PRICING: THE NEW CORNERSTONE OF CONSUMER PROTECTION

By SCOTT A. TRAVERS

COPYRIGHT © 1994, 2003 BY SCOTT A. TRAVERS ALL RIGHTS RESERVED.

In reviewing the new edition of my mass-market Dell paperback book, The Insider’s Guide to U.S. Coin Values, COINage magazine Senior Editor Ed Reiter likened its listings to a popular television game show. “Here, as on TV,” he said, “the price is right.”

The Price Is Right is more than just the name of a long-running TV game show. It’s also the name of the game in the rare coin marketplace today.

Pricing–fair, honest, accurate pricing–is the cornerstone of consumer protection for those who purchase coins in the current market.

At first glance, this may seem self-evident: The key to getting good value is making sure you don’t overpay. In years gone by, however, coin buyers’ biggest concern wasn’t pricing as such, but rather authentication and, more recently, grading.

In the early 1970s, counterfeit and altered coins posed very real threats; a wave of such material had poured into the marketplace, undermining consumer confidence and jeopardizing the stability of the market and even the very future of the hobby.

The American Numismatic Association responded to this threat in 1972 by establishing the ANA Certification Service (ANACS) to determine the authenticity of coins that were submitted for its review. As the decade wore on, it also sponsored well-attended counterfeit detection seminars, initially conducted by crusading ANA President Virgil Hancock.

Within a few years, counterfeit and altered coins subsided as burning issues–only to be replaced by a new overriding concern: the scourge of overgrading. Again the ANA reacted vigorously, adding grading to the services provided by ANACS in 1979. This calmed the concern for a time; by the mid-1980s, however, grading inconsistencies had caused the smoldering problem to flare up anew.

This time, the response came from the dealer community. In February 1986, a group of coin dealers led by David Hall announced the formation of the Professional Coin Grading Service to combat the grading problem through the use of such innovations as consensus grading and encapsulation of coins in sonically sealed, hard plastic holders. The “slabbing” revolution had arrived.

Shortly afterward, John Albanese broke away from PCGS to establish the Numismatic Guaranty Corporation of America (NGC), and since then these two companies–along with ANACS– have worked diligently to lessen coin buyers’ concerns about grading.

It would be nice to report that coin buyers’ worries are now at an end. Unfortunately, though, the 1990s are witnessing a new kind of assault on the coin market’s integrity and the pocketbooks and purses of those who purchase rare coins. This time, the assault is a frontal one: Instead of defrauding customers by selling them counterfeit or altered coins … or cheating them by overgrading coins, and thus inflating their cost indirectly … at least one unscrupulous dealer brazenly overcharged them simply by pricing very rare coins at a multiple of established market levels.

As a longtime consumer advocate, I have viewed this development with alarm. Indeed, it was this concern that helped me determine the structure for The Insider’s Guide to U.S. Coin Values. Other fine price guides exist–some whose earliest editions date back many years. But none of the other existing books adequately deals with crucial realities of the current coin market.

In The Insider’s Guide, I strive to provide across- the-board listings for rare certified (“slabbed”) coins in high grade levels–the kinds of levels buyers routinely encounter in the marketplace of the Nineties and the kinds of grades to which other annual price guides don’t assign values. For example, try to find values for Mint State- and Proof-63 and 65 Seated Liberty dollars by date in any other annual price guide.

Theoretically, at least, coin consumers don’t need the same degree of education and knowledge today as would have been advisable just a few years ago. They don’t need to be able to tell whether a given coin–let’s say a high-relief Saint-Gaudens $20 gold piece–is counterfeit or real, or whether its condition is mint state or about uncirculated. With certified grading, those ballpark judgments have been made by experts, and the non-expert buyer can have a reasonable degree of confidence in the accuracy and market acceptance of their conclusions.

One thing the general public does need, however, is an accurate price guide. Without it, they still can be ripped off through the simple, straightforward strategem of being charged far more than the coin is worth.

An accurate, readily available price guide is the single most important consumer protection tool in today’s coin market. The educational seminars of years gone by, where collectors learned the basics of counterfeit detection and grading, no longer loom as large as they did before. They still provide useful information, and those who have the time and inclination will benefit from attending them. Similarly, books dealing with these subjects are still well worth reading. But the certification services have removed a good deal of the risk from buying coins, obviating the need for buyers to be as knowledgeable on authentication and grading.

