SELLING THOSE INVESTMENT COINS

By SCOTT A. TRAVERS

The great investment revolution of the 1980s is just a
memory now in the rare coin market. The 1990s have given rise
to a very different marketplace, and very different realities
–often more sober realities–confront coin buyers and
sellers at this time.

The glory days of rapid price increases have faded, and
the gravy train of quick, easy profit has been sidetracked.
On the positive side, however, many bargains exist in today’s
coin marketplace, and those who answer the door when
opportunity knocks can make their reservations on the gravy
train of tomorrow.

But what about those who purchased investment-type coins
in the marketplace of yesterday–the superheated market of
the Eighties? How can those people sell these coins at
minimal loss, and possibly even turn a profit, in the colder
investment climate of the Nineties? Or, for that matter,
should they sell these coins at all?

The changed investment climate calls for a change in
strategy. In fact, it calls for a number of different
strategies, depending upon the nature of the coins that you
possess. Some coins should be sold–even at a loss. Others
should be held. And others should be traded for different
coins.

There’s no time like the present to review your coin
portfolio–take stock of what you have–and formulate a plan
for restructuring your holdings to reflect the market
realities of today.

One of the basic realities is the undeniable fact that
most coins are worth considerably less today, in the spring
of 1993, than they were four years ago, as the market
approached its last big peak in May of 1989.

A check of the Certified Coin Dealer Newsletter, or
Bluesheet, confirms this all too graphically.

o On May 26, 1989, the Bluesheet assigned a value of
$555 to an 1880-S Morgan silver dollar certified as Mint
State-65 by the Numismatic Guaranty Corporation of America
(NGC). Today, that same coin is valued at only about $75.

o On May 26, 1989, the Bluesheet value for a no-motto
Liberty Seated half dollar graded MS-66 by the Professional
Coin Grading Service (PCGS) was a whopping $39,000. Today,
that coin is listed for only about one-third that amount.

o On May 26, 1989, the Bluesheet assigned a value of
$4,060 to a Saint-Gaudens double eagle graded MS-65 by NGC.
Today, its value has dropped precipitously. My book, The
Insider’s Guide to U.S. Coin Values, lists it at only
$1,200.

The common thread among all three of these coins is
their sharp decline in value. But if you own these coins and
are wondering whether to sell them, very different thinking
should guide your decisions.

Whichever path you take, your first move should be to
get your investment coins certified (if they haven’t been
already) by one of the major coin-grading services.

If you acquired your coins in the late 1980s, the
chances are good that they’ve already been certified by
either NGC or PCGS. But if you bought them earlier, they may
still be uncertified–or “raw,” to use the common market
expression. If so, you need to get them certified and
encapsulated–“slabbed,” if you will–in order to be sure
just what you have and maximize your chances to sell them or
trade them advantageously.

Let’s first consider the case of the 1880-S silver
dollar. This is what is known as a “common-date” Morgan
dollar–one that not only had a relatively high mintage (8.9
million), but also has a high surviving population in mint
condition. As of Jan. 1 of this year, NGC had graded 3,442
examples of this coin as MS-65 and 622 as MS-66.

The figures are even higher for the 1881-S Morgan
dollar: As of Jan. 1, NGC had graded 5,459 examples of this
coin as MS-65 and 767 as MS-66. And PCGS has certified even
more coins of both dates and both grade levels.

These are extremely high figures–and even though Morgan
dollars are among the most popular coins in all of U.S.
numismatics, it’s likely that the supply of these coins
exceeds the current demand by a wide margin.

The price declines of common-date Morgan dollars have
been every bit as dramatic for MS-66 and MS-67 specimens as
they have for MS-65 pieces. In MS-66, the price has plunged
from $1,400 to $200, and in MS-67 the drop has been from
$3,950 to $680.

Similar declines also have befallen other “generic”
coins–that is to say, coins which are available in large
quantities even in high levels of preservation and which, as
a consequence, have come to be looked upon as virtual
commodities. Many such coins can be found, for example, in
the Walking Liberty half dollar and “Mercury” dime series.

At first glance, it might seem that these coins
represent real bargains at current market levels. Well, they
don’t. Sure, it sounds great to be able to buy a coin for $75
and know that it would have cost you more than $500 just a
few years ago.

Keep in mind, however, that with these particular coins
–these generic, commoditized coins–there’s a very sound
reason why prices plunged so far. Simply stated, experience
has shown that these coins are far more common in high mint-
state grades than buyers and sellers realized in the middle
to late 1980s.

Their commonness has been dramatized by the PCGS
Population Reports and the NGC Census Reports, which
regularly list the numbers of coins that those two grading
services–the leaders in the industry–have certified for
each U.S. coin series in each date-and-mint combination and
each proof or mint-state grade level.

Prior to the introduction of these two monthly reports
in the late 1980s, there was no accurate way to determine the
relative rarity (or commonness) of any given coin in any
given grade. It was largely a matter of guesswork. These
reports have eliminated the guesswork and provided firm
figures rooted in scientific fact. And what they have shown,
in the case of generic coins, is that many more coins exist
in grade levels of MS-65 and above than most people realized
just a few short years ago.

Granted, generic coins are attractively priced today,
compared with their levels of 1989. In order for them to
increase in value, however, we’d have to see economic
justification–in short, a growth in demand to match the
growth in supply. And that kind of new demand seems highly
unlikely: Morgan dollar collectors need just a single example
of any particular coin to complete their sets, so there’s no
long-term market for all the thousands of extra coins beyond
those required to fill the basic demand.

