INSIDER TRADING OF RARE COINS

in Articles,Coins as Investments

Excerpt from The Investor’s Guide to Coin Trading
The Investor's Guide to Coin Tading
Sections:
Rare Coin Insider Trading
Selling Off Right Before a Massive Downturn
Price Manipulation
The Inner Circle
The Bad Old Days
Today’s Improved Market
Promotions of Coins in Newsletters
Insider Economics
Insights from a Leading Investment Banker

This is an excerpt from The investor’s Guide to Coin Trading. For more information, contact Scott Travers Information Services at Travers@PocketChangeLottery.com

Chapter 6

The Investor’s Guide To Coin Trading, by Scott A. Travers
Copyright 1990. ALL RIGHTS RESERVED

RARE COIN INSIDER TRADING

Just what is rare coin insider trading?

Outsiders perceive it as the manipulation of the coin market for material gain by people who take advantage of their knowledge of inside information, knowledge not available to the general coin-buying public. In point of fact, however, “insider trading” is a nebulous term not only in the coin market, but also in the securities industry. There is no universally accepted or court-sanctioned definition for Wall Street insider trading, so no one should expect a specific definition for rare coin insider trading either. A number of prominent coin dealers capitalize on their knowledge of insider information to make advantageous deals. In fact this goes on so routinely that even Ivan Boesky would be impressed. The methods of market manipulation in this field are almost endless. Yet up to now few investors have tapped the profit potential inherent in this freewheeling situation. The government doesn’t regulate the coin market; people in this field don’t have government agencies monitoring their day-to-day activity. For this reason, and because the coin industry is relatively small in size, savvy investors can put themselves in the same advantageous position-the same insider position-as major dealers.

“Honest, if you buy this coin I promise I’ll bid that coin to three times the level that it’s listed on the sheet for now. It’s the only one known. I can bid it up to any level you want. What level would you like me to bid it up to?”

For example, an investor can purchase a coin that he or she knows is the only one of its kind to which a certain grade has been assigned a given grading service, and then make arrangements to have a dealer bid up the value of that coin.
An investor can get friendly with a dealer and learn from that contact, on a confidential basis, that five rare coins of a certain type and date were submitted by the dealer for grading and will be coming into the market soon.

Insider information is used routinely, of course, in many different aspects of daily life. And it’s used in ways that are legal and ways that are not.

Suppose your local congresswoman knows that certain property will soon be the site of a major development, and suppose she tips off her cousin, who then makes an investment in the area. That’s leakage insider information. Suppose the chairman of the Federal Reserve Board is drafting a statement on interest rates that’s likely to have a dramatic effect on the securities industry. Any number of his colleagues or associates might conceivably be aware of what he’s preparing to say, and this information might enable them to make-or advise their friends to make-some highly lucrative deals.

Although this kind of insider information permeates the coin field, I don’t believe it to be a major problem. There are mechanisms place that will limit to a great degree, or even prevent, insider trades.

As I have noted, this industry is relatively small; insider information doesn’t remain secret very long.

With that said, I must point out that there are certain types of inside information that have put some people at a tremendous advantage in the coin field and have left others at a great disadvantage.

Selling Off Right Before a Massive Downturn

We saw a good example of this phenomenon in July 1988, when coin dealers at the annual convention of the American Numismatic Association were stunned by the announcement that coins supposedly certified by the Professional Coin Grading Service had turned up in counterfeit plastic slabs. Apparently some dealers learned of the situation before the announcement was made-and based on this information, gained through insider contacts, they immediately sold many of their PCGS-graded coins. Some of the coins they sold were in counterfeit slabs and, like virtually all the coins of this type, these were overgraded and therefore overpriced. But even the coins in genuine slabs were worth substantially less following the announcement, because the scandal shook market confidence (at least for a short time) in PCGS coins as a whole. This was a clear instance where knowledge of insider information helped certain dealers significantly.

