded more, well before CAC.
MR: In the next rip-roaring bull market, would you be under pressure to tighten grading?
MS: I’ll tell you this I’m losing business on a regular basis on generic gold coins because I refuse to change our standards. We have competition which is so liberal on these coins —the $5 to $20 pieces— it is absurd, it’s so ridiculous. Everyone knows it. It’s at least a point and a half in many areas and has affected the marketplace. Premiums have come down on generic gold and they continue to stay down. We’ve stuck to our standard and won’t deviate, bull or bear market.
MR: What are the toughest coins or series to grade? And what are the easiest?
MS: For me, Bust coins are very difficult to grade due to strike factors and the perception that cabinet friction may or not be actual rub. These coins were typically struck poorly, luster is often subdued. Also, early copper coins are tough because so much of it has been cleaned, repaired or retooled, and there are corrosion issues. The Mickley specimen of the 1804 $1 is an example of the difficulty grading these early coins. It was sent to NCS, our conservation service. For decades the coin was considered an AU. It was covered with PVC. We skillfully removed it. Full mirrors were revealed! While the coin had a weak strike, it was fairly graded as a MS 62, and that’s how we graded it. It sold at auction for about $3.8 million.
The criticism I got over that was representative of the misunderstanding of how those coins were struck. Critics said Walter Breen graded the coin AU 50. Jim Halperin of Heritage Capital, no slouch when it comes to grading coins, questioned me why the coin wasn’t graded MS 63 and said that some day it would be! What’s the easiest to grade? For me, silver dollars are, especially the Morgans, as they have the type of design that quickly reveals problems. Another area that’s easy for me to grade is commems; I used to specialize in them.
MR: Of all the coins you graded, which have been the most thrilling to hold and grade?
MS: The 1787 gold Brasher Doubloon with EB stamped on the breast. I graded all the 1933 $20 Saints out there, including the controversial ten which I viewed at Fort Knox. I’ve been fortunate to grade most of the known rarities, including a half-dozen 1894-S dimes, nine or ten 1804 Bust $1s. But the Brasher Doubloon was definitely the most thrilling.
MR: At one time NGC had a ban grading post-1964 coins. Why was it lifted?
MS: At the time we felt we were a conduit to a market that was super-heated and overpriced. As an example, 1969 nickels in PF 69 went for $250. That was an orbit in which we didn’t want to be. That was prior to us having population reports as extensive and as widely used as they are today. What we really wanted to do was put a moratorium on the population reporting. In retrospect we should have not listed those populations for a certain period of time because they were being abusively used as a marketing tool. We gave up millions of dollars in grading fees and could have achieved what we wanted differently but we thought it was the right thing to do.
Today, moderns are a huge part of our business and I have a different view of them because they are trading for what they are worth as reflected by auction results. Remember, commems used to be modern, Mercuries and Walkers used to be modem. Modern coins are beautifully made. The U.S. Mint has done a great job promoting numismatics. They are highly collectible and I encourage people to look into them.
MR: How do you respond to the abusive selling of modern coins at high prices?
MS: If people did their due diligence they’d find these modern coins at more reasonable prices. There are people who sell anything at rip-off prices, coins, art, stocks, you name it. There may be more abusive selling of modern coins compared to other coins because they are plentiful.
MR: Is there really a noticeable and justifiable difference between a 69 coin and a 70?
MS: We have a standard based on high-power magnification to detect any marks or blemishes. If not, we’d put practically every silver Eagle into a 70-holder, but our average is about 6% of what comes out of a monster green box of 500 pieces.
MR: There’s controversy labeling coins as Early Release as NGC does, and First Strike as PCGS does. Does it concern you that these coins can command big premiums?
MS: These coins are very popular. I can only speak for NGC because PCGS does something different. We have a very clear definition that we’ve published for Early Releases. It’s applied to coins released within the first 30-days of issue. This is a period when there’s an intense interest and focus on a new issue, and Early Releases simply identifies the coins that were available in the market and were part of this coinage issue’s most exciting time. We don’t make any investment representation about these coins, the collector can decide if he wants them.
MR: Pressure must have been put to you by some submitters to grade their coins a certain way. How have you handled those pressures?
MS: The bottom line is that we have a solid guarantee on our product and over-graded coins won’t trade in the marketplace. Both factors are crucial to NGC’s business and reputation. What’s more, every coin that we overgrade is a contingent liability for us and will eventually cost us money to buy back. I don’t have shareholders or stock analysts breathing down my back demanding profits. Given all this, the pressures are easily mitigated. There’s another side to this. Sometimes when I walk the floor of a coin show, people complain to me about how we graded one of their coins. And you know what? They’re proven right. I have to have an open mind and be able to take a fresh look at those coins. However, keep in mind that if any coin comes in to NGC for regrading and I know who owns it, I recuse myself from the grading process.