In much the same way, a thorough, readily available annual price guide serves as the surrogate expert on the value of the coins in its listings, allowing the average consumer who has no access to trade periodicals to determine ballpark values for very rare certified coins.

A number of different elements come into play in determining the value of a coin, and also in compiling a coin price guide. I drew upon all of these in formulating “The Insider’s Guide.”

Appraising–or pricing–a coin takes knowledge and skill, of course, but it also involves a degree of intuition. Experts develop this by trading coins extensively for long periods of time.

The value of a coin is determined by the interrelationship of three basic factors: the grade, the supply and the demand. The higher the grade, the lower the supply and the higher the demand, the greater the value.

“Grade” refers to the coin’s level of preservation: how many nicks or scratches or other flaws it has. Coins are graded on a scale of 1 to 70, with higher numbers signifying higher grades. The 1-to-70 scale is the numismatist’s shorthand way of referring to coins.

Supply is the number of specimens available. Among the most important reflections of supply in the current marketplace are the population and census reports issued by the leading grading services. PCGS and NGC issue these reports on a regular basis, and they indicate how many coins have been certified in the various grade levels by the service in question.

These reports are very helpful, but they’re also less than perfect, because they fail to measure the effect of resubmissions. Often, dealers will send the same coin to a grading service over and over in hopes of receiving a higher grade. If the same coin is submitted 20 times, the population or census report will indicate that 20 different coins have been graded, not that just one coin was graded 20 times, unless the submitter is conscientious enough to return the holder inserts to the grading service.

Demand refers to the number of people who desire a particular type of coin. A coin may have a mintage of only 1,000, but if there are just 500 people who want it, its value may not be especially high. On the other hand, a coin with a mintage of nearly 500,000–the 1909-S VDB Lincoln cent, for example–may have a million people pursuing it, and therefore may command a substantial premium.

Compiling a yearly price guide requires good insight into current market trends as well as strong forecasting skills. Consider the case of the 1881-S Morgan dollar. Since 1989, we’ve seen lessening demand for this particular coin in Mint State-65 condition. At the same time, the supply has actually increased because more specimens have been graded by the certification services. Thus, when I put together The Insider’s Guide to U.S. Coin Values (Dell, yearly, $6.99), I priced this coin conservatively, reasoning that the trends and future expectations both were bearish.

Assigning accurate values to common-date gold coins is particularly difficult months in advance, since these are tied to gold bullion prices, which can be highly variable. It’s hard to predict what gold is going to do even day to day–so figuring what it it may do from one year to the next, and coming up with reasonable fair-market values, is very difficult.

For accurate price information on a week-to-week basis, I highly recommend The Certified Coin Dealer Newsletter, a weekly listing published in Torrance, California.

For general information on how coins are bought and sold, as well as ballpark figures on the values of rare coins, The Insider’s Guide is extremely helpful–and it really is invaluable for investors buying high-grade, high- priced coins: It’s the only annual price guide currently available that’s singlehandedly authored by a full-time dealer.

How important is pricing to coin consumers today? We got dramatic evidence some years ago in a court case where the U.S. Department of Justice and U.S. Attorney brought suit against a coin dealer for allegedly engaging in fraud by grossly overpricing coins represented to be a good investment.

That dealer’s trial revealed many instances where coins graded by his firm had been overpriced astronomically. But if the consumers who bought these coins had simply purchased a price guide–right off the shelf at their local bookstore–for $5 and looked at the prices, they might never have been victimized.

It appears that all or most of the coins sold by that coin dealer had been certified by either NGC or PCGS. The fraud alleged by the government was based on overpricing.

In one case, for example, testimony showed that in July 1990, that dealer sold an 1894-O Morgan dollar graded Mint State-65 for $209,200. NGC founder John Albanese, who appeared as an expert witness for the government, testified that at the time of that sale, the coin’s fair market value was $40,000–less than 20 percent of what the dealer charged.

In December 1990, the dealer advised his client that the coin had increased in value to $607,200. Albanese testified that on the contrary, the coin had actually gone down in value in the interim and was then worth just $30,000.

Here’s another example: In August 1990, that dealer sold an 1890-CC Morgan dollar graded Mint State-65 with a tail bar imperfection for $203,150. Albanese estimated that at the time of that sale, its value was a mere $11,000. In December 1990, the dealer told the client the coin was worth $289,310. Albanese’s appraisal for December 1990: $6,000.

Price guides are clearly becoming the new cornerstone of consumer protection. Consumers who are willing to go out and spend $5 on a good price guide can prevent this type of fraud from happening to them.