Price Manipulation

Another common use of insider information in the coin market is price manipulation. Often this involves coins with very low populations, coins that have been graded in very small quantities in a given grade by a particular grading service.

Well-known market-maker with a coin listed in a certified coin population report as the only one graded for that grade. During my years as a coin trader, I’ve witnessed many examples of insider trading and observed very closely the way that information is disseminated – its ethical use, unethical use, and uneven distribution in this field.

From the insider’s standpoint, the ideal population is one. The chances for price manipulation are maximized when a dealer owns the only coin of a certain kind to which a given grade has been assigned. This information can be obtained by studying the population reports issued by the major grading services. So long as the dealer is certain that no other coins of that type and that grade are available, he or she can bid up the price of that coin on the teletype system. (if another example happened to exist, the dealer would be obliged to purchase it at his or her bid price if the coin’s owner belonged to the same trading network and chose to accept the bid.) Suppose this coin is listed initially at $2,500 in the Certified Coin Dealer Newsletter or Blue Sheet, the standard weekly price guide for coins that have been independently certified. And suppose the dealer offers progressively higher bids, upping the ante to $5,000, to $6,000,and finally to $7,000.

After $7,000 has been offered for several weeks, the publishers of the Blue Sheet may raise the coin’s listed price from $2,500 to $7,000. At that point the dealer will sell it to someone who is unaware of what has been going on, perhaps another dealer unschooled in the ways of such games or perhaps to an unsuspecting collector or investor. The dealer may even offer a “discount”: With the Blue Sheet price at $7,000, maybe the coin will be offered for “just” $6,000. And then, when the dealer stops bidding $7,000 for the coin and has sold it for $6,000, its price will go back down to where it was before and where it belongs: $2,500.

The Inner Circle

Collectors and investors can avoid this type of manipulation by doing business with dealers who are not only honorable, but also members of the coin market’s inner circle-that is, dealers who know the ins and outs of population reports and will not themselves fall victim to this kind of scam.

Keep in mind that dealers themselves can be victimized if they don’t stay fully informed on all the factors involved in determining the value of a coin. If they don’t pay close attention to population reports, they too can be deceived by price lists where the value reflects manipulation rather than real demand. They may think they’re getting a bargain when someone comes up to their table at a show and offers them such a coin at a price well below the Blue Sheet level. And they’ll pass this “bargain” on to a customer, not because they too are trying to take advantage of someone, but because they themselves aren’t very knowledgeable.

In many cases it is wise to do business only with someone who is an authorized dealer of NGC or PCGS or both. On request, both organizations will provide a current list of their authorized dealers.

Collectors, investors, and dealers, too, should watch closely for signs of volatility in any specific area of the market. This is especially true of areas where few coins have been certified and where, for that reason, one dealer can control a complete population. Great volatility in any particular area doesn’t always mean that coins are being traded rapidly; it may mean that a dealer has manipulated that portion of the marketplace-manipulated it upward and then sold the specific coin or coins, causing bid levels to drop precipitously.

PCGS has the following anti-self-interest policy posted in its grading room:

GRADERS !!!!
PCGS ANTI-SELF-INTEREST POLICY

PCGS graders cannot do any of the following:
1. Grade their own coins.
2. Grade coins they submit for clients or other dealers.
3. Grade coins they have a financial interest in (split profit deals, etc.)
4. Verify any of the above coins.
5. Participate in any discussion whatsoever-inside or outside of the grading room-either before, during or after the coins are in the grading process.

FIDUCIARY RESPONSIBILITY

PCGS graders cannot use any information obtained inside the grading room before the information is available in the general market place. More specifically graders cannot do any of the following:

1 . Buy coins from a dealer based on information obtained in the grading room. if a grader finds out who a coin or group of coins belongs to while the coins are in the grading process, that grader cannot contact the submitting dealer for the purpose of purchasing the coins (or obtaining first shot, etc.) until 10 days after the dealer has received his coins back from PCGS.

