Understanding Market Liquidity

Posted on 5/19/2016

Market liquidity should be carefully considered when deciding what to collect.

Over the past several years I have discussed many ways to collect rare coins. Most collectors choose a series and make every effort to buy as many as possible. For decades the concept of coin boards was based on this method of collecting. Collectors would begin a set and become obsessed with finishing the project. This is how I became hooked on coins in the 1960s with my first Whitman Lincoln Cent coin board.

Today, collecting has become considerably more sophisticated. The hobby is much more than about filling coin books. As a matter of fact, the majority of serious collectors probably have never owned a coin album. Collectors now demand the security of third-party grading and store their collections in boxes. Some of these collectors still aim for completeness, but many are happy to own just a few great coins.

Regardless of what you collect, market liquidity is a factor that many fail to consider when collecting. Market liquidity is defined as how large the collector base is for the series you have chosen. When it’s time to sell, the number of potential buyers is a crucial factor. As mentioned many times, most collectors also consider themselves investors as well. Market liquidity should be carefully considered when deciding what to collect. A set of Kentucky Small Size currency can be quite interesting but, other than myself, there are very few buyers. On the other hand, thousands of people are actively assembling Morgan Silver Dollar sets.

The advent of Registry collecting has clearly defined this concept. The number of registered sets for many series is astounding. Over 1,000 people have registered their sets of American Silver Eagles in the NGC Registry. There are similar numbers of collectors registered for many other series, including Lincoln Cents, Mercury Dimes, Walking Liberty Half Dollars and Morgan Silver Dollars. All of these series enjoy a depth of demand that is probably going to be sustained for many years to come. For anyone collecting these series, they have the comfort of knowing that there will be buyers when they decide to sell.

NGC Registry Stats
Total NGC Registry Users: 10,711
Total NGC Registry Sets: 99,151
Total Coins in NGC Registry Sets: 921,170
Total Silver Eagle Sets (All Types): 4,680
Total Silver Eagle Sets (MS Bullion Only): 2,397

A more in-depth examination of market liquidity also includes deciding what grades to collect once you have chosen a series. Registry collecting is really all about trying to assemble the highest ranking set. This means incredible competition for the finest available coins. If you decide to play this game, and many do, you should be careful about competing with just a few collectors for the very finest. If one or two drop from the game, then your exit strategy has been greatly compromised. The safest play is to choose a series with considerable market depth in the highest grades you can afford.

Some collectors understand the importance of market liquidity on the series they collect and make efforts to promote that series. In recent years I have been helping a collector assemble an extremely high grade set of two cent pieces. This collector created an incredible exhibit for his collection that has been displayed for several years at coin shows around the country. His goal was to win awards for the exhibit, and also raise awareness of the series. He recently auctioned his collection and his strategy was well rewarded when the coins sold for record prices.

Like stocks, the best bargains are in neglected areas of the market. The trick is to select numismatic items that one day will have broad collector demand. This demand can be created when a series has renewal of interest. The new interest may come from the auction of a great collection, the publication of a new book on the series, restrikes of the series by the US Mint and many other ways. The expansion of many world economies has also created collectors in many previously ignored areas of the market—think China and Russia.

When starting a collection you should consider the above advice and also do your homework. Modern collectors are blessed with an incredible amount of collecting tools that previous generations lacked. Researching coins has never been easier and the amount of data available is staggering. The NGC website is a great place to start. The site has amazing resources for those wanting to research numismatics. You can also explore the NGC Registry.

Finally, another great way to ensure market liquidity is to support the ANA and other organizations that try to promote numismatic education and the hobby. In this case the term “paying it forward” will also pay off for you by making sure there will be collectors willing and able to buy when it comes time to sell your coins.

Questions about the rare coin market? Send them to wmr@ngccoin.com.

Jeff Garrett bio

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