Let’s take a look at one more example from the trial: In July 1988, that dealer sold an 1889 Morgan dollar graded Mint State-65 Deep Mirror Prooflike for $39,440–and in September 1991, he told his client the coin had nearly doubled in value, to $78,000. Albanese placed the value of this coin at $3,500 in July ’88 and $4,000 in September ’91. Again, the overpricing was enormous. And again, it could have been detected readily by checking a price guide.

It’s helpful to understand what kind of people buy rare coins. I know it was helpful to me in compiling the prices for The Insider’s Guide to U.S. Coin Values.

The rare coin market is really a spectrum made up of different kinds of buyers. Let’s put the collector on the lefthand side of this spectrum and the investor on the right.

The collector tends to buy coins by date and mint mark, type coins, coins which are unique and coins in unusually high levels of preservation. Traditionally, the investor has bought coins which are fungible and generic–and we can often predict with some degree of precision what the investor climate is going to be like for such coins. It’s more difficult to forecast the collector marketplace. High-grade type coins tend to be collector/investor coins, pursued by both collectors and investors.

When you go to sell your coins, there are several kinds of offers you may receive. I discuss these in The Insider’s Guide:

The lowball offer: You show a dealer a coin with a market value of $5,000 and the dealer offers you 300 bucks.

The fair-market wholesale offer. This is the price at which a coin would trade between two reasonably intelligent and knowledgeable professionals, both of whom are under no compulsion or compunction to consummate the transaction. This is generally the price a coin would bring on the dealer-to- dealer level at a coin convention or coin show.

Fair market value. This is the price at which a coin would change hands between two intelligent people, both of whom have no compulsion or compunction to consummate the transaction. They wouldn’t necessarily be professionals. “Fair market value” would normally apply when a dealer sells a coin to a client who is knowledgeable about the marketplace.

In determining the prices for The Insider’s Guide, I pay careful attention to several different economic variables which affect the rare-coin marketplace. Let’s take a look at some of these:

Inflation. Domestic monetary inflating has a very positive impact on the value of rare coins; coins have always been perceived as inflationary hedges. Back in 1979 and 1980, when inflation was rampant, people rushed to tangible assets and rushed to get their money out of paper investments. So inflation is a plus. If people perceive inflation, or even anticipate inflation, rare coins will increase in value.

Deflation. This is a negative factor. When real goods fall in value and monetary deflating takes place, rare coins will decrease in value. Deflation is often associated with depression or steep recession.

Increasing personal net worth. This is a plus for coin values. People feel good when the value of their home goes up from three-quarters of a million dollars to a million dollars–or even from $200,000 to $250,000. It make them more willing to spend $25,000 or $50,000–or even $1,000–for a little metallic trinket.

Decreasing net worth. This is bad for coin values. If a couple’s home drops in value from $250,000 to $200,000 and one of the spouses loses his or her job, then buying $25,000 or $5,000 or even $100 worth of rare coins is totally out of the question.

A strong bullion market. Increases in the prices of gold and silver bullion are very helpful to coins. Coin dealers often make money speculating in the bullion market, and they put those profits back into coins.

A weak bullion market. This, of course, is bad for the coin market.

Economic prosperity in general is very good for coins. Recession or depression is very bad for coins. But an economic catastrophe can actually be good for coins. In an outright catastrophe, with panic in the streets and the prospect that money won’t be worth anything, coins can be propelled into the stratosphere.

In evaluating coins, you need to understand that coins are graded on a continuum and, for the most part, the values in my book are for coins in the center of the continuum.

Coins don’t always fall into neat, compartmentalized grades. Experts know this from handling such high volumes of coins on a regular basis. They understand that even for coins of the same type, the same date and generally the same grade, values can vary considerably.

Thus, at a coin show, experts may segregate large numbers of generic, fungible coins of the same type into piles of somewhat varying prices, even though they’re all in essentially the same basic grade. If an expert has 1,000 Saint-Gaudens double eagles, for example, he may divide them up into separate piles arranged according to price, rather than grade: one pile of coins priced at $385, another pile with $400 coins, and other piles with coins priced at $425, $450 and $475.

The lesson here is that even though two coins might be graded the same way by a grading service, that doesn’t mean they have the same value.

Here are a few tips to keep in mind when you’re considering two coins side by side that have the same grade:

Look at the strike. Is it strong, or is it weak?

Look at the eye appeal, and use your common sense: Is the coin pretty or is it ugly?