2. Sell or buy coins and/or coin positions based on information obtained in the grading room.

Any grader who has one substantiated violation of item #1 or who shows a consistent pattern of violating item #2 will be immediately terminated.

THE BAD OLD DAYS

In the early 1980s we witnessed market practices that were far less ethical than those we have today. Dealers at that time often drove up bid levels in the Coin Dealer Newsletter or Grey Sheet, the standard weekly price guide for all U.S. coins. They did this on a constant basis. And they didn’t have to concern themselves with rules and regulations requiring them to buy such coins if those coins were offered.

Circa-1980 dealers could take a coin listed for $400 in the Coin Dealer Newsletter, bid $600, $700, $1,000-and keep bidding higher and higher amounts on the teletype system. in those days they had no real obligation to purchase any coins that people sent; coins were not certified then, and we didn’t have a sight-unseen system. The dealers would simply send the coins back, saying they didn’t meet their high grading standards. Dealer promotions and price manipulation played a big part in the marketplace confusion over grading standards. In driving up prices, dealers were looking to make bigger profits on coins they already had; they had no interest in buying such coins from anyone else. Thus, as people sent them coins, these dealers just shipped them right back. A number of people would then submit coins of the next higher grade, since the artificially inflated price levels were high enough to justify selling even these at the quoted bids. Again the dealers would send the coins back. In some cases dealers were offering to buy coins graded MS-65 at a certain price, and people were sending them coins graded as high as MS-67; even then the coins were returned.

Today’s Improved Market

Although manipulation does occur today, it’s much more difficult to drive up price-guide levels-especially those of certified coins, since dealers must be willing to buy any coins that are offered. This discourages the unscrupulous from trying to manipulate prices of the more common certified coins, where hundreds or even thousands of examples may exist.

As growing numbers of coins are certified, population reports will list far fewer one-of-a-kind coins. Already the number is dwindling, even among supergrade coins bearing the very high MS and proof numbers that grading services assign quite sparingly. In most cases enough coins are available to protect against price manipulation. Today super-grade commemorative coins appear to offer the best opportunities for manipulators-and the greatest risk for potential victims-because these coins exist in very limited numbers in certified grades of MS-66 and above.

Clearly the coin market doesn’t have a perfect trading system. But in a world where no system is completely perfect, today’s system is certainly far better than yesterday’s.

PROMOTIONS OF COINS IN NEWSLETTERS

Newsletters serve as yet another way to promote coins and influence their prices. Some mass-market coin dealers publish their own newsletters and use them on a regular basis to promote the coins they have for sale.

Often it’s possible to anticipate such promotions-even without being a true market insider-simply by analyzing which coins these dealers have promoted in the past.

When dealers send newsletters to thousands upon thousands of collectors and investors, obviously they can’t use them to promote coins of which just three examples, or even 300, are known. They have to select coins that exist in more promotable numbers. Among the series that combine sufficient numbers with broad-based popularity are Morgan silver dollars, Saint-Gaudens double eagles, and commemoratives.

Dealers stage promotions for these and other popular coins on a regular, systematic basis. They may promote Saint-Gaudens double eagles one month, Morgan dollars the next month, and commemoratives the month after that. If you haven’t seen the Morgan dollar promoted in one of these newsletters in a while, you can be quite certain that its time will be coming very soon. And that might be a good time to buy Morgan dollars-before the promotion hits, with all its attendant hype, and prices go up in response.

I recommend that you get on the mailing lists of all the large dealerships that publish and distribute such newsletters. Often they’re quite informative and even entertaining, and they can help guide you in charting the direction of the market.

INSIDER ECONOMICS

Paul Taglione, a former principal of the now defunct New England Rare Coin Galleries, has written a number of valuable books and articles analyzing the coin market’s inner workings. Taglione and his company became targets of a Federal Trade Commission lawsuit charging them with unfair or deceptive acts or practices in or affecting commerce. Despite this, and to some extent because of this, his in-sights on the market are fascinating and illuminating. The following is an excerpt from Taglione’s book, “An Investment Philosophy for the Prudent Consumer” (Numismatic Research and Service Corporation, Boston, 1986).