MR: How would you like to see the coin doctoring problem handled?
MS: I’ve shown how I handle this: with the best line of defense, the best team in the world grading coins. What I would like to see is the rhetoric diminish. There are some people who couldn’t tell you the denomination of a coin unless they turned it over, saying that a coin has film on it and it’s altered. They don’t have a clue. They don’t know what’s original and what isn’t. Other people, as I said, are pushing their own agendas to make it appear as if their coins are superior to others or to resubmit coins. This rhetoric must stop. When we get coins for grading we feel are doctored, we bar the submitter from sending coins to NGC. This has been our policy for years. I see the doctors as being ostracized by the industry, considered third-world dealers.
MR: How possible is it for new technology to one day grade coins, replacing humans?
MS: While you can theorize about this, from a practical standpoint algorithms are not being developed anytime soon to determine eye-appeal. When I get a box of coins to grade anything can be in there. Say I get an 1866 Seated Quarter. That’s a good coin to pick because they come notoriously weak, with poor luster, plus they’re rare. You have to know this. Suppose you find one that’s fully struck with great luster and good color. That would probably be unique or close to it. How is a computer going to factor all that into a grade. Take a beautiful rainbow-toned commem. People love such coins and they can bring huge prices. A computer might grade the coin a MS 66 or MS 67 because it has an obverse mark near the rim, when the color should override that making for a likely MS 68 grade. This is why I’ve said that grading is a blend of art and science.
MR: Looking ahead 10-20-30 years, it is possible that the government will stop minting coins, either to save money or as a result of inflation making coins uneconomical to mint? How might this impact the hobby and the market?
MS: We grade ancient coins here; they’re popular with many collectors and can sell for high prices yet they haven’t been made for thousands of years! For many people numismatics is a passion and there will always be collectors around following their hobby. It’s possible the government will stop minting coins for business use but they’ll always be making specialty coins for collectors. I can easily make the case that coin values would be pressured higher in your scenario than they otherwise would be because coins would be viewed as obsolete artifacts.
MR: Let’s assume you were made the czar of the coin industry and could make any changes to the grading of coins you wanted: the standards, the nomenclature, the 1-70 scale, anything. In that fantasy, what changes would you want to make?
MS: Grading is speaking a language. If you want to change that midstream you’re talking about a difficult task. What I would do, and what in fact I will be doing, is being more vocal about things. There’s too much politics, too much rhetoric, too much scare tactics. Numismatics is a great hobby and it has rewarded us many times over, but in any industry there will be people who will try to work an edge, to game the system. I’m going to be talking about that. Prior to encapsulated grading, there were personalities determining the grade of a coin. Since then we standardized grading. Is it perfect? No. It never will be. We should also realize how far numismatics has come along as an asset class. There are billionaires buying coins, hedge fund managers buying, a developing world market embracing certification —all positive developments. All in all, we’ve done a good job policing ourselves and I’m very optimistic about the coin industry.
MR: Back in 1989 the talk of institutional participation in the rare coin field fueled a raging bull market. How possible is it for institutions to seriously consider us again?
MS: It’s definitely possible. It always surprised me that there wasn’t a fund of funds with rare coins. We have a great story to tell. The idea may have been premature in 1989. It can certainly be done now, in fact, there may be one or more out there but we just don’t know about it.
MR: You spoke about your Numismatic Conservation Service (NCS). How did you handle the early criticism you received about enhancing coins for payment.
MS: NCS is a professional conservation service. We don’t twist anyone’s arm to use it. The fact is I’d like to see someone take a spot off a million dollar coin. We do it for them the proper way, in many cases leaving the original skin. Conservation has been done in the coin business for the last 40-years; we’re just doing it on a professional level. Many coins have PVC on them, material that adheres to the surface; we remove that while not harming the integrity of the coin.
Some people wrongly criticize us for being too aggressive conserving too many coins, but I’ve seen dealers do a terrible job; they’ve burned coins. We use pre-treatments, then conserve and neutralize coins then place them in our multi-tested great holders. We were good enough for the Smithsonian’s National Collection and for conserving major finds of shipwreck coins. I’ll grant you we may not have disseminated information widely enough to counter the negative commentary.
MR: Many of my readers buy coins as investments. They would like to know your favorites in various market segments. Let’s start with Type Coins. What appeals to you?