Look at the luster–the way in which the coin reflects light when you hold it under a pinpoint light source.

Look at the toning. Has it been artificially toned?

Look at the surfaces. If the coin has questionable toning, try to look under the surfaces to see if there are any scratches or if the coin is damaged in any way. A lot of people are thrown off by toning and don’t look at the scratches underneath.

Environmental damage also can be a serious detriment to the value of a coin–not only because it’s unattractive now, but because this kind of “skin cancer” can actually eat into the surface of the coin later if the coin isn’t properly neutralized.

So there you have it–a brief review of what determines the value of a coin and how an accurate price guide can save you from extremely costly mistakes.

Pricing is a key to getting good value today, and with the proliferation of price guides, I would hope that we will see no further frauds–or at least fewer frauds–like the one that was perpetrated on unwary clients by the coin dealer described earlier.

That dealer, by the way, was convicted on 11 counts of mail fraud, four counts of interstate transportation of stolen property and three counts of wire fraud. He was sentenced to a prison term of 76 months.

ANALYZING COLLECTORS BY TYPE

A Look at the People Composition of the U.S. Coin Market

By SCOTT A. TRAVERS

COPYRIGHT © 2002, 2003 BY SCOTT A. TRAVERS
ALL RIGHTS RESERVED.

We are all seeing growing numbers of our clients collecting coins by “type” – buying just one exceptional coin from us to represent an entire series, rather than acquiring one example for every date and mint within the series.

Collectors, like coins, come in types. And the better we understand the differences in these types, the more we will appreciate what makes the coin market tick. That, in turn, will enhance our ability to nurture, grow and expand our marketplace.

How many people collect U.S. coins? There’s no way of knowing for sure, but the answer clearly depends on how you define “collect” – and “collector.”

The United States Mint has estimated that 120 million Americans are looking for, and setting aside, the 50 States Quarters – the special Washington quarters with reverse designs honoring the 50 states of the Union. Are all of these people collectors? Certainly not. They can’t be dismissed as irrelevant, though, for many of them are purchasing peripheral hobby items in connection with the quarters – and some of them have gone on (or will go on) to be avid, full-fledged collectors of coins beyond this series.

Indeed, this huge pool of potential recruits is all but sure to expand our hobby’s ranks in years to come, just from a statistical standpoint: Even if only one-half of 1 percent end up collecting coins on a regular basis, that translates into more than half a million dedicated hobbyists we probably wouldn’t have had without the statehood quarters. Best of all, many of them are youngsters – and in their case, the benefits will last for generations.

Just who are the people who buy and sell coins? What are the components of our marketplace?

It’s difficult to compartmentalize the buyers and sellers in our industry. Buyers and sellers of coins, like coins themselves, resemble snowflakes: Each one is different. Some general observations can be made on the subject, however.

I talk to thousands of people every year and get – and read – hundreds of e-mails, and based on my contacts with the public, I would divide most buyers and sellers of coins into four primary categories: mass-market accumulators, casual collectors, mainstream collectors and serious collectors.

Let’s examine these groups one by one.

Mass-market accumulators – all 120 million of them – come from all walks of life and socioeconomic levels. They collect America’s state quarters and they write e-mails asking about their two-headed nickels (doctored coins with “heads” on both sides). They’re intrigued by the possibility of finding 1943 “copper” cents in their pocket change. They buy mass-market books, but they don’t buy albums or specialized, sophisticated books – the kind you’re likely to find only in a coin dealer’s shop.

Some dealers have little patience with mass-market accumulators, disdaining them as “tire-kickers” – browsers, not customers – when they turn up at coin shows from time to time. But this is a misguided attitude. As an industry, we need to reach out to this group. This avenue is not just a one-way street. On the contrary, it’s Main Street U.S.A.

I feel a personal bond with Main Street collectors, for over the years many thousands of my books have been sold to mass-market accumulators. And though I agree that the vast majority never advance beyond the entry foyer of the coin market, I can attest from firsthand experience that some walk in and make themselves right at home. Precisely because these accumulators do come from all walks of life, and all socioeconomic levels, a fair number do become casual collectors – and every now and then, one of them becomes a mainstream collector or even a serious collector spending millions of dollars on coins.