Across the expanse of market actors currently active in the Numismatic Markets, technical numismatic knowledge and comprehension of the economics of the various Numismatic Markets is, in my view, extremely variable in depth and quality. An amazing number of market actors do not possess adequate technical knowledge of areas in which they trade. incredibly enough, very few market actors seriously study the economics of the Numismatic Markets in which they participate. Any private numismatic investor can obtain an edge in a specialized area and, I am perfectly convinced, any private investor can obtain a general edge in even wider areas of the Numismatic Markets. The “investment edge”, as I see it, involves a wide- ranging knowledge of the economics of the area in which one wishes to invest. A first step in obtaining this knowledge is researching and examining the supply side of an area. How many examples of this coin exist? How many come to market? is the supply of this particular coin or class of coins inelastic to increased demand? The next step is obtaining a knowledge of the size, intensity and quality of demand. This step must begin at the level of the individual buyer. What sort of market actor demands and desires this coin? Does the acquisition of this coin satisfy a preference or does it stimulate a preference to acquire more coins? In my opinion, the quality of demand is much more important than its size or intensity. The size or intensity of demand can be the result of dictated preference and if quality of demand is taken to include endurance and continuity (which I take it to include), then it becomes obvious that demand which derives from dictated preference is markedly lacking in these qualities. Another step in obtaining the investment edge is investigating the parameters of price at which buyers can and do acquire material. Obviously the demand for a common coin is much more sensitive to price than is the demand for a rare coin. An investor must exercise a great deal more caution in acquiring a common coin in terms of price than is required for obtaining a rarity whose market appearance in and of itself generates a value for the acquisition opportunity. Perhaps the best investment edge of all is the recognition that the edge is complicated and varies from area to area and from time to time. Part of this recognition is an awareness that choosing the elusive and storied “right dealer” might not be an edge at all; it might be a disadvantage!

INSIGHTS FROM A LEADING INVESTMENT BANKER

One of the most brilliant coin collectors I know is a vice president at a world-famous conservative investment banking house. This numismatist holds an M.B.A. from the University of Chicago and a B.S. from the University of Pennsylvania’s Wharton School of Finance. Although he spends a lot of time coordinating multibillion-dollar deals in traditional capital appreciation areas, he has carefully scrutinized and studied the investment rare coin market for over 20 years. I can personally attest to his grading ability and market timing: It’s far superior to most savvy professional coin traders’. The genius of his analytical investment mind applied to the coin market’s structure and direction is presented here for the first time. He has requested anonymity.

Here are my questions and his responses:
What do you think about the efficiency of the rare coin marketplace?

Let me discuss efficiency from a couple of perspectives. Certainly, with certification, the rare coin marketplace is more efficient than it used to be, particularly for low-end coins within a given grade. However, unlike many other investments that are fungible, such as stocks or bonds, rare coins are all pretty much unique. Certain individuals in the market possess superior knowledge and skills, particularly grading skills, and can use these to make money that the average market participant cannot. In addition, subjectivity and perception can affect a coin’s value because two individuals may find a given coin more or less desirable, which will affect their respective valuations. What this says is, even with the standardization of grading there will always be an opportunity to improve upon your investment returns by becoming more knowledgeable about grading. Moreover, since not all coins are certified yet, this adds yet another layer of inefficiency relating to raw coins and those not graded by PCGS or NGC. There is also a source of inefficiency built into the market-place because of the quality of the information flow, particularly as it relates to prices. Putting aside differences in values due to grade, eye appeal, etc., the current reporting system leaves a lot of room for uncertainty. The actual marketplace includes the electronic information/trading system called the American Numismatic Exchange, teletype networks, major coin conventions, auctions, and private transactions. The reporting is done by price guides such as the Coin Dealer Newsletter and Coin World ‘s “Trends,” auction prices realized lists, and word-of-mouth. Gathering useful information from these diverse sources and presenting it in a timely and accurate fashion is a most difficult task. To the extent that some market participants don’t have the best information as to value levels (because the price guides come out only weekly or they don’t have accurate values in the first place), they can be taken advantage of. Furthermore, the inefficiency is exacerbated should any manipulation take place within the reporting system.

