Diversification of Collection

[Coinsforever]

I have couple of points:

What happens if a guy
Happy Collecting..

It again depends if guy is collector or investor.

Moreover to pursue  hobby and to move for  specific area of collection one has to go with  surplus money  or inherited from family.

If someone spending 50-60% of life's savings on hobby is not a bright idea in my opinion , sorry for discouraging words.

Cheers

[paisepagal]

What happens if a guy A collects entire British India for his whole life and which he might have build it using 50-60% of his life savings. And at the end of 20 years he learns that now no one collects the coins, how would he feel? Will he be still be proud of his collection or he will think otherwise?
...Again I had already made it clear I'm NOT talking about trading which means buying and selling , I 'm talking only about hedging against inflation after a decade.

But it seems we are really afraid about these above said keywords..

If you do find a person spending 50-60% of his life savings on coins, OMG  . So the next part obviously becomes moot.
And if you want to hedge against inflation, you would be well disposed to buy commodities like gold, iron ore and things like that (perhaps through ETFs) which has a positive correlation with inflation.

No one is afraid of the key words, they're just words...and that's what this debate is about. Happy collecting to you too! 

[asm]

What happens if a guy A collects entire British India for his whole life and which he might have build it using 50-60% of his life savings. And at the end of 20 years he learns that now no one collects the coins, how would he feel?

1) Do you really believe that this could happen to any area of numismatic interest?

2) Have you ever come across a person daft enough to have invested 60% of his life's savings in just one small area of numismatic interest unless he collects only rare and unique coins? For one, an average earning guy would never dream of it and a high earner would never care less........It is quite possible that he will have a lot of headaches if he intends to dispose of the collection as large as one built using 50+% of his life savings.  But to think that a collection will be of no interest to any one can never come to mind.

For a moment let us forget numismatics. I collected old locks and weights. (I do not add to these now due to sever space constraints). There are not many visible collectors of these...... but just go through the forum posts and you will find that I am not the only such collector. I did it for the fun of it and even today do not regret it though I am unable to sit down with these items even once in a year. I have never thought of selling these either.

Amit

[Sicador]

I know 3 persons in Mumbai over age 55 whose assets apart from their own house is the numismatics collection starting from ancient to republic. And another guy from MP who has 70-80% in numis.. I know these are edge cases, but if today if you want to build entire republic India proof/unc set collection the it's definitely going to take huge dent to your savings..

I have my 20-25% into numis and my age is 31

[Prosit]

""""""For me the answer of question 1 is, I would be totally hurt if no one collects after 20 yrs. and would also feel extremely bad about loosing my 50-60% of life's savings. If anyone disagrees then I believe he is fooling himself.. """""""


I totally agree with that but then of all the collectors I know ("average" collectors I would think) and have known...none of them would dream of using savings to buy coins.
They use as do I, disposable income of which I have very little for hobbies and am ok with that.  If I was using savings for investments...and I do just not very successfully...I wouldn't use it in coins.

Other people do invest in coins and that is ok too...I just doubt the average collector does much of that.  The average collector is mostly guys and they might tell their wives it is an investment...I think that is justification 

If I did invest in coins...it would be keys and semi keys from around the world and never a complete series as many in any series will not be good investments.  That is how I would define numismatic diversification for investment.

I collected the Canadian Cent series 1857-2012...I think half a dozen have modest invetment potential but they would need to be better examples than the ones in my collection.

Dale

[Bimat]

The average collector is mostly guys and they might tell their wives it is an investment...I think that is justification

That doesn't work everytime...I have tried that (not with wife, still single but with my Mom)..I tried to convince my expenditure on coins giving same argument...Her reply was "Ha! Investment?!? I know you are not going to sell a single coin from your collection so it's a DEAD investment so better stop doing that!" OK, she was absolutely true..but I'm still buying coins and she has also stopped telling me that thing now a days since she knows I'm not going to listen her. She does appreciate my collection many times, especially when I show some of my nice acquisitions so she's really not against spending money on coins but spending like 2k-3k on coins is too much for her (and she's probably right)

Aditya

[Harry]

Sicador,

First off welcome to WOC! You have posted a very interesting question that I have been thinking about a lot.   I must also say Peter makes a very good point on risk-management, well said!