MS: I love Liberty Seated Quarters dated 1879-1889. They come flashy, are beautiful, and are great values. I also love dated gem Barber halves. Take an 1892-S in MS 67, worth $15-20,000. The comparable Morgan $1 would be a couple hundred thousand. I think 3 cent nickels, Shield and Liberty nickels are underrated. In fact, Type in general is undervalued. Particularly undervalued for NGC coins are dated Buffalo nickels, Mercury dimes and Standing Liberty quarters.
Proof Gold is the Rolls-Royce of coins, all denominations, type or better dates. The mintages are mostly in the two or low-three digits with the number of gem survivors a small percentage of that. Here’s another wonderful opportunity: I’d buy world coins and ancient coins. If you do your homework you’ll see there are many excellent values there. Our market enjoys the best liquidity of any collectible, particularly for great coins that stand out from the pack —which has been amply proved during the last couple recessionary years when spectacular coins come to market.
MR: What do you like in silver dollars?
MS: Slightly better dates, like 1879-P, 1889-P, those sort of dates in MS 64 are a steal. I personally bought an 1894-S in MS 66 for $15,000 It’s a steal. I see one of them every three years. This is an example of great values that are available today. Even a date like the 1891-S in MS 65 or MS 66 stands out to me. Same for the better “O”-mints, like 1887, 1889, 1890, 1891 and 1892; you rarely see well-struck gems. All those are the sort of dates that over a period of time will reward their owners. I really like silver dollars. I think they are a great investment.
MR: You said you once specialized in commems. What are you favorite issues?
MS: Commems are a conundrum, another area that remains stubbornly undervalued, particularly the pre-1930 issues. They’re all highly collectable but they’re also largely available as gems. You can buy a couple hundred Wisconsins or Yorks today. Coins are promoted through large retailers. A salesman is not going to make a living selling a Wisconsin for $385. Instead, he might sell a Seated half or a proof gold coin. I love Oregons, Huguenots, Lincolns, Fort Vancouvers; they are so undervalued. One day someone is going to figure out how to properly market commems and they’ll go from being undervalued to fairly valued. That’s the reward I see, but how long it will take I don’t know. A Vancouver in MS 67 should be $20,000. Lincolns shouldn’t be priced in the hundreds of dollars but the thousands.
MR: What other coins should investors know more about?
MS: Now that you have me thinking, I’ll reveal a potentially amazing growth area to you: Colonial Currency. These notes helped finance the Revolutionary War. Their historical importance is tremendous. This area is clearly undervalued, one that if properly presented to new collectors or investors could embark them on a serious road buying these fascinating numismatic antiques. Unfortunately there are only a handful of dealers in this area now.
Here’s an interesting story. I was talking to a manager of a multi-billion dollar hedge fund. He asked me, “What do you think I should buy?” I tell him to buy Colonial Currency and give him my reasons. He asks me how much they cost. I tell him from $100 or so to several thousand dollars each. He asks me how he can pick up $5-10 million worth of them. Clearly, I had no helpful answer for him but it’s an insight to the potential of this area and so many others in numismatics.
I also have to tell you that I love world coins. Take Chinese coins. Prices have been strong for awhile but I think they are going much higher. Their collectors have embraced certification. They love the concept of building sets. Auctions are developing featuring the coins. More dealers are getting involved trading them. Older Chinese coins were used much more than U.S. coins, so you don’t see the high-end as often. Registry collections are being built. The country is getting more and more prosperous. There are many wealthy Chinese who love their coins’ tradition and want to repatriate their heritage. It’s a growth trend I’ve also seen for coins from Brazil, India, Russia.
MR: Chinese coins are a broad area. What specific areas do you like the best?
MS: I think the gold proof modern coins are just going to go through the roof. I love all the series; the Pandas, the Lunars and so on from 1979 to date. Mintages are very low; the designs are very beautiful, the coins are substantial, they are actively sought at shows and auctions. There are many sizes, from under 1-oz. to 5-10-12-20-and 32 oz. pieces! Some have mintages as few as 10, many under 100 or 200. They are fantastic pride of ownership coins for the Chinese people. Don’t think that they all bring small premiums over melt, many go for multiples! A 5-oz. Unicorn can be worth $75,000. We just got in a 20-oz. Peacock piece that should bring $300- $500,000 at auction next month! The prices seem high but I think it’s just the beginning.
Courtesy of Maurice Rosen, Numismatic Counseling, Inc., The Rosen Numismatic Advisory, Vol 36, No 3, April/May 2011, [email protected]