Based on your knowledge of conventional financial investments, what aspect of the rare coin field needs the greatest refinement in order for this industry to attract the greatest number of investors?

If you had asked me this question a few years ago, I would have said grading. But with the use of the 70-point grading system and PCGS and NGC, grading has become very much refined. I believe the area that must be improved next is the information reporting system. With values at high absolute levels and a good deal of price volatility, there must be more accurate, up-to-date information on values for the great majority of investors to be comfortable in participating in the marketplace. This means better price guides and some source of more timely information. For instance, I know that oftentimes the major coin conventions represent the truest marketplaces and best indicators of values at a given point in time. Yet it can take a couple of weeks for any price movements emanating from one of these shows to be reflected in the price guides. Some sort of electronic service that captures and distributes this information on a real-time basis would be of immense value. The practicalities of how the coin market works may prevent the realization of this, but we certainly can use some improvement.

Do you feel that “insider trading” in rare coins – which presently are not regulated as securities – is fair? Why?

Obviously, any use of information that is not widely available for personal gain has the potential to be deemed unfair. As it relates to rare coins, there ought to be far fewer types of information that could lead to this, and these should mainly be associated with things affecting the supply of or demand for coins, technical as opposed to fundamental information. (There aren’t takeovers or earnings announcements in the coin market.) For example, suppose a dealer buys a hoard of five coins, all graded the same, which doubles the known population. If he distributes them in a way that allows him to sell to others at the current high value because each purchaser doesn’t know about the remainder of the hoard, most would agree that this dealer has used his trading expertise in a proper way. On the other hand, if this dealer finds out about the hoard from one of the grading services (maybe he submitted the coins on behalf of a customer) and sells a similar coin from his inventory on the wholesale market before the news of the new five coins is generally available, this is much closer to insider trading and clearly unfair.

There clearly are a number of inner-circle dealers who have access to information that might help these dealers and their clients profit tremendously. Should industry leaders restrict this flow of information or attempt to release it on an equitable basis?

In general the more information the market has, the better. industry leaders should develop a set of rules as to what information is appropriate to release and what is genuinely proprietary. After all, in many instances a dealer is acting on behalf of a client and is justified in withholding certain information. As long as reporting is accurate and there is no manipulation going on, it is hard to argue that dealers should be compelled to release much technical information (such as a large buyer coming into the market).

Given your understanding of the working of the mechanisms in the coin market, how would this field’s structure change if there was a loss of confidence?

It is tremendously important for the leaders in the industry to ensure that collectors and investors have confidence that the game is fair. Only then can the base of investors be broadened. Any scandal that causes a major loss of confidence, whether it comes from counterfeit holders, widespread manipulation or collusion, or other significant abuses, can irreparably damage the marketplace.

When rare coins are considered as an investment, what should the coin buyer consider?