I have been a collector for many years and over the years my collection of coins and paper money has skewed to British India high grade (Unc). Over the years its value has also risen and  I've asked myself the same question you posted.  How can I diversify / hedge for the future.

I have tried very hard in the last 2-3 years to "diversify" my collection and purchased US notes and coins, India Princely states, Independent India papermoney an other non-BI Uniform coinage and BI currency just so that I can be "diversified".  It has not worked. I ended up selling most of them, at a small loss, as it took the joy out of collecting.  Where my collection is concerned, I can't buy and keep something that I don't enjoy.

I have adopted the philosophy of "buy what you like". Also,  financial value does matter to me and want to build a financially valuable collection that I can sell or pass on in 20yrs. I am now focused on Brithish India Unfirom coinage rare and higher grade coins - this is actually quite the opposite of diversification.  I will trade and sell my collection of non-BI or lesser grade BI coins and papermoney for rarer or higher grade BI coins. By selling and trading my coins I now reduce the addtional money needed to build up my collection.

So investing 50-60% of one's savings in coins and then trying to "diversify' within the collection, that isn't risk management. You can't have your cake and eat it too.  Again, read Peter's comment.  If I was in that situation would trim down (sell)  the collection so that its worth is less than 10% of my savings and since financial value is important, I would focus on rarer/higher grade coins as they tend to hold up far better in turbulent times. Study up on risk management and invest the rest correctly.

Harry

[Bimat]

Knowledge and Diversification Keys to Successful Coin Investing

By Louis Golino on July 15, 2012 3:11 PM

Anyone who tells you that making a profit plays no role in their coin buying habits is most likely not being honest. While there are many motivations for buying coins, most people want their coins to appreciate in value.

But the degree to which making a profit is important varies a lot depending on whether one is more of a collector or more of an investor. And there is certainly nothing wrong with buying coins for profit, if you know what you are doing and recognize that you will lose money on some coins.

If coming out ahead when you sell is important, then you need to do your homework. That means deciding which coins you think have the best potential and learning as much as you can about them, finding honest and reliable dealers to buy from and sell to, and figuring out the best way to sell or market your coins when you decide to sell.

In my view, the more successful coin investors follow an approach that in many ways parallels that of successful stock investors.

If you think you can make a quick buck with coins and without spending a lot of time studying what you are buying, think again. It is a lot harder than most people realize to make a decent profit with coins, especially given the high tax rate on collectibles and bullion. The key ingredients are to buy for the long term, and to carefully build a diversified portfolio so that at least some of your coins are likely to be doing well whatever the overall market is at a given time.

Specialization is certainly a critical component to successful collecting, and it has its role to play even if you are more of an investor. But if you are working with a relatively modest budget, I think it is advisable not to put all your eggs in one basket. But I also am not suggesting that one just hoard coins.

A long-term time horizon is important, but one needs to be aware of coin market cycles. Some coins continue to appreciate over time, but most series and types of coin ebb and flow depending on what is in demand.

There are basically three ways to make money with coins. The best way for those who can afford it, and few can, is to work with an expert dealer and acquire high-end rarities, hold them for a period of time, and then seek out a top-notch coin auction company that will market your coins when you want to sell.

The second way is to buy bullion-related coins when metal prices seem cheap and wait for melt values to increase enough to net you a nice return. Even at today's relatively high gold price of almost $1600 per ounce, if you are patient, there is a strong chance you will do well if you can wait at least a few years, or preferably longer. Silver seems cheap under $30 to most people, so now is probably a good time to stack some silver if you are not in a hurry to sell.

It may help to include some bullion as part of your retirement planning. A recent study by the World Gold Council found that allocating between 2.6 and 9.5 % of your portfolio to gold increased long-term financial performance.

A third approach, and this one is especially tricky if not done right, is to carefully buy the best-quality collector coins you can afford and wait for the right market cycle to sell them. This could include classic type coins, pre-1933 gold, low-mintage modern coins, world coins, and so forth.

But many collectors are not aware of how many pitfalls there are to investing in collector coins, and it is advisable to acquire these kind of coins as much for the enjoyment as the potential profit. In many cases, dealer margins will eliminate most or all of your profit, and the same is true of e-Bay fees, especially if you sell too soon.

