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Investing in Rare Coins

24-Aug-2013

It is rare that I make comments on investing in coins though with the liquidation of John Petit and the Rare Coin Company, the importance of managing risk has never been more pronounced. Coins have for many decades been an attractive investment for many reasons. Ease of storage and transportation, market stability and strong growth are among the commonly quoted reasons. In this article I will discuss the number of risks involved and how to protect yourself against them.

Invest in the Coin, not the Dealer

This is probably the most important point - dealers may offer buy-back guarantees, fancy grading terms and other schemes to lure you in but these come at a premium and are worthless to other dealers. If the value isn't in the coin, you will lose money. If a coin is uncertified then any guarantees on grading they provide will only be useful at the dealer you bought it from which can severely limit your ability to liquidate, especially if the dealer goes broke.

That is why it is important to learn to grade coins - if you're not an expert grader yet, don't even consider buying uncertified coins. They may seem to be good value but uncertified coins of significant value offered retail are usually overgraded or have been cleaned (learn why this is undesirable). The old adage applies, if it's really a good coin, then why hasn't it been certified?

Never buy into portfolios set up by dealers - these typically consist of overpriced coins which the dealer is otherwise unable to sell. Don't buy from dealers who specifically target investors either - these are usually scams preying on the assumption that investors don't know about coins. Be especially wary of dealers who try to convince you not to get the coins certified - this usually means the dealer knows they won't make the grade they're claimed to be.

Beware of backyard grading services

PCGS and NGC are the main third party certification services with strong reputations in Australia. PCGS is most popular for pre-decimal and circulation decimal while NGC is more popular for Perth mint issues. ANACS and ICG also have good reputations but have a very limited presence in Australia and as such coins graded by these services may be difficult to sell. Coins graded by other services should be avoided completely as they're typically set up to impersonate a third party grading service but offer no guarantees on grading and authenticity. Some of these services use names very similar to top-tier services in order to deceive buyers.

Once you know the coin, don't pay too much

Even if you've found a coin that is accurately graded, if you pay too much for it you can significantly delay any returns. Just because a coin has been certified, doesn't make it a good buy. Look at the prices realised at major auctions, these give a good indication of value. A Blue Sheet gold subscription can be invaluable here as it gives access to prices realised from many major auctions all in one place.

Once you've purchased your coins, take care of them

Keep your coins in a cool, dry place. If they're uncertified, make sure to store them in holders free of PVC and chemical softeners. Don't make any attempt to clean them, this can never improve the condition of a coin and will almost always reduce the coin's value. The only time cleaning is advised is to prevent further damage (e.g. by removing a corrosive substance from the surface of a coin) and this must be done by a professional. If the coin is uncertified, consider getting it certified. The slab holders used by top-tier third party grading services are ideal for long-term storage.


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