I believe an investor in coins should consider several things. First, appreciation potential, since this is the ultimate goal. Many different factors go into the rate at which a coin appreciates in value, but the key ones are the existence of a meaningful (and hopefully growing) base of collectors and investors who want to purchase coins of this type and the scarcity of a given coin. Many coins are scarce but are relatively inexpensive because they lack a meaningful demand base. Conversely, even coins that are readily available in the marketplace can experience dramatic appreciation if there is a high level of demand. Next, related to appreciation potential, is timing. An investor should be aware of relative values and should time his or her purchases of coins in a given category to reflect both valuation in relation to coins in other categories and valuation in relation to where in the value cycle a coin stands. The goal is to try to purchase coins that are relatively undervalued. For example, if an MS66 specimen of a given coin type tends to sell at twice the value of an MS65 and the spread narrows to 50% rather than 100%, an investor should focus on purchasing the MS66 and can reasonably expect it to outperform the MS65. Many coin series, such as Morgan and Peace Silver Dollars, Commemoratives and gold type coins, clearly move in definable cycles. An investor should try to concentrate purchases in series that are well off their peaks and relatively out-of-favor. It is virtually assured that at some point a new up cycle will begin. Third, grading is a critical element, meaning both the actual grade levels on which an investor concentrates as well as the confidence in the grades of coins purchased. over the years, due to relative scarcity and a proportionately growing level of demand, higher grade coins have tended to appreciate faster than their lower grade counterparts. Unless human nature shifts, I believe this will continue. In the past, an investor had to rely on his or her own grading ability and/or that of the dealers who sold the coins. The variability in grading standards experienced in the early 1980’s exposed the risks associated with grading as it related to coin values. With the advent of the major grading services, PCGS and NGC, not only can an investor be confident of a coin’s grade but also he can have confidence in the standards used to grade the coin remaining stable. Fourth, liquidity is important for the investor. The more desirable the coin and the larger the demand base, the easier it is to sell a coin at its true value. The existence of certified coins has helped to broaden the demand base for these coins by bringing in new investors to the marketplace. It has also allowed the formation of an active market in sight-unseen coins, further enhancing liquidity. Next, I feel an investor should have diversification in his or her portfolio of coin investments. This will minimize the risk of missing strong performance in coin categories you don’t hold. Finally, even for investors, the esthetics of the coins purchased can help to make the whole exercise more rewarding. An investor will often be well served in buying coins that he or she finds particularly beautiful and pleasing.

What do industry leaders need to do to get rare coins on Wall Street and traded like stocks?

For coins to trade like stocks, there must be widely distributed real- time trading information. Presumably this would focus on generic material that trades actively, like Morgan dollars. just as in the over-the-counter stock market, the coin trading market would be enhanced if it reported actual trades (last price) in addition to bid and ask levels. The first important step would have to be to get at least one or two major Wall Street firms to begin making markets in coins. The physical settlement of trades would have to be streamlined. It might even be possible to develop an options and futures market in coins. Because an effective coin trading department at a Wall Street firm would need an outlet to retail customers, a sales force would have to be developed. It is likely the staffing for such a department would come from experienced professionals within the coin industry.

Please use your emotions: What do you really think of low-end certified coins? Would you buy a low-end MS-66 coin from even the best grading service?

I have generally found low-end coins to be undesirable. They usually make the technical grade but have some detracting feature. oftentimes a high-end coin in the next lower grade is more desirable than the low-end coin in the higher grade. An MS-66 is generally something special, quite rare and pretty expensive. Why spend a lot of money on a low-end MS-66 when for a lot less you may get a nicer MS-65? High-end coins have better appreciation potential.

Let’s imagine it’s the year 2000. Where will the investment coin market be? (It would be unfair to ask you for anything except a wild but educated guess.)

Ten or so years from now I would expect most coins on the market to be certified, whether it’s by PCGS and NGC or some firm or firms that have taken their place. I hope that more individual investors, directly and through entities such as limited partnerships, will have begun to look at investing in certified rare coins as a main- stream rather than an exotic investment. Institutions such as pension funds, insurance companies, and trust departments should be investing a small portion of their funds in coins. This will represent a sizable amount of money (billions of dollars). Coins in many series grading MS-65 and up will have seen spectacular appreciation over the past decade. Their true rarity will have become apparent. An inexpensive coin will be one that sells for under $100,000. Coins grading MS-66 and up in many series will trade well into six figures. Certain low-population high-grade coins will have broken the seven- figure barrier. Looking back on prices in 1989, when many high- grade rarities sold for $5,000 to $50,000, many will wish they had taken advantage of the incredibly cheap prices available then.

Are our price guides professional enough to satisfy the “prudent man” standard?

