Is coin collecting an "investment"

[Market Harmony]

From wikipedia:

"Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time.[1] In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is gambling. Putting money into something with an expectation of gain with thorough analysis, without security of principal, and without security of return is speculation. As such, those shareholders who fail to thoroughly analyze their stock purchases, such as owners of mutual funds, could well be called gamblers. Indeed, given the efficient market hypothesis, which implies that a thorough analysis of stock data is irrational, most rational shareholders are, by definition, not investors, but speculators.

Investment is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance whether for households, firms, or governments.

To avoid speculation an investment must be either directly backed by the pledge of sufficient collateral or insured by sufficient assets pledged by a third party.[original research?] A thoroughly analyzed loan of money backed by collateral with greater immediate value than the loan amount may be considered an investment. A financial instrument that is insured by the pledge of assets from a third party, such as a deposit in a financial institution insured by a government agency may be considered an investment. Examples of these agencies include, in the United States, the Securities Investor Protection Corporation, Federal Deposit Insurance Corporation, or National Credit Union Administration, or in Canada, the Canada Deposit Insurance Corporation."

So, by this definition, coin collecting is speculation, NOT an investment. How can anyone predict within a timeframe what they can get in the future, in monetary terms, from a coin purchase? Unless you already have the immediate buyer in line, then you cannot determine the coins are an "investment."

I hear of too many people referring to coins and bullion as an "investment." No, it is SPECULATION unless you are immediately able to flip a purchase for a gain, or somehow KNOW that a price will be attainable by many buyers in the future. This, I believe, is the single biggest mistake that people make when they put together a coin collection and feel that it is an investment. But, then again, I typically sit at the other side of the table.

You see, when a coin dealer evaluates a coin collection, they are not going to put a "collectible" or even a "speculative" value on it. No, they will put an "investment" value on it. They will determine what something is worth on the current market when evaluating anything. A modern penny is worth a penny, or a modern nickle is worth 5 cents... but a silver quarter, well, that is worth whatever it is worth, less a little bit to the dealer that can immediately flip that quarter to a higher buyer. But a 1909-S VDB might be worth $1000... It is an "investment" to the dealer if they can immediately flip the purchase for a profit. That is the business they are in... immediate flipping

I make this post here on realcent because I have been reading some recent posts from good meaning folks that are misinterpreting the true value of their assets. An asset is only worth what the buyer and seller agree upon. And when the biggest buyers are dealers, then there is a near 100% probability that their price is lower than the retail to retail type of transaction. A mint state red 1938-D penny is worth about 2 cents to a dealer... not quite the same as $5 to the collector. That's only one example of the difference between an investment and a collectible price. Some are more drastic, like the 1914-D penny, or 1909-S vdb...

I make this post because it is meant to be more of a wake up call than it is an insult or a marketing effort. This is good information that I want to share with realcent fellows so that they consider what the end-game is for their collections. Don't be fooled by price guides. Don't waste your hard earned money on something that has a high probability of being a bad "investment." Don't go out and spend hard earned money on speculative coins. Think like a coin "investor"

However, if you truly desire coins in excellent condition, and have the funds to satisfy this desire, then by all means, do collect what you like. Too often do I see "collections" come into my shop which the person thought was an "investment" Too often did I have to break their hearts. But I have NEVER... and I mean NEVER, had to disappoint anyone that came to buy or sell a true collectible coin. Be picky in your choices of coins. There are some fantastic numismatic resources (both people and posts) on this forum. Don't be afraid to walk away from deals before consulting with your friends here at realcent.

[Engineer]

Good advice MH. If you're going to buy a collectable, you might as well buy the best one you can afford.

I don't always take my own advice, but when I do, I wind up with nice stuff that doesn't depreciate the minute I take it off the lot. The shipwreck coin I picked up from you is a great example of a decent investment rather than a short term speculation.