Older American coins are a lot of fun, and there are still some reasonably priced coins with strong potential such as graded better-date Morgan dollars that don't cost a fortune. Examples include 1878-CC, which is always a favorite with collectors, other less common Carson City dates like 1885-CC, 1879-S with reverse of 1878, 1883-S, 1884-S, 1886-S, 1889-S, etc.

Good quality Bust and Seated Liberty coinage is also in strong demand, but I would stick with professionally graded coins. There is not a lot of original material of this kind in the market that is still ungraded, and when you try to sell a raw coin, you will likely have problems. People who own raw coins like these and send them in for grading frequently receive them back ungraded because the coins had been cleaned or their surfaces were altered in some way.

Try the better auction houses like Teletrade and Great Collections and you should find some nice graded coins, but quality pieces will bring strong prices, and what may seem like a bargain on e-Bay, for example, is a coin you may later regret owning.

That is especially true of pre-1933 gold. There is so much cleaned, overgraded, and even items of questionable authenticity that even for more common material, I would stick with graded coins. Over the years I have encountered these kind of problems with raw gold coins purchased from some of the largest dealers with decades of experience, and at this point I would not buy raw gold (except bullion or items from the U.S. Mint) from anyone. It is just not worth the hassle. Even experienced dealers can be fooled by a good fake or a doctored coin.

The recent price performance of many of the classic segments of the market has not been terribly strong with the exception of major rarities and properly graded, better type coins and silver dollars, which are always in strong demand, and a few other series. Overall, this is probably a better time to buy than to sell classic coins, especially many key dates, which have been stagnant in recent years.

Then there is modern U.S. Mint material which has a very mixed track record. A lot of coins from commemoratives to mint and proof sets sell for less now than they did when issued, and I do not expect that trend to change. However, there have certainly been some winners like key-date commemoratives and very low mintage American eagles. To invest in these coins and pick the likely winners requires a lot of careful study of mintage data and market trends so you know what is likely to be in demand.

To be sure, most precious metal modern Mint coins are worth more now than when issued, but that is usually because of higher metal prices.

There are also plenty of modern coins that are most likely undervalued in today's market such as the 1996 Olympic silver dollars, which are the lowest mintage commemorative silver dollars ever issued. But remember that no mater how undervalued a coin may seem to be, it is hard to say how long it will take for that coin to reach its potential. And coin market cycles can be as frustrating as the stock market has been in recent years.

Information is critical, so put together a good numismatic library, read the best coin publications and web sites, and learn the differences between the retail and wholesale side of the market. And while investing for the long-term is highly advisable, I would suggest periodically selling coins you don't need to help you develop the skills needed to be successful at selling.

The bottom line is know what you are buying, take your time when selecting coins, know who you are buying from, and carefully build a diversified collection that has some coherence to it. Also keep good records and keep your receipts, which will be needed for tax purposes and for your heirs.

Source: CoinWeek

[Figleaf]

Completely US-centered piece. I would have pity on anyone who believes that "most people want their coins to appreciate in value" in other countries. Even for novice collectors, the most important motivation is probably being complete, but value may play a role in the background. As they come to appreciate the coins for their artistic achievement, historic and economic role and illustration of coin producing processes, value disappears completely as motivation and even "completeness" becomes a background driver. Get this, such people are motivated by FUN. They enjoy themselves with coins in their very own way and for their very own reasons.

What remains are the pitiable souls who believe they are investors and are after a value increase. They are bound to be disappointed. So why do you hear success stories? For the same reason why fishermen tell you only about their biggest catches. It is unmanly to talk about your losses. Nothing to do with actual results. So how about those much ballyhooed extreme rarities that go for astronomical figures? Same thing. Figure out when the piece was bought and for what price and calculate the average annual rate of return (any investor can.) In most cases, you'll find that it is below compound inflation in the same period (any investor can find that number). That piece, while increasing in value, was destroying your capital, while the basic motivation of investing is to preserve capital (return is a secondary motivation only.)

