12 IMPORTANT CONSUMER PROTECTION TIPS
By SCOTT A. TRAVERS
COPYRIGHT © 1987, 2003 BY SCOTT A. TRAVERS
ALL RIGHTS RESERVED.
The quaint coin store of yesteryear has evolved into the
multimillion-dollar rare coin investment firm. Many coins are
no longer bought by the consumer; they are sold by the coin
firm to the consumer.
If you are sold coins, there are a number of precautions
--- besides exercising healthy skepticism --- that you should
heed.
The dozen consumer protection tips presented here are
not meant for the casual coin buyer perusing the web who
might stumble upon a coin or two for a few hundred dollars
that an advertiser has for sale. These precautions are
designed for persons investing large sums of money in coins.
A greater ethical burden rests upon the shoulders of the
coin merchant than on the merchant selling a uniform
commodity. The average consumer, however well read, might
never be able to tell the difference between a coin in Mint
State-64 condition and one in Mint State-65; the dealer is
expected to be honest in telling the coin buyer which is
which.
The single most important precaution is to know your
dealer (thus, it is the most detailed tip presented here).
You can make money in coins even if you don't know coins. But
be absolutely sure you know your dealer.
FIRST PRECAUTION: Deal with reputable dealers.
This used to be a simple caveat for any coin buyer. You
could do business with any dealer who displayed emblems of
membership in various dealer organizations and almost be
assured of a good deal.
Today, however, the coin buyer must apply greater
sophistication in checking out his or her dealer. A call to
the Better Business Bureau is not enough.
A former customer of a large coin firm recently showed
me coins for which he had paid tens of thousands of dollars
to a coin firm accused of false and misleading practices in
trade and in commerce by the Federal Trade Commission. In my
opinion, the coins were worth a mere fraction of the purchase
price.
But, before this buyer dealt with this firm, the Better
Business Bureau, in an answer to his inquiry, wrote:
"Bureau file reports are confined to the past three
years. BBB files show this firm has been cooperative in any
matters brought to its attention and has maintained a
satisfactory business performance record according to our
files.
"The Bureau has no reason to deter anyone from doing
business with this firm.
"[This coin firm] is a member of the BBB and has
demonstrated its support of BBB goals of private business
promoting the public interest through self-regulation."
It certainly would not hurt to get a Better Business
Bureau "Business Referral" (the BBB's own words for the text
quoted) for the dealer you intend to deal with. But you would
be much better off making inquiries to the attorneys-general
in the state in which you live and the state in which the
firm is based (if it is different). If the prospective dealer
checks out with the attorneys-general, contact the Federal
Trade Commission and U.S. States Postal Inspector's Office.
These agencies will not, however, confirm or deny any
ongoing investigation, but they will confirm if a dealer has
already been charged or convicted.
In the New York area, many telemarketers have been
charged with defrauding customers. And, not surprisingly, the
area is home to one of the most active postal inspectors in
the country specializing in rare coin investment schemes.
After you've made these basic inquiries, you should be
certain your dealer has operated under the same corporate
name for a number of years. The question you should ask of
your dealer is not how many years he or she has been in the
coin business, but how many years he or she has operated
under the same corporate name. Some dealers change their
company names every two years, others every two months ---and
some as often as every two weeks.
Try to choose a dealer who has not been convicted of a
felony or found guilty of racketeering in civil court.
The Professional Numismatists Guild (PNG) has strict
membership requirements and polices its members. PNG member
dealers are required to submit to legally binding arbitration if
requested by the consumer.
In all fairness, it would be unreasonable for me to
advise you never to deal with a dealer who ever has declared
bankruptcy. Many of the nation's leading dealers have done it
more than once, and a recent declaration of bankruptcy might
even have a positive aspect: It might mean that the dealer
can't declare it again in the near future.
There are some truly expert coin dealers with otherwise
awesome credentials who would not qualify to be your coin
seller if you follow my advice.
SECOND PRECAUTION: Buy the book or videocassette before
the coin.