[barrytrot]

Dave Ramsey specifically mentioned coins and other collectibles as "not investments" when he was in Atlanta last year

My wife reminds me of that quite a lot.

I always assume I lose 30% off the top when I buy something, but I buy what I like, and given time the odds of a financial win (as long as I pretend that inflation doesn't exist) is reasonable.

I would separate bullion from collectible coins though. I do in my "collection" and I'm sure most others do as well.

Bullion meets all the criteria of investment, so you could reasonably say it is an investment.

Collectible coins, even "better ones" are definitely more on the speculation side regardless. Unless as the OP stated you have a quick-flip in mind.

[Thogey]

Are you saying a coin can be an investment only if you buy it cheap relative to the market value?

By this definition there is no such thing as investing in the stock market, that is 100% speculation.



Thanks for the post. It's a new way at looking at things, for me anyway.

[Market Harmony]

Are you saying a coin can be an investment only if you buy it cheap relative to the market value?

By this definition there is no such thing as investing in the stock market, that is 100% speculation.

Thanks for the post. It's a new way at looking at things, for me anyway.

Not so much... By this definition, it is only an investment when you can determine with a high degree of assurance that within a defined time period, you will profit by a defined amount. So, if you can buy 90% in one minute and sell it in the next for a known profit, then purchasing that 90% is an investment. However, if you purchase that 90% with no determination of your selling price or time, then it is speculation. The same goes with numismatics. If you buy a 1955 double die for X and can sell it for X+Y in one day, then Y is your profit from investment. But if you do not think that Y is enough and you want to wait for Y+Z, and X+Y+Z is not a current market conceivable price, then you are speculating on the Z factor of the equation. Z is the amount on which you are speculating. X+Y is the amount that you can sell it on the current market.

Much of what we do here at realcent is speculation. Folks do not have a ready and available market which makes enough sense to operate on an investment level. Yes, there are buyers for copper cents at a price above face value. But that market is limited in that if you suddenly dumped a large lot of copper cents onto the market, it would not be as quickly absorbed as 90% might be... And because of rarity, the same can be concluded with numismatics. But only certain numismatics. And this is possibly the main reason that I created this thread. I was thinking of the lower end of the scale of numismatics. Sure, there might be a premium for a 1938-D Walking Liberty Half. But I know from experience that they really aren't super rare on the market. They can be found regularly enough that any large lot of them would severely drive down the price of most examples. Someone holding onto a 1938-D WL half in VF would be devastated that their collectible lost value and would no longer be an investment.

Now, the really big life question is which side of the fence are you on when it comes to wealth? Is it speculation to hold silver and gold, or is it speculation to hold US Dollars?

The trade between goods is directly tied to the value of the exchange medium, i.e. the USD.

[John Reich]

Great post, Mike! A couple thoughts I'd like to add: 1) Next time you have the opportunity, sell some numismatic coins. Sell some common coins, and some keys/semi keys. A lot of what Mike's saying will make sense to you and you'll get a better feel for the value of, as well as how difficult/easy it is to sell, different coins. 2) After going through step #1, use what you've learned to evaluate the next coin you decide to purchase. I guarantee you'll get more coin for your collecting dollar!

[Lemon Thrower]

well done MH, i wholeheartedly agree. in addition to collectibles not being investments, they also are not gold or silver meaning if you buy an MS-65 gold coin, perhaps half the price will be for the metal and half for the numi premium. the factors that will cause the numi premium to rise or fall are very different from those that will affect the bullion price.

p.s. the stock market is a colleciton of shares of ownership of for the most part actual businesses. So buying shares can be an investment. but i completely agree with you that the way most people approach the stock market its a speculation. if you buy a stock that pays a good dividend yield and based on your homework it has a reasonable expecatation of increasing its profit - thats an investment. if you buy a stock because you think its going to go up - because you can then sell it to a greater fool - that is speculating.

