BY BRIAN CORNWELL
This is the eighth and final article in a series dealing with coin investing. In the earlier seven a number of comments were made that are worth repeating once again. Keep them in mind as you go about your coin investigation and buying activities. In no special order, they appear as follows.
First, recall the focus was only on long term coin ownership. By long term is meant periods in excess of five years, probably more like 10. To plan on owning coins for less than five years and to make a net profit is not realistic. It might happen in isolated situations but don’t go so far in your thinking so as to expect it on a regular basis.
Second, third party grading services are in business to help you, so use them. They can offer an independent, unbiased opinion on a coin’s condition and hence its fair value. They help minimize one of the biggest risks inherent with coin buying, that is, grading errors. This was a facility unavailable to an earlier generation of coin buyers. If you question the judgement of one grading company, get an opinion from another. There is no reason why the grade of a coin you buy should be a lingering area of doubt after you’ve purchased it.
Third, pay serious attention to the data you’ll find in the population reports issued periodically by the grading companies. This is a record of coins each of them has graded. It is by far your most important guide to coin rarity, especially for condition rare coins. However, it is not an absolute measure of rarity, since more coins are being graded each year. Nevertheless it represents more than seven years of professional grading activity. For the newcomer investor it presents an insight to rare coins that might take a studious collector a lifetime to gather. Just as with third party grading, this kind of quantitative rarity information was unavailable to a previous generation of investors. The successful investor of the future will be the one who determines how to use this kind of information most effectively.
As a fourth point, select only these coins that appeal to you in an aesthetic sense, regardless of the coin’s grade and whether or not it has been third party certified. In short, avoid problem coins. You might be tempted to buy them because of a discounted price. Remember, someday you will have to sell them and the only way to do that may be, once again, at a discounted price. It is also possible that problem coins in the future may be more in disfavour than today as buyers become more discriminating in their tastes. A nice looking coin is more likely to rise in value than one that future buyers will buy only as a last resort.
Fifth, structure your investment strategy around whatever you analyze to be a long term trend. Remember that over the long haul, prices are dictated by supply and demand economics. If you settle on an area you suspect as being underrated today and open to new popularity tomorrow, buy those coins at the best possible price today. Don’t be concerned with trying to predict how high they might rise in price or exactly when you will sell them. Those are questions that cannot be answered now, so don’t worry about them. Be satisfied your portfolio consists of the “right” material.
Sixth, pay attention to areas that seem to have been ignored in the past. Population report data should help you here. In the past, the dates in any coin series that always seem to get the attention are the key dates and common ones. All the other dates, which probably amount to two-thirds of any series, seem to be forgotten. This may be the perfect hunting grounds to discover undervalued issues. From current population reports, many of these forgotten dates closely resemble key dates by the relatively few coins graded. But they are priced a lot lower than the keys. Is this a quirk in the way coins have been submitted for grading or is their an underlying message about a new found rarity? Buying forgotten coins at today’s price levels may make a lot of investment sense over the long term. Seventh, is it worthwhile to pay full fare for coins that are properly graded and have superb eye appeal. The kind of eye appeal one rarely sees? Yes. Future connoisseurs are likely to be more in number than today. The supply of these coins is far more limited than population reports suggest because this kind of at- tribute is not necessarily imbedded in a coin’s grade. If demand could be higher then the supply- demand balance will be tilted in favour of higher prices. It’s that simple.
And finally, remember this, you only get what you pay for”. At least it will be true about 90 per cent of the time. The odd time you may have special knowledge that the seller doesn’t have and you may buy a coin rather favourably priced. But third party grading companies and the population reports they generate limit the number of times that might now happen. You may occasionally be in a position to buy coins that are a result of a distress sale where you receive greater value than paid. But these are the exceptions. It is highly unlikely that you will be able to build a substantial portfolio in this way, so don’t plan on it. Rather, be on guard for what seems to be a great deal at super discounted prices. Ask yourself “Is the coin a problem coin?” or “Is it one that is so common that prices are unlikely to change much over a long period?” As a final thought, remember this is an information age we live in. We focus on information. Quality information is available, so use it to your advantage. There are clearly many underrated and undervalued Canadian coins waiting to be discovered. Happy hunting and prosperous long term investing!
Canadian Coin News: Volume 31, Number 19 |Jan. 18, 1994