I strongly recommend that you divest yourself of all the
generic coins you now possess–even if you have to incur a
loss. You can sell them outright or, if you prefer, you can
trade them for other coins. But it’s my considered judgment
that despite their lower price levels, these coins aren’t
going anywhere. If anything, they’re going nowhere fast.

Among the other coins that you should be selling today
are impaired modern singles–carbon-spotted Lincoln cents
that turn up in BU rolls from the 1940s and ’50s, for
example, or coins with obvious blemishes that you may find in
rolls or bags of Jefferson nickels, Roosevelt dimes, Franklin
half dollars and other coins of similarly recent origin.

Let me make it clear that I am not disparaging modern
coins as a whole. On the contrary, I am bullish on high-
quality coins from the modern era; many of these have truly
enormous potential for future appreciation. But “problem”
coins have no potential at all, and never will.

Speaking of modern coins, I see this as an area that
may do very well in the next few years–and therefore
recommend that you place some of these coins in your
portfolio. I’m speaking now of certified 20th-century singles
in very high levels of preservation. Important promoters are
moving into this field, and I think it could become a hot new
area during the next couple of years. Don’t go crazy and put
all your money into modern coins–but if you’re spending
thousands of dollars on coins, do spend at least a few
hundred on modern issues.

If you prefer not to sell your coins outright, you might
consider trading them for other coins that, in your opinion,
have greater potential. Tax laws permit “like-kind” exchanges
involving rare coins, and this can be an excellent way to
defer any tax obligation you may have for gains you have
made.

Let’s say you bought a coin for $1,000 and it went up in
value to $5,000. Instead of simply selling the coin and
having to pay taxes on your $4,000 profit, you could trade it
for other coins costing a total of $5,000–coins that might
be at the bottom of their cycle at the time. Later, if those
coins rose in value to $10,000, you could repeat the process.
And you could keep repeating it over many years.

I know of many people who have followed this procedure.
Eventually, of course, taxes must be paid on any gains that
are realized. But actual sale of the coins–and payment of
the taxes–often can be postponed until the owner reaches
retirement age and a lower tax bracket.

Losses have been more common than gains in recent years,
so the tax-deferral advantage of like-kind exchanges hasn’t
been as useful to people holding coins. In fact, it might
well be preferable from a tax standpoint to sell coins in
some circumstances, and claim a loss on your tax return,
rather than trade them. You should check with your accountant
to see which approach is better for you.

While the general trend has been down, some coins
actually have increased in value during the last few years–
and if you have such coins, I would recommend that you trade
them in a barter exchange and buy coins which are now at the
bottom of their cycle. Certain copper coins, for example,
have risen as much as 50 percent in the last year or two, and
I think this would be an opportune time to trade them for
coins with good potential that are currently at low ebb.

Under that heading, I strongly recommend high-grade type
coins–Liberty Seated coins and similar material from the
more traditional era of U.S. numismatics. Like generic coins,
many of these type coins have suffered major losses since
1989. But unlike generic coins, they remain legitimately
scarce: The population and census reports continue to confirm
that relatively few examples are available in high mint-state
or proof grade levels–grades of 65 and above. And a solid
collector base exists for these true collector coins.

These are the coins you should hold onto, or trade into.

Consider, for instance, the no-motto 1858 Liberty Seated
quarter. On May 26, 1989, the Bluesheet listed this coin at
$14,900 in MS-65 as certified by either PCGS or NGC. The
Insider’s Guide to U.S. Coin Values lists the same coin’s
value in 1993 at less than half that amount–just $7,000.

If you own coins such as this, I urge you to hold onto
them; they’re extremely sensitive to demand, and just a
modest increase in the number of people buying them could
drive their prices much higher in a very short period of
time. In other words, they have tremendous potential,
especially at today’s depressed levels. They’ll be among the
first–and biggest–winners in the next coin-market boom.

It’s just common sense that an MS-65 type coin with a
population of less than 10 will go up faster and farther than
an MS-65 Morgan dollar with a population in the thousands.
Clearly, it will be much more responsive to demand–and it’s
much, much rarer.

If you own generic coins and are looking to make a
trade, this would be a terrific area to move into. You’d be
much better off with a single no-motto 1858 Liberty Seated
quarter in MS-65 than with dozens or even hundreds of 1880-S
or 1881-S Morgan dollars in the same grade.

Many investors–and even collector/investors–purchased
large quantities of generic gold coins during the late 1980s.
Most often, these included common-date Saint-Gaudens double
eagles (or $20 gold pieces) in grades such as MS-63.

From a numismatic standpoint, these coins have roughly
the same potential as generic Morgan dollars in the same
grades. In short, they’re going nowhere fast. They do have
some potential for price appreciation, though, based on their
precious-metal value.

If gold bullion were to rise dramatically, double
eagles–which contain very nearly a full ounce of gold–would
enjoy a similar rise in metal value. For that reason, many
investment advisers recommend keeping a certain amount of
gold–including gold coins–in your portfolio.

My advice would be to keep a few–but only a few–
generic gold coins in your portfolio. If you have 80 or 90
“Saints” sitting in your safe deposit box, keep a few and
trade the rest for coins with better potential.

Clearly, the 1990s haven’t been the best of times in the
rare-coin market. They’ve certainly been a letdown after the
fast and furious 1980s.

Sound judgment and prudent planning can minimize the
downside of this decade gap, however, and help pave the way
for much brighter tomorrows once the marketplace–and you–
bridge that yawning gap and reach the other side of the great
divide.