Diversification Expands Profits
Posted on 2/13/2006
Granted, it is nice that millionaires have lots of money to spend on rare coins. It is important that expensive rarities continue to sell because it fuels interest in the rest of the market. The trickle-down theory has always played an important role in numismatics. Yet, what is more important, in our opinion, is that the depth of this market is so varied that it invites the everyday collector to purchase coins from $1 up to thousands of dollars. In today’s collecting atmosphere it is necessary that many areas of the market are active at the same time. This creates a comfort zone for the majority of collectors diversified in their holdings so that when some areas turn stagnant, at least other segments of their collections are still in high demand.
Diversification is what makes the coin market the best it has ever been. When one area becomes out of favor there is a tendency for sellers to discount coins thus causing a downturn in the Fair Market Value. But collectors are quick to move to other series where there may be better buying opportunities and this will cause a feeding frenzy which forces FMV levels higher. Once the out-of-favor series reaches a certain discounted base, astute buyers will once again jump in to take advantage of these low levels and watch as prices again move higher. This may be a clever snapshot of how the market works but in this current craze, the winds can shift rather quickly. By diversifying, collectors can always keep a positive attitude about their coins even if some of them have fallen in value.
The term ‘craze’ might indicate a short-term interval that could just as quickly turn south. However, for those of us who have been in this business for more years than we care to mention (nearly 50), this is a fascinating time we live in and it seems almost crazy to us the way the coin market has expanded over the last decade. We all knew that numismatics was a great hobby and we knew that quality and rarity could mean higher FMV prices in the future. What we did not realize was that an onslaught of collectors could actually force prices higher in such a short period of time and then sustain those levels while moving into and out of various series.
Further, during the first few years of this upward cycle, many astute dealers felt that this might be a craze and kept their options open just in case the market faltered. Now that this market has been strong and continuously moving higher for over 7 years, the believers are definitely in the majority. The coin market may seem like a craze to the stock market or the art market, but our time is here and now. There are proven winners boasting the merits of buying and holding rare coins. The facts of the last few years speak volumes for the future of numismatics.
One of the more important aspects of numismatics is the information we have available concerning the quantities of coins that have been certified by the major grading services. Over 20 years ago, most of us had to guess about the availability of rare coins. Nobody could be completely sure how many rare coins in a specific series and grade could come out of the woodwork and into the marketplace. While this still may be the case in some fashion today, there is a relative amount of certainty of how many coins have been graded by NGC and PCGS allowing us to equate a Total Market Valuation for an exact coin. If you take for example the 1915 S $2 ½ Gold Pan-Pac in MS67, you will see that there has been a total of 90 coins graded by both services. Using the FMV of $20,250 and multiplying it times the number of coins graded, you will see a TMV of $1,822,500. All things being equal, it would cost $1,822,500 to corner the market on the $2 ½ Pan-Pac in MS67.
Now if you use the MS65 and run the math; a total of 910 coins graded with a current FMV of $8,000, the resulting TMV is $7,280,000. We are not trying to say that one coin has a better future than the other. What we are doing here is showing how many astute collectors and dealers are using the total populations of various coins in all series to project which coins may be a more advantageous purchase in today’s market. When you add to this what some of the major retailers do in their marketing packages, it is quite amazing how quickly they can change the TMV of specific coins.
The census reports are a very valuable tool in buying and selling coins and it is playing a major role in how business is conducted today. When you think of how many collectors have become proactive in their pursuits of rare coins, this competition dictates that everyone takes advantage of every opportunity to get a step ahead of the other competitors. Since we brought up Gold Commemoratives in our comparison, we will further mention that some major retailers are currently offering these coins to their rather substantial mailing lists. Even though some of these coins have populations of around 500-1000, they are not easy coins to purchase. Numismatists with Gold Commems in their collections are not easily swayed into selling these little gems. Market making dealers in this area have been increasing their buy prices and they are still not acquiring enough coins for their customers. We are seeing some big jumps in the FMV and the overall TMV has risen markedly.
Since last year in January, many of the MS63 and higher graded Gold Commemoratives have risen considerably. Here is what all 13 coins looked like last year at this time versus today’s FMV in MS 65.
|Gold Commemoratives||Jan. 2005||Feb. 2006|
|1903 LA Pur/Jeff $1||$2,880||$3,760|
|1903 LA Pur/McKin$1||$3,000||$3,610|
|1904 L & C Expo $1||$7,500||$12,350|
|1905 L & C Expo $1||$11,970||$19,240|
|1915S Pan Pac $1||$2,780||$3,000|
|1915S Pan Pac $2 ½||$4,780||$8,000|
|1915S Pan/Pac $50 Rd||$115,630||$138,750|
|1915S Pan/Pac $50 Oct||$110,630||$133.130|
|1916 McKinley $1||$2,530||$3,110|
|1917 McKinley $1||$2,970||$4,420|
|1922 Grant $1||$3,280||$5,160|
|1922 Grant W/Star $1||$3,220||$5,130|
|1926 Sesqui $2 ½||$3,750||$6,450|
This is a very active market and it is reasonable to expect that the major market makers will continue to need coins to fill orders for thousands of collectors looking for the most profitable coins. Based on the numbers of coins we have seen graded in the census reports, you can be assured that not everyone will be able to acquire these rare beauties.
This article is a guest article written by:
The thoughts and opinions in the piece are those of their author and are not necessarily the thoughts of the Certified Collectibles Group.
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