We need to encourage these numismatic novices, rather than drive them away through indifference or downright hostility. True, we may spend lots of time answering their questions and then see them spend little or no money buying our coins. But it would be wrong to conclude on this basis that these people are just more trouble than they’re worth. On the contrary, we should look at this as a chance to plant seeds for future growth. Not every seed will take root, but the more seeds we plant, the bigger the harvest will be. And if we don’t act now, while the statehood quarter program is giving us such fertile ground in which to plant those seeds, we may find ourselves later with a disappointing crop and much more barren soil.

Casual collectors are fewer and farther between than mass-market accumulators, but they are hardly rare – or even very scarce. I estimate there are several million casual collectors in the United States. Many of them buy proof sets and other numismatic products each year from the United States Mint. Some pick up a copy of COINage magazine at the newsstand whenever it catches their eye. On occasion, they may even drop in at a coin shop, if there is one near where they live.

Casual collectors may attend coin shows, and during their walks around the bourse floor they may spend a few hundred dollars on circulated coins to plug the holes in their Lincoln cent or “Mercury” dime or Washington quarter albums. They also may make purchases at online coin sites, and may even buy a certified coin or two. For the most part, however, casual collectors haven’t taken time to gain an in-depth education about coins, either through reading books or from practical experience, and this inhibits their growth within the hobby. They don’t really have a game plan and don’t possess the tools they need to get the most out of coins.

This is the breed of collector that keeps the U.S. Mint’s proof set program afloat. Like many dealers, I have had numerous visits from casual collectors lugging an accumulation of 20 or 30 years’ worth of proof and mint sets, possibly along with bags of “junk” numismatic silver. Inevitably, their expectations far exceed the actual value of their holdings.

A little knowledge is a dangerous thing, as Alexander Pope once observed, and casual collectors illustrate his point. They know how to buy coins, but not always what, when, where or why to buy, since their knowledge isn’t usually accompanied by wisdom. Still, they play a significant role in stimulating wider interest in the hobby – and broader activity in the marketplace – through their ongoing involvement and enthusiasm.

Mainstream collectors may have started out as casual collectors, but they have gone to school and graduated with honors to the next collecting level – and that next step is a big one. It’s the one that separates window-shoppers and browsers from serious buyers and sellers in our marketplace. Education is the master key that opens the door to this more exclusive inner sanctum.

There are perhaps several hundred thousand mainstream collectors. Some of them subscribe to Coin World or Numismatic News. Some surf the Internet, or get catalogs from mainstream auction companies such as Stack’s, Heritage and Auctions by Bowers and Merena. Some of them belong to the American Numismatic Association. Mainstream collectors may spend only a few thousand dollars a year, but they understand what they’re buying and make educated purchases. And this, combined with their formidable numbers, makes them a group to be reckoned with.

Coin World lists its current circulation at just over 89,000, while Numismatic News has its figure listed at 32,000. Those numbers consist in large measure of mainstream collectors. Their regular, ongoing purchases of coins from mail-order dealers go a long way toward making these weekly coin newspapers successful – and, for that matter, possible at all. COINage and Coins magazine, the leading monthly coin magazines, depend more heavily upon newsstand sales, so their readers include a higher proportion of casual collectors. Latest available circulation figures are 100,000 for COINage and 71,460 for Coins.

By comparison, Guns & Ammo, the No. 1 newsstand magazine for gun enthusiasts, reports a monthly circulation of 607,971, followed by Shooting Times at 285,059 and Handguns at 157,016. Both of those publications also are monthly magazines. Clearly, more Americans are interested in guns than in collectible coins – but given the frequent references to how “powerful” the gun lobby is, coin collectors constitute a force to be reckoned with, too, based upon the sales of their leading periodicals, which really don’t trail the gun magazines’ figures by an inordinate amount. And much of that power is wielded by mainstream collectors.

Gun owners’ clout is reflected much more dramatically in the membership of the National Rifle Association. Latest figures show that American Rifleman, the NRA’s official monthly journal, which goes to all members, has a circulation of 1,244,714. By contrast, Numismatist, official journal of the ANA, lists its monthly distribution at a drastically smaller 30,000.

(These circulation numbers are from Bacon’s 2001 Magazine Directory, and numismatic publicist Donn Pearlman, president of Chicago-based Minkus & Pearlman, assisted in analyzing them.)

Serious collectors stand out from mainstream collectors because of the money they spend and, in some cases, the intensity of their obsession with rare coins. There may be only a few thousand people in this group, but their impact on the marketplace is exponentially higher than their numbers might suggest.