[Coinage]

I recently have gotten back into coin collecting and have been wanting to get a bit more serious with it (as an investment). I understand buying more desirable key and semi key dates at the highest grade you can afford is the way to go for investment purposes. However I'm the kind of guy that once bought I wouldn't want to give up the coin. Would it be dumb to buy doubles? Say I bought two 1909-s VDB Lincoln cents. Both the same grade. I keep one for my personal collection and the other to sell at a later date for a profit?

[Engineer]

Putting money into something with an expectation of gain with thorough analysis, without security of principal, and without security of return is speculation

One could very well argue that stocks aren't investments. Those companies won't let you audit their books, your principal is only as secure as the next fatfinger trade, and the way the GM bondholders were screwed proved that security of return is not absolute...not to mention they're valued in a fiat based currency.

If you're looking for an example of coins as a true investment, coin roll hunting would fit the criteria. The tracking threads provide analysis of expected capital gains, security of principal isn't a concern because we hold the coins, and security of return is guaranteed if you wait to ship until funds have cleared.

[Rob72830]

I wanted to add my 2 cents. I am not an economist but I am a coin collector of both collectible coins and some silver coins that are a cash reserve. My collectible coins I collect because I enjoy them for what they represent, historical or sentimental value, not a dollar value. This collection will be passed to my grandson when I die. My other collection is a small silver hoard that I could sell if I needed money and I was broke. My copper hoard is another reserve that if I needed money in a hurry, my bank has a coin machine. I agree coin collecting for profit is speculation because buying coins for profit is too risky because the market flucuates too much. You can lose big time if there is a big hoard dumped on the market. Look at the Hunt brothers back in the 80's. A better investment would be to buy land, in my opinion. Land doesn't usually lose value and as the population increases they will need land to build houses. Since I don't have that kind of money and the return on pm is iffy, I am investing in dehydrated foods and other items that will help me survive a SHTF situation. Yes, buying food and and other items to survive is an investment because food has value that will not decrease. Everyone has to eat and if the stores don't have it then food will be worth more than gold. And you can't eat gold.Just my 2 cents. Good luck everybody.

[ZenOps]

Is buying a $120 million painting an "investment"?

Maybe, but more than likely is a vehicle for wealth preservation. If you sell it at a gain it has its advantages, if you sell it at a loss, it has its advantages. But if you keep $120 million in US bills around, anything could happen to it. Khadafi had 145 tons of gold, but was that a wise investment - you would pretty much have to argue - no.

Would Khadafi have been better off with 72 tons of gold and the remaining half in nickel so that he could have built more armored vehicles - I'd argue absolutely Yes.

Save your nickels.

[just carl]

Is coin collecting an investment. NO.
Niether are Beanie Babies, Stamps, Hot Wheel Cars, sporting cards, etc.
I didn't read that first part since I see no reason to copy stuff from somewhere and expect people to sit and read it all. Why not just reference that.

[Market Harmony]

Is coin collecting an investment. NO.
Niether are Beanie Babies, Stamps, Hot Wheel Cars, sporting cards, etc.
I didn't read that first part since I see no reason to copy stuff from somewhere and expect people to sit and read it all. Why not just reference that.

Hi Grumpy. Only the stuff in italics in the first post is copied from somewhere else. Referencing it would only make people have to go back and forth to get an idea of the conversation. Keeping it all in one place maintains the information right here on realcent... the BEST base and precious metals forum

Anyway, you are already on the same page.

[Market Harmony]

Since we now have a better definition of speculation and investment, then I propose an exercise... If anyone would care to share, I would like to hear of actual accounts of the following:

A time when you "speculated" and it turned out to be good or bad
A time when you "invested" and it turned out to be bad.

Think about 2012, or something significant for you.

Hearing about an investment turning out to be good is boring... that's what they are supposed to do. This would be far more beneficial if we could learn from errors or dumb luck. An exercise in honest evaluation of failures and unexpected success will help EVERYONE.

In advance, thanks for sharing.