Today’s price guides can do a lot more to improve their accuracy as to values and their timeliness. In addition, they are too easily manipulated by the deliberate placement of inaccurate information. It is probably time to inject some healthy competition into the arena, which would serve to lift the level of professionalism. At the very least the price guides should beef up their staffing to have more people monitoring the marketplace. Frequent surveys of a large number of dealers and market-makers as to both bid and ask levels and actual transactions would pick up more of the market’s activity and true value levels than is currently done.

You recently purchased an NGC Proof-63 coin, which one of the nation’s leading coin auction firms cracked out of its holder, described glowingly as a Proof-65, and featured in a beautiful color photograph for prospective buyers to see. Was this fair?

Activity such as this is quite common. To the extent that a buyer of such a coin in the auction pays more than it is worth because of the higher commercial grade, there is an element of unfairness. However, the auction company clearly has a different standard of grading than NGC, and its coins are available for viewing prior to the auction. Over time this activity should wind down as more and more coins become certified by NGC and PCGS. These two services should gamer the bulk of the certified market and will come to be viewed as the only type of coins to be safely purchased. As those who have purchased coins in these auctions get them certified by NGC and PCGS, it will become clear what the true grades and values are, as well as the risks of purchasing non-NGC and non- PCGS coins at auction.

How has this market’s inefficiency allowed savvy investors to profit?

By purchasing high-end certified coins at prices close to the sight- unseen levels (through a knowledge of grading), an investor can often sell these coins at a significant profit, both at auction or in a private sale and both in or out of the holder.

Will a more efficient market improve or impair the informed investor’s ability to profit?

Opportunity for abnormal profits declines as a market becomes more efficient. I doubt, however, that many of the new players in the certified market will have the ability to determine or care about high-end versus low-end. Unless these players end up with all the low-end coins and the players with grading knowledge end up with all the high-end coins, there will continue to be profit opportunities of this sort.

Who is the ultimate consumer of coins? Why?

I believe that the conventional wisdom has been that collectors are always the ultimate consumers of coins. High prices presumably cannot be sustained unless collectors are willing to pay them. I think you can add to this demand base the collector/investor and even an outright investor. To the extent that these latter players reinvest any disposition proceeds back into coins, or other players step in to take their place, this new demand base is solid and can sustain extant price levels. Investors in coins must be willing to take the long view. If large numbers bail out when there is weak- ness, and if new investors don’t step in when prices decline, then the conventional wisdom will hold true and prices will be effectively capped. I do not believe that this is the case.

We’re seeing limited partnerships becoming part of rare coin in- vesting. How do you see this form of coin trading impacting the marketplace? What might happen after one or two funds come into the U.S. market and spend $75-100 million? What will be the end result?

There has been a lot of discussion about the impact of large new investment funds coming into the rare coin market. I would bet that it happens in a way and on a time schedule that is somewhat different from what everyone expects. It will probably take longer than people think. When this money does come in, the trick will be to determine what parts of the market will be affected the most. If someone tried to invest $100 million quickly in super-grade or even high-grade material, all of the available coins would be swept off the market long before a quarter of the money was invested. Clearly, material that can be bought in quantity will have to rep- resent a large part of these funds’ portfolios-things like common to better-date Morgan dollars, gold type coins, commemoratives, all grading MS-63 to MS-65. As market participants sell to the funds, they will have to reinvest the proceeds in other areas. This will drive the entire coin market higher. As prices rise on generic material, the funds will be willing to pay substantially higher prices for the occasional MS-66 that they are offered.

What needs to be done to make coin investing attractive to the average person?

Better marketing, information, and public relations concerning the certified rare coin market has to occur before the average person is comfortable investing in rare coins. The awareness level of this market must increase markedly. Something like the entrance of one or two major Wall Street firms into coin trading or the tracking of certified coin values on some electronic information network such as Reuters or Telerate will have to happen. And of course all the things I mentioned earlier are important prerequisites: accurate up-to-the-minute information reporting, confidence in the integrity and fairness of the marketplace, value-added packaging of the investment, and enhanced liquidity.

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