Serious collectors have what longtime dealer and astute market observer Julian Leidman calls a “project mentality.” And since money plays such a major role in making them serious collectors, many of the people in this category may be famous, successful celebrities in other walks of life. Few of them seek renown, though, as collectors: Most are extremely circumspect about their coin endeavors, keeping them secret from all but the dealers with whom they conduct their business. One client of mine, a major motion-picture mogul in Beverly Hills, won’t even talk to me on his cell phone or cordless phone. He’s afraid he’ll be overheard.

Serious collectors often have exceptional mental capacity, extraordinary ability to concentrate and unparalleled drive to complete the task at hand, even if it takes decades. They may have used this drive to run for public office on the national scene or build a real estate empire or achieve a position of power in the financial world. Applying it to coins, they use the same drive to complete their collections.

In almost all cases, serious collectors assemble their collections on their own – flying solo, so to speak. They speak to dealers, of course, and they may attend shows and auctions. But in the final analysis, their collecting activities are theirs and theirs alone. There are a few husband-and-wife collecting teams, but these are exceptions. Typically, the serious collector hunts for rare coins as a lone wolf – with passion but with privacy, away from the spotlight that all too often intrudes upon him or her in other pursuits. Coin collecting is an intensely private activity for many otherwise very public people; indeed, it is a way for them to escape that intrusive spotlight.

Almost without exception, when serious collectors reach their hobby goal, they’re ready to set their coins aside and pursue another endeavor. The highest-quality U.S. type set I’ve ever seen or handled, the Morgan Supergrade Collection, was sold by my client, Dr. Craig Morgan, soon after he completed the set. Forming this collection was a labor of love for Dr. Morgan; it took him years and years to obtain the coins. You would think that after completing it, he would have kept it for a while and enjoyed it. It was a dream that came true. But not in Dr. Morgan’s eyes: Mission accomplished, end of dream. Dream come true, time for another dream.

My admiration for serious collectors doesn’t diminish my appreciation, on a different level, for mainstream collectors. They play a vital role in keeping the coin market healthy through the day-in, day-out transactions in which they buy and sell meat-and-potatoes collectibles. Realistically, however, most mainstream collectors can’t possibly compete for the rarest and costliest coins with wealthy buyers who complement great passion with deep pockets. You can’t afford gem proof Lib $20s on a shoestring.

Over the last quarter-century, some in our hobby have come to regard “investor” as a dirty word. In the late 1980s especially, numismatic purists deplored the entry of Wall Street money into the coin market, complaining that investors with little knowledge of coins were driving up prices unreasonably and, in the process, driving out true collectors with limited budgets.

The image of well-heeled “barbarians” invading the rare coin marketplace may have had a modicum of validity at one time, but it certainly doesn’t reflect the serious collectors – yes, I said collectors – with whom I have done business in recent years. These clients may have had limited knowledge of coins when they first began acquiring them, but they soon overcame any deficiencies by reading voraciously, consulting and working closely with numismatic experts, analyzing the marketplace and then pursuing goals based on knowledge that would be the envy of the most advanced collector.

It’s a gross misconception that just because someone spends a great deal of money on coins, that person must be an investor, not a collector. This simply isn’t true. The affluent clients with whom I deal today, and with whom I have dealt in the past, place low – or no – priority on profit appreciation. They have a project mentality; they’re goal-oriented. They do it for the history. They do it for the fun. And they really don’t care if they make or lose money in the process.

Unfortunately, there’s still a great deal of animosity between haves and have-nots in this field. A lot of the have-nots are running around calling the haves “investors” and implying that they should be ostracized for this supposed infraction. On the contrary, serious collectors – with serious budgets to match – are an indispensable part of the current coin marketplace, helping to invigorate the high end of the market while other collector types keep the foundation firm and the lower levels bustling with activity.

As the saying toes, it takes all types.

Statehood quarter enthusiasts … Lincoln cent collectors … Morgan dollar specialists … proof gold aficionados – all play essential parts in making the U.S. coin market the busy, diverse, exciting place it is. All of them are integral components of the marketplace’s mosaic.

How fortunate for our marketplace that its type set of collectors is complete!

THE ART AND SCIENCE OF NEGOTIATING

By SCOTT A. TRAVERS

Let’s Make a Deal was a popular TV game show for many years. Host Monty Hall gave crazily costumed contestants a chance to exchange boxes for what was behind a curtain, or curtains for the contents of their boxes. Some ended up with prizes worth thousands of dollars, others with gag gifts worth a good laugh but not much more.

