A Companion to Rare Coin Collecting - How to Buy Rare Coins
There are a variety of sources for high quality coins. Some are better than others and each has unique advantages and disadvantages which should be considered in light of your experience in buying coins and your knowledge of the field. Additionally, it is important to realize that in each category discussed there will be some firms or dealers who do not share the typical assets and liabilities normally found in that group. Remember that the points discussed are general statements.
They are more likely to be the case than not, but they are by no means absolutes.
Most cities with a population over 20,000 have at least one coin shop. In smaller cities, they may also carry stamps, guns or other antiques. Here, you can develop a face-to-face relationship with the owner and examine coins without the inconvenience and cost of using the mail. The owner will almost always be willing to discuss rare coins with you, and offer his opinions on a variety of numismatic topics.
Local shops have some drawbacks that make them generally unsuitable for acquiring top quality coins. First, if the owner is "tied down" to the shop, he cannot travel to coin conventions, thereby limiting his familiarity with the current market. Second, local shops are often "collector oriented," and do not typically carry a large stock of high quality coins. Due to financial constraints, the average local dealer cannot afford to stock the type of material sought by many of today's buyers. So, lack of contact with the wholesale market, and a concentration on lower priced coins, often make the local shop a marginal choice, at best, for building a quality portfolio or collection.
In the larger metropolitan areas, some of the major national dealers often operate a retail gallery, allowing viewing of rare coins either by appointment or by walk-in. These cases often allow the establishment of a face-to-face relationship with a knowledgeable numismatist, and the opportunity to view a large number of better quality coins at a leisurely pace. Keep in mind, though, that security is tight in these larger dealerships, so don't feel insulted if you are not immediately given access to large quantities of material. As you become a familiar visitor to the establishment, you'll find many of the restrictions relaxed.
A second alternative is the coin show or convention. These break down into two types: the regional or national show and the local show. Local shows typically involve about 25 to 50 dealers from approximately a 100 mile radius and, in metropolitan areas, are fairly frequent. Most of the dealers who attend own coin shops, or deal in coins only on the weekends. While the supply of coins is naturally greater than you would find in any one shop, the supply of high quality coins is apt to be limited. Also, most of the dealers who have tables or booths at these shows do not attend the major conventions. Consequently, their trading experience is limited often to each other, giving them a somewhat narrow or parochial view of the coin market.
National shows, on the other hand, are generally more hectic, fast paced and oriented to the pros. Here, there will be a large supply of quality material, and prices will be quite competitive. However, the half hour you would like to spend talking with a particular dealer, he would rather spend trading with another dealer. Usually, that would be a vastly more profitable use of his time. Wholesale transactions are the predominant form of business conducted at national conventions, and here the statement that "coin shows are for the dealers" is generally true. Note also, that purchases made at shows usually do not carry a return privilege, and there may be some pressure to make a buying decision in the hurried atmosphere typically found on the bourse floor.
A third major source for investment quality coins is purchasing through mail order. Due to their small size, coins are often sent through the mail, and a majority of coin purchases today are made in this manner. Mail order dealers come in an infinite variety of sizes and types. For the sake of simplicity, dealers may be broken down into a few major groups. Remember, however, that wide differences may exist, even within a group.
The first group, we will call the "full service" dealers. These are usually large organizations that employ twenty or more people, and consist of several separate numismatic divisions. Typically, full service dealers will have an auction subsidiary, bullion and/or investment divisions, separate wholesale and retail sales forces, and possibly even a publishing concern. Such dealers are almost always prominent names in the industry.
In their favor, major dealers offer a wide selection of high quality coins and a variety of customer conveniences. These include deferred payment plans, fast delivery, numismatic catalogs and knowledgeable numismatists on the staff who are equipped to answer questions on a variety of coin related topics. While full service dealers are sometimes criticized for having excessively high overhead, their large volume on both the purchasing and selling side, may actually result in these dealers having a lower overhead per coin than many smaller dealers. In addition, these companies are generally financially stable, and have been in the business for numerous years.
A second group of dealers consists of smaller numismatic concerns that offer choice U.S. coins. While lacking many of the conveniences of the larger companies, these dealers can also be an excellent source for coins. Some investigation should be made, however, to determine the length of time that dealership has been in business and their stability in the industry. One warning is in order: some dealers in this category advertise coins at prices well below those listed in the retail or even the wholesale price guides. While the price guides are not absolutes, they do have a link to reality, and offerings of coins (at retail) priced at less than half of published wholesale guidelines should be approached with great caution. The old adage that "you get what you pay for" rings true, and you may, indeed, get much less.
A third type of mail order seller is a fairly new entry and the least safe to do business with. These are the telemarketing firms that often entice customers with special "portfolio packages" aimed exclusively at a particular market segment (e.g., retirees, high income brackets). These dealers are usually staffed by non-numismatic salespeople who aggressively target a narrow group of coins, usually modern issues with little or no track record for appreciation and sustainable value. Sales techniques differ greatly, but most of them hinge on some kind of announcement of a limited offer or special purchase that's characterized as great opportunity for the "wise" investor. The only wise thing to do with these dealers and their announcements is to avoid them like the plague. Few investment offerings that come unsolicited over the mail or from the phone have any future value whatsoever.
Public auction has long been a popular method of acquiring rare coins. Advantages of buying from auction usually include a known margin (there is usually at least one buyer at 5%-10% under the winning bid), and a large selection of coins which may be examined in detail by the prospective purchaser. The major drawback with auctions, particularly for the novice, is that some numismatic knowledge is needed in order to bid intelligently, and the entire process can be intimidating if you do not have the requisite education. In addition, major public auctions are restricted to a relatively few large metropolitan areas, and travel is often necessary. Agents are available to examine lots and execute bids on your behalf, but there is obviously a fee associated with this service.
In recent years, financial planners have become involved with the sale of rare coins. Like rare coin dealers, there are some financial planners who are better than others. As a rule, the use of a financial planner can be an asset, especially to the novice who is totally unfamiliar with rare coins, and has limited time for learning.
Planners provide a useful screening function, and can be of assistance in determining whether or not the acquisition of coins would be right for you. Also, reputable planners conduct "due diligence" investigations of their product sources. This would hopefully eliminate unscrupulous dealers from consideration. You would also benefit from that planner's experience with suppliers of rare coins, and perhaps be spared any glaring mistakes.
On the downside, some planners may have minimal knowledge of rare coins themselves and must rely on their supplier for tips and information. Planners often receive a commission from the supplier or dealer, which may be in addition to any fees they might charge you. The above considerations, however, should be weighed against the substantial benefits financial planners are able to provide for some buyers.
Avoid the Pitfalls
Due to the complexities and nuances of coin collecting, it
should be clear that the new collector should at least have
a basic understanding of the market characteristics. Make
friends with other collectors or find people who are willing
to show you the pitfalls before you fall into them. If you
have to go it alone, ask questions lots of questions before
you buy. Ask about the numismatic experience of the seller,
how long have they been collecting or have they been in business?
Ask for references. And always wary of guaranteed buy-backs
at fixed appreciation rates, there's likely a hitch someplace.
Finally, if a deal sounds too good to be true, it probably