My Foray Into Coin Collecting as an Investment

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Yesterday was a first for me. I purchased eight silver Morgan dollars from a local rare coin dealer. The purchase represented my first step into coin collecting for both fun and profit.

Part of my numismatic adventure was motivated by the joy of coin collecting. I was first introduced to coins by my grandmother years ago. While I’ve never owned many coins or anything of significant value, I do enjoy studying the history of coins.

But it’s also about the potential profit. As I continue to manage our investments, I’m constantly looking for ways to diversify. Our stocks and bonds are well diversified. We own some real estate (four investment properties). And I own many websites that generate a nice income. While I don’t see owning more than about 5% of our investments in precious metals, I do see rare coins as an effective way to further diversify our holdings.

So today I thought I’d share some things I’ve learned as I start investing in rare coins. I’m by no means an expert on the subject, but I’ve done a lot of research and talked to a number of experts in the field. Here’s what I’ve learned.

Grading System

A grading system is used in an effort to bring consistency to the evaluation of rare coins. There are several services that grade coins. The leading services include Professional Coin Grading Service (PCGS), Numismatic Guaranty Corporation (NGC) and ANACS. Not only do these companies grade coins, but their websites offer some excellent information for those just getting started.

While there are some variations among the grading services, the basic U.S. grading scale (called the Sheldon Scale of Coin Grading) is as follows:

Poor-1 or P-1 (Poor)
Fair-2 or FR-2 (Fair)
AG-3 (About Good)
G-4 (Good)
G-6 (Good-plus)
VG-8 (Very Good)
F-12 (Fine)
VF-20 (Very Fine)
VF-30 (Good Very Fine)
EF-40 (Extremely Fine)
XF-45 (Choice Extremely Fine)
AU-50 (About Uncirculated)
AU-55 (Good About Uncirculated)
AU-58 (Choice About Uncirculated)
MS-60 thru MS-70 (Mint State, also called uncirculated)

There are also grades for proof coins. You’ll find a very helpful description of each grade here.

From my perspective, the grading system serves two important functions. First, it is the best available way to compare the quality of coins. It shouldn’t replace your own close inspection of a coin you are considering buying, but it’s a start. And second, and very much related to the first, it facilitates the valuation, purchase, and sale of coins. Many coins shops will quote a buy price based solely on the grade, without seeing the coin.

Valuation

The grading scale leads me to the second thing I’ve learned about coins–valuation. Each month a report is produced called the Grey Sheet that lists wholesale values of U.S. coins. It’s an excellent starting point on understanding current values. The Official Red Book also lists coin values, and I’ve found it to be a helpful resource for understanding the history behind the coins, too.

Here it’s important to remember that the grade of a coin is just part of the valuation equation. A very significant factor is how rare the coin us. Let’s look at an example.

There are plenty of Morgan silver dollars from the late 1800s with a grade of say MS-64 that can be purchased for less than $100. Yesterday I purchased a 1882-S MS-64 for $60. In contrast, an MS-60 1893-S Morgan silver dollar will run you almost $100,000. No, I didn’t pick one of those up (yet!). But you can see an online auction for just such a coin at Heritage Auctions. The same coin in an MS-64 grade is currently listed at $300,000!

Do Your Homework

There is a lot to learn about coins. Even focusing on just Morgan silver dollars, I’ve learned a ton about their history and valuation. An excellent resource is A Guide Book of Morgan Silver Dollars by David Bowers. The book not only gives a detailed description of every year and mint, but it also gives some excellent advice on how to approaching the collecting of Morgan dollars.

Of course, the world of rare coins is vast. I’m just focusing on Morgans because (1) I’ve always liked them, and (2) I had to start somewhere. I’m thinking gold double eagles will be next on my list.

Where to Buy Coins

This are a lot of ways to approach the search for rare coins. Here’s my take on several of them:

Coin Stores: You’ll find coin dealers in just about every major metropolitan area. What you won’t necessarily find are coin shops with a great selection. Still, I think it’s helpful to develop a good relationship with your local coin dealer. They can be a wonderful source of information and help you find coins you are looking for. And it’s just fun going to coin stores. I would, however, make sure any coin dealer you buy from is a member of the Professional Numismatists Guild (PNG).

Coin Shows: I have yet to attend a coin show, but this is high on my list. For the larger shows, you’ll have access to a lot of buying options all in one place. And they are lots of fun.

Online: There are three basic options here. First, you can buy from coin dealers online. Second, you can buy from sites such as eBay and Craigslist. And finally, you can buy from Heritage Auction, a well regarded auction house. I’ve purchased one coin from Heritage, but it hasn’t arrived yet. But the process was very easy. One thing I’ll add is that Heritage has a wealth of information on its site about past auctions, which can be very helpful in assessing the value of a coin.

Hunting for Coins: Whether it’s going to garage sales, estate sales, or even using a metal detector in a stream, there are a lot of ways to hunt for rare coins. This seems to me to be the fun part of collecting. The rewards are potentially very nice, but this approach is also very time-consuming.

Strategy

I’ll end with one last thought. I’m approaching coin collecting with a strategy. I’ve selected a specific coin type to collect first (Morgan silver dollars). And with the help of some of the books I’ve mentioned above, I’ve selected the grade I want to acquire of every year and mint. In other words, I’m not just walking into a store, blindly picking out a handful of coins, and heading home to stuff them in a drawer. What’s the fun of that?

If you are a coin collector, please leave a comment below sharing your experiences.

Published or Updated: July 15, 2012
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Jim Morgan says:

    Thanks for the article!
    Don’t forget Coin World. They have a beautiful monthly mag and weekly circulars that have excellent articles on coins and stamps. Staying on top of the pack means learning the minutiae on rarities and new findings (the 1990s legacy proof set).
    You are spot on for the relationship with a good local dealer. I remember the $15 Liberty nickel that turned out to be a proof (PF64)! Just remember that just like the casino, the store always win in the long run (even if its your wife dragging in the bags and boxes a week after you bite the big one).
    I agree that it is nice to have the full set in say MS64, but after you have been in it a while, you wonder that the dollars you spent on a $60 coin would go a long way toward a coin far more “collectable”…
    Remember the story about the farmer in South Africa that chose to give up his farm to hunt for diamonds?

    • Rob Berger says:

      Jim, thanks for mentioning Coin World. I read it regularly, and it never disappoints!

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