Coin buyers and sellers are constantly making deals. Some end up doing very well for themselves, while others learn later that the joke was on them. Unlike the contestants on Let’s Make a Deal, however, those who negotiate deals involving coins don’t have to operate strictly by guesswork. They can arm themselves with facts, figures, insights and common sense and emerge from just about any deal with at least fair value – and perhaps a good deal more.

Negotiating is both an art and a science.

It’s an art because it requires the use of your sixth sense – your intuitive feel for people – and this cannot be quantified. It’s a science because there are rules that can be quantified and defined.

Deal-making is second nature for professional numismatists. “Deal,” after all, represents two-thirds of the word “dealer.” You don’t have to be a dealer, though, to grasp and even master the art (and science) of deal-making.

At the outset, it’s important to understand some conditions that are peculiar, if not unique, to the rare-coin marketplace.

First, the circle of dealers with whom you will do business is relatively small and frequently intertwined, and many dealers have long careers and also long memories. This places a greater-than-usual premium on maintaining good relationships all around. It would be foolish to risk alienating a dealer permanently, and unnecessarily, for some trivial gain obtained through subterfuge. The dealer you bluff today for a $100 discount on a $1,600 coin may convey this information to someone you will desperately need, a year or two from now, as an ally in a six-figure transaction. Similarly, the vest-pocket dealer you snub at a show may hold that against you – and still be around to do so 10 years later. The moral is: Tread carefully.

Second, coin transactions can be subtle, even tricky, and often may require not only good information and a high degree of intelligence, but also lots of moxie – what some describe as “street smarts.”

My firm doesn’t maintain an inventory; my stock in trade is connections, not coins, along with my ability to negotiate deals. Over the past quarter-century, I’ve been engaged as a deal-maker by some of the most renowned captains of industry – from bankers to computer experts to government agencies and law firms. It truly amazes me that some of these people – people who routinely handle deka-million-dollar transactions – are babes in the woods when it comes to our street-smart industry.

The chief executive of one of the nation’s largest stock-brokerage firms hired me on an hourly-fee basis to walk him through the process of obtaining a $50,000 refund from a Long Island telemarketer – on coins whose return privilege had not yet even expired. He had me prepare a script and sit with him while he spoke on the phone to a company representative, asking for his money back. He got his refund – as well as an education about buying rare coins.

To maximize your return when buying, selling or trading rare coins, you need to develop self-confidence and become an astute deal-maker.

I’ve prepared a list of tips gleaned from my nearly 25 years of hands-on experience dealing in coins worth millions of dollars. Master these and you will be in position to make the best possible deal every single time.

Know the value of every coin you hope to buy or sell, or the value of the services for which you are negotiating. Buying or selling a coin without knowing its current market value is like navigating a plane without a compass. I know of one dealer who wrote a book in which he advised readers to start out by offering half of what a dealer was asking for any given coin. Suppose the dealer was asking $5,000 but the coin was really worth only $1,000: It would be foolish to open negotiations by offering $2,500. Similarly, if you are negotiating an auction contract, you should prepare some careful projections of the auction company’s costs. When I negotiate an auction contract, I’m intimately familiar with what it is costing the auction firm to conduct the sale – preparation of the catalog, labor, insurance, the staging of the sale at a hotel or convention site, and other expenses. Let the auction company make a profit; give it an incentive to obtain high prices for your coins. But don’t overpay unnecessarily.

Let your adversary make a living. Being a coin dealer is often a tough job. It’s demanding and expensive to maintain and transport an inventory of valuable coins from city to city, show to show, sale to sale. Respect the time and effort a dealer has spent preparing for a negotiating session with you, and strive for an outcome that’s fair to both of you. Remember what I said earlier about the low level of turnover in this field. It isn’t in your best interest to squeeze the other guy for a few extra tenths of a percent on your profit margin – not if you’re planning to do business again with that dealer or others with whom he converses.

Master the use of your emotions. With coins as with cards, a poker face will help you come out ahead; it keeps other people guessing about your intentions. No matter how badly you want to buy or sell a particular coin, try to appear composed and unemotional. Keep in mind, however, that every now and then, judicious use of the right emotional reaction at an appropriate time can clinch a deal for you.

Never bluff, and never lie. Bluffing and lying will always get you into trouble, damaging or destroying your credibility for future dealings. They might even ruin your chances of making the deal that’s at hand. Mean what you say and say what you mean. Let me assure you, if I make an offer to buy a coin and say that a certain number is my “last and final offer,” I won’t move up from that number by even one red cent. I would rather walk away from the deal – and I have! – than go back on my word.