[Lemon Thrower]

One could very well argue that stocks aren't investments.

you are correct. read my post above. many stocks are not investments. its has nothing to do with their books, but rather whether your expectation of profit is reasonable and what it is based upon. Are you buying a stock just to flip it, or do you expect the management to grow the customer base, improve efficiency, etc. create real wealth.

Those companies won't let you audit their books.

SEC registered stock have financials audited by an independent auditor. you can't audit them yourself, but you can see the summary financial statements and the audit report in the 10-Qs and 10-K's filed with the SEC. That is not a perfect guarantee, but it goes a long way. The point is, you are correct that most stocks are not investments, but you are correct because of how investors approach the investment, not becuase the company does not have audited financials. Most every company that a little guy is allowed to invest in in the u.s., aside from some very small companies (pink sheets or otc) and foreign companies will have audited financials.

[Market Harmony]

Good advice MH. If you're going to buy a collectable, you might as well buy the best one you can afford.

I don't always take my own advice, but when I do, I wind up with nice stuff that doesn't depreciate the minute I take it off the lot. The shipwreck coin I picked up from you is a great example of a decent investment rather than a short term speculation.

I have forgotten what the final price was for that shipwreck coin that I sold to you, but I just saw that on a Pawn Stars episode a guy brought in an 'O' mint coin from the same set that you bought. Rick bought it from the guy for $400. I think that they work on a pretty fair markup over cost. So, you might be able to find that same coin in the store for $600-800. The no mint mark (Philadelphia) coin from that set is the more rare kind to have.

If you know what to look for in numismatics, and have patience to find the right buyer, then there are opportunities for coin "investments" But, you've got to harvest your education of them, first.

[Market Harmony]

Since we now have a better definition of speculation and investment, then I propose an exercise... If anyone would care to share, I would like to hear of actual accounts of the following:

A time when you "speculated" and it turned out to be good or bad
A time when you "invested" and it turned out to be bad.

Think about 2012, or something significant for you.

Hearing about an investment turning out to be good is boring... that's what they are supposed to do. This would be far more beneficial if we could learn from errors or dumb luck. An exercise in honest evaluation of failures and unexpected success will help EVERYONE.

In advance, thanks for sharing.

Here is an example of a real coin investment that went badly:

Quite recently the US Mint issued the 225th Anniversary Enhanced Uncirculated Coin Set. There were dealers that were offering to immediately purchase 100 sets from anyone who could send the dealer 100 sets. Each set would be sold to the dealer for $6 per set over the US Mint issue price. There was a profit to be made. After shipping expenses, you could reasonably expect a minimum $500 profit on an approx. $3,000.00 cash outlay for 100 sets. The dealer had a good track record of doing these kind of deals in the past, and the terms of this deal were quite clear. So, this was a clear case of a coin "investment." The gains were virtually guaranteed.

However, this investment turned out to be a bad deal for the investors. The US Mint made the situation bad by over-issuing the sets and the resulting supply outpaced market demand. Availability of the sets were not limited and thus the margins for the dealer buying these sets in bulk and promising profit disappeared. The dealer revoked his offer to purchase on the day of release and after many people had already placed orders. He then disappeared from the radar. Those people who thought they were assured profits were then left holding the bag on however many sets they purchased (some had more than 1000 sets). Their primary recourse was to send the sets back to the US Mint and pay shipping fees. Some people got burned worse than others. The dealer has done nothing to make anyone whole.

[Thogey]

Great cautionary tale.
Ask for the premium up front on a deal like that one.

[Recyclersteve]

I was just thinking about something- when you fill out an application for a loan or do a financial statement of your net worth they often say "list all of your investments" and are implying that this includes everything including stuff you speculate in. Some do mention that they don't want you to list your primary residence-- which means I can't include the bridge on the interstate in my net worth...

