Winter's Law of Numismatics

I was recently having a conversation with a long-time client about coin investing and our discussion turned to one of Winter’s Laws of Numismatics. Which basically says that the typical coin investor almost never makes money while the typical collector, often in spite of himself, tends to do just fine from a financial standpoint. At DWN, I tend to regard “investing” with a raised eyebrow. If someone who I do not know calls me up out of the blue and starts talking about coin investment, I give him a lecture which basically states that coins are not good investments and that if he insists on looking at coins strictly as investments, he probably should be dealing with XYZ Coins instead of my firm.

But this isn’t totally true. Coins CAN be a good investment. Let’s say that as a knowledgeable collector you went to the Pittman sale in 1997 and spent $50,000 on some nice lots. The chances are pretty good that you would have done just fine from a financial standpoint.

Before we go further, I suggest you re-read the last paragraph. Notice that I said if you had “gone to the Pittman sale in 1997.” This presumes at least three important points. First, that you knew enough about the coin market that you (or an advisor) were able to determine that the Pittman sale contained good coins. Second, you were able to hold on to your coins for a long period of time (hard to believe that the Pittman sale was ten years ago, isn’t it?). And thirdly that you were able to select nice enough coins for them to be “investment quality.”

The trouble with coin investing is that virtually all coin investors buy the wrong coins from the wrong people at the wrong point in time.

When I look at the typical “rare coin portfolio,” I am usually struck by a few things. The coins tend to be very common and very boring; things like common date Walkers in MS66 or common Saints in MS65. Coins like this will never be good investments because they are too common. The second thing I am struck by is that the coins in these portfolios (the very word “portfolio”, when it comes to coins, makes me cringe...) are invariably overpriced. Even coins like MS66 common date Walkers or MS65 common date Saints which have a well-known buy/sell spreads tend to be dramatically overvalued in these portfolios. Another thing I notice is that these common coins are usually bought at exactly the wrong time; usually when a common series is in the midst of a promotion.

Getting back to the point I was making earlier, collectors often make excellent investment decisions even though, many times, they don’t really know they are making them. The smartest things collectors can do are to buy coins that are pretty, coins that are rare and coins that are in demand. An investor is not likely to know which coins qualify as such and the “advisor” that he speaking to likely does not know either.

So as an investor, what can you do to improve the chances that you will actually make some money? My answer is simple: learn to think like a collector. Learn something about the coin market. Realize that coin collecting involves a lot more than checking “past performance” charts and analyzing statistics.