Let the other party make the first offer. Deal-making is one situation where, quite often, it doesn’t pay to go first. There’s always a chance that the other person will offer to sell you a coin for substantially less than what you expect, or offer to buy a coin from you for substantially more than you would have asked. If you do have to go first, start very low in making an offer to buy. You can always come up, but you rarely can go down.

Simplify the issues. “Keep it simple, stupid” is rather good advice when it comes to making deals involving rare coins. Variables tend to slow down negotiations. Boil down your discussions to a single issue or number, or at most a very few. Otherwise, you may never reach an agreement. In one recent dispute on which I served as an adviser, the other side came in with a complicated set of proposals under which some coins would be traded, others would be sold, and still others would be bought back. In all, there were 33 variables. I advised the lawyer representing the side that retained me to ask the adversary to buy back virtually all of the coins at one specific number.

Never make an offer you’re uncertain about, and never withdraw an offer once you make it. In buying or selling rare coins, your word is your bond. You must be careful never to vacillate or dither after you make an offer. You’ll infuriate the person with whom you’re making the deal and possibly kill any chance of future deals.

Go to the top. Pick the person with whom you want to deal, and be certain it’s someone who has the needed authority – someone who can say “Yes” without getting somebody else’s permission. In many cases, this eliminates the middleman or the middle-woman. This, in turn, often eliminates unnecessary fees. It also averts the good-cop, bad-cop tactics which many coin companies like to use when working out a deal.

Find out who really owns the coin. Many coin dealers do business routinely among themselves and handle coins on “memo” from other dealers. For this reason, it’s important to negotiate with a coin’s true owner. To gain this information, you need to be very active and astute at coin shows – be “in the loop,” so to speak. But it’s worth it. Why pay Dealer X’s bottom-line price of $12,000 when Dealer Y really owns the coin and will sell it to you for only $8,000.

When making an offer, count out the money or write out a check on the spot. Being offered cash or a check on the barrel head can be very persuasive to someone selling a coin. Say a dealer is asking $2,000 for a coin and you’ve offered $1,600. Chances are, he might suggest splitting the difference. But if you pull out your checkbook and write a check for $1,600, he may simply say, “OK, I’ll take it,” saving you $200.

Always assume the position of power. Simply stated, this means giving yourself every psychological edge. When sitting down with someone to negotiate a deal, always try to get the most dominating seat. In order to look businesslike; wear a suit and tie. Above all, never let yourself be vulnerable; always strive to be in command. At coin shows, in an effort to level the playing field, I often go behind the other dealer’s table and discuss any pending transactions back there, where we are on an equal footing. Some shows don’t allow this, so if you intend to engage in this practice, check beforehand to make sure it isn’t a violation – especially if you don’t have a table of your own at a given show. But many conventions permit this, especially if you have a table there. Ideally, try to appear in charge when you’re working on a deal – but if that isn’t possible, at least try to level the playing field.

Be flexible and be ready to change the conditions of the deal on the spot. Sometimes a deal may seem hopelessly deadlocked. Rather than lose it entirely, be prepared to improvise and modify the structure in order to save it. Suppose you’re unwilling to pay more than $400 for a coin, but the dealer insists on getting $500. Look in his inventory for something else on which you can make up the difference – possibly a $600 generic gold coin you can sell elsewhere for $700. By adding that to the deal, you can still come out just the way you wanted. Similarly, if you’re negotiating an auction contract and the auction company won’t go any lower on its commission, you might ask the firm instead to guarantee you a photograph of that coin in the catalog. Or, if a large transaction is involved, such as the consignment of an entire collection, you might seek assurance that the auction company will do something extra to help promote it – something which might be very helpful to you in getting higher prices realized, but which would cost the company very little more, such as generating a special press release about the collection or perhaps displaying the collection at a show before the auction takes place.

Make the other person feel that it’s in his or her best interest to make the deal. Convince the other party that you, and only you, are the right person for this particular deal – that it’s an advantage selling the coins to you, rather than any other prospective buyer.

Don’t take things personally. This rule is last, but certainly not least. If a dealer rejects your offer or counter-offer, don’t go away mad. View negotiating as a game, even though the money involved is real. Keep a positive, enthusiastic outlook and leave the door open. He or she may even reconsider and make the deal with you after all.

COPYRIGHT © 2001, 2003, 2009 BY SCOTT A. TRAVERS
ALL RIGHTS RESERVED.