[Recyclersteve]

A better investment would be to buy land, in my opinion. Land doesn't usually lose value and as the population increases they will need land to build houses. Since I don't have that kind of money and the return on pm is iffy, I am investing in dehydrated foods and other items that will help me survive a SHTF situation. Yes, buying food and and other items to survive is an investment because food has value that will not decrease. Everyone has to eat and if the stores don't have it then food will be worth more than gold. And you can't eat gold.Just my 2 cents. Good luck everybody.

Land has potential issues as well. For instance, if you owned land in Texas or Florida that was affected by the recent hurricanes, you may be sitting on an unrealized loss when others sell properties affected by mold as discounted prices and there are neighborhoods where 20-40% of the people don't move back into their homes at all so the grass is never cut, etc.

Regarding food, I'd say that emergency food and supplies aren't really an investment or a speculative item. I'd consider them more of an insurance policy.

[Recyclersteve]

I know this thread started years ago, but there was a request for speculations/investments that went good or bad. Here are a couple for me:

A GOOD ONE- I bought Zimbabwe $100 trillion dollar notes in 2009. I bought something like 600-700 of them for about $3.25 each- sold them at work for $4 each within a week or so. I decided to keep the final 100 for myself figuring that my cost was zero. Sold the final 100 about a year ago when the bills were fetching $40-45 each on eBay. Now they are going for $60-65 each on eBay.

Point of clarification- I never truly sold the bills- I worked with a local dealer and did this as a barter where he paid me in silver. I am now holding a small bag of silver where my cost is zero and I hope to give this to my daughter many years in the future and explain how it didn't cost me a thing. If my daughter inherits this silver when I die, then (assuming the tax code doesn't change) she can sell at the then-current market value and pay no tax on the transaction.

A BAD ONE- in April, 1976 I bought a stack of 100 $2 bills because of a gimmick. There was a new 13-cent stamp coming out then to commemorate Jefferson's birthday. The post office had a promo where they would hand cancel the $2 bills if you put 13-cent stamps on them. I remember getting into a line that had perhaps 100 other people that day doing the same thing. That should have been a hint, but I remained in line. After getting the bills hand cancelled, I remember selling perhaps five or so of the 100 notes over the next several years. After about 15-20 years or so, I spent the rest and effectively lost 13 cents per note- with inflation it was much worse than that.

[NiBullionCu]

If my daughter inherits this silver when I die, then (assuming the tax code doesn't change) she can sell at the then-current market value and pay no tax on the transaction.

pedantic caveat: Her cost basis will be the market value at time of inheritance. If the market value goes up between the time she inherits and the time she sells, she will owe tax on the gain. If the market stays even or drops between the time she inherits and when she sell, no tax wil be due.

[Recyclersteve]

Understood.

[johnbrickner]

Missed this one completely first time around. Thanks for giving it the bump.

My good investments by the above definition have always been books. My wife used to publish a "family" type local rag called The Parent Pages. I'm biased but it was damn good. I was her gopher and delivered to the rural central MA drop off spots. Most all these little towns had libraries that sold books on the cheap. Often I'd pull what looked most profitable, get on the web at the library and check prices. Sometimes you can find a real gem in the back woods. If flipable, I'd post to sell right then before buying. Purchase on the way out and often had to package and ship when I got home. Sales often made during deliveries and drive back home.

Interestingly enough, my bad investments were all speculations by the above. Why they tell you to stick with what you know.

Great post, thanx!

[68Camaro]

I'll add my respect to this as a good thread. I have limited instinct for collectible coins as investment. I have my own cent collection which I value because it was formed from my early days making a set with my dad and improving it over time. All but one or two cents were pulled from circulating cents by myself or my dad. It's an historical family heirloom, worth only what myself or my family assign to it - to a dealer only worth marginally over face. Not a financial investment to be sure.

I've never fully gotten the passion that drives people to pay 100x more for a certain MS65 vs a MS 63, and partly because of that I've also found my eye can't be trusted when it comes to discerning what is desirable by collectors.