That brings me to value. Coins have only one value. Melt value. When metal price, composition and melting cost are known, that's your value. Everything else on top, sometimes called numismatic value is psychological fluff. Let's have a look at the bonds market. In the US alone, the daily turnover of bonds is between USD 800 and USD 900 billion. This trading volume sets only a few figures: the long term interest curve on USD. There is nothing equivalent in the numismatic market. To understand what is going on, have a look at the tobacco market (annual turnover: USD 400 billion.) Tobacco from different soil, climate, plant variety and grown with different know-how has different quality. Even in one plantation, you can meet different qualities. Therefore traders have agreed on a limited number of standard qualities. Packets are described with a simple quality term, so that anyone can trade them, without being an expert. The process is called commoditization. Now consider the coin (nothing numismatic about it) equivalent: slabbing.

Read any internet discussion on slabbing and you will find that different companies award different grades to the same coin, that you can re-submit coins hoping to get a better grade, that there is grade inflation, that imitation slabs come out of China. Move away from US and Canadian coins and you find mis-grading, misidentification and fakes being accepted as genuine. Slabs amount to false security in a market where prices are not formed by supply and demand, because those markets are by definition too small (the "market" for wheat cents does not contribute any information to the "market" for Barber halves; they are separate markets.)

So what does make prices for numismatic items? I think there are two parts. Especially in the US, there are the true believers in slabbing, grey sheets, catalogue prices and other nonsense. They really believe in the figures and apply them. They find that they get stuck with some coins, while other coins sell (remember that in economic theory, markets clear at the equilibrium price.) They are the suckers who are the repository of undesirable coins as long as their price doesn't move. Great investors they are! The second part is best described by the expression "whatever the market will bear". Run into a collector who really wants your coin and you'll get more than what the figures indicate. Find yourself strapped for cash and you'll get less. That is not price formation according to supply and demand.

If you buy a coin in a big city where there are a number of dealers and you move it to a small town where there is only an annual coin show in the next town, you have lowered the price of the coin. There is no supply-demand curve that explains that. Move a high quality, 200 year old French coin from Paris TX to Paris France and you increase its price. Strange? Only if you believe that the coin market can be commoditized.

Here's a more painful one. All over the world, you will find collectors of e.g. Indian or British coins. You will be hard pressed to find US non-current coins in other continents. The reason is again simple when you step away from commoditization thinking. US coins include hype value. It is whipped up by the true believers. Dealers all over the world know that any older US coins, even very common ones, will command a premium and sell quicker in the US. They wouldn't dream of selling them locally, but gladly cash in on the hype instead. There is some of that in other countries also, because many collectors have a preference for coins of their own country, but it is much stronger in the case of US coins.

Peter

[akona20]

Well written Figleaf.

In the article I rather found the following comment highly interesting "There are also plenty of modern coins that are most likely undervalued in today's market" Really? Given the hype, money laundering and slabbing rubbish happening in America there is little chance of anything being undervalued that is American.

At least today with the instant access to sales figures some sanity should reign in the lower to middle market. As for the high market in America, well crooks swindlers and everything from there to oblivion. Oh and that exists just about everywhere.

What does concern is the comments made about the Indian marketplace post 1947 coins. Time for some leaders to make a stand and realistly set the prices rather than being led by suspect volume dealers. There is a one born every minute market well and truly forming and that is a problem for all collectors whether for pleasure or investment.

[dheer]

Could't have agreed more Figleaf!!!
Every word & sentence very True ...

Completeness! yes
Success stories! like stock market eveyone talks about their great pick and how they made tons [never tell you the number of junks or losses they had] ...
I was slabbing fan [not that i bought any, more a blind beliver] after reading tons of stories, its back to basics ... one should know the coin one is buying [its like the rating of companies in stock market ... if you buy blindly you will loose more at times]
I long belived that the price of a coin is determined by how much desperate the seller is and how much desperate the buyer is !!!

[squarecoinman]

figleaf / Peter did answer this question for 99 %   I would like to ad my 1 cent

whenever i buy a coin , i do not loose any value ,  It is a little like giving 5 euro to charity , yes i may loose 5 euro , but i get for 5 euro happiness back , well it is the same with my coin collection , it may cost some money , but it gives me happiness back.

would I be sad if the whole bunch would be worthless 20 years from now, no why should I, it was never a investment only a "sometimes" expensive hobby. That at least mentally would take me on a journey all around the world, It gave me an interest for history, some far away friends, many hours of pleasure

squarecoinman