You should educate yourself to the ways of the
marketplace. This doesn't mean you're expected to be able to
tell whether a coin is a high-end MS-65 or an MS-66. It does
mean you should learn basic grading techniques, as well as
how the marketplace works.
A number of books will be helpful in your quest for
knowledge, including some of my own.
Many people are more comfortable having information read
to them, with photographs carefully presented. Some excellent coin
videotapes are available from Media Resource Corporation (3100
Arrowwood Lane Boulder, CO 80303-2419).
It makes no sense to invest thousands of dollars in
coins without basic knowledge of grading when you can be
taught grading via videotape for less than $100.
THIRD PRECAUTION: Buy high-quality coins that are scarce
or rare.
Coins which are scarce can become scarcer or rare; coins
which are rare can become rarer. Coins which are common now
will probably remain common in the near future.
Historically, United States coins in high levels of
preservation have been the top performers. Coins touted by
mass marketers as having potential to increase 500 percent in
six months might not increase even 5 percent in six years.
Mass marketers often need large quantities of a coin in order
to fill orders. A mass marketer couldn't possibly promote a
proof Liberty Seated quarter --- which has a mintage of 800
--- when it anticipates 2,000 orders. Thus, less popular
foreign coins are promoted and lower-grade (but very
available) United States coins are hyped.
FOURTH PRECAUTION: Don't shy away from certain scarce
U.S. coins that can be promoted.
There are some coins which have universal appeal to
investors. Morgan dollars and Saint-Gaudens double eagles are
two such types. These coins are scarce enough to be
considered investment items, but common enough to be promoted
or hyped. If you buy these coin types in MS-65 at the market
low, you can make a lot of money in a short period of time.
But, if you buy them at the high (as too many people do), you
can lose a small fortune in just as short a period of time.
If you do buy these coin types that can be promoted, you
not only need to deal with a reputable dealer, you also need
to deal with one who knows coin market trends and who
regularly offers advice on when to sell these coin types.
Further, my personal advice to the investor is to buy only
those Morgan dollars and Saint-Gaudens double eagles which
have had their grade and authenticity confirmed by an
independent certification organization (more about that
later).
You can monitor what's happening with these types of
coins by reading The Coin Dealer Newsletter (Box
11099, Torrance, California 90510), or just by reading
COINage every month. In fact, some months ago, when Morgan
dollars were at their peak and a number of other dealers were
sounding the buy alert, I sounded the sell alert --- in COINage.
The grading of Morgan dollars and Saint-Gaudens double
eagles is very tricky, and I would advise anyone who isn't a
collector to buy these coins only if they have been graded by
one of the leading grading services --- or to send the coins
in to be graded if they are sold "raw."
FIFTH PRECAUTION: Be certain the dealer states in
writing what grading standards are being used.
There is no uniform industry standard. Any dealer can
look at a coin and say that it is, or is not, MS-65. But a
multiplicity of organizations pass judgments on the grades of
coins, and no two of these organizations grade coins alike.
For example, a little-known grading service might grade a
coin MS-67; a more reputable grading service might grade that
same coin MS-66; and the Professional Coin Grading Service
(PCGS) might grade the coin MS-65. Each of these organizations
could be correct --- by its own standards --- in the grade it has
assigned. But this is of little help to you if you pay an MS-67 price
for a coin that PCGS would grade only MS-65.
I recommend that you regularly use The Certified Coin Dealer
Newsletter as a guide to the sight-unseen values of certifed coins
and an indicator of what dealers are willing to offer for coins graded
by the various grading services.
SIXTH PRECAUTION: Use common sense, and look at the
coins.
Common sense is not all that common. If a coin looks
like you had taped it to the bottom of your shoe and done a
tap dance on it, it probably isn't an MS-65 --- no matter how
many certificates say that it is.
You also should check the coins you receive against the
invoice. You might have received somebody else's coins. And,
by all means, do open the box. I know one investor who never
bothered to open his box of coins until it was too late: The
box was empty, and the dealer had gone out of business.
Your coins should stand on their own merits, not those
of a dealer's guarantee or certificate of grade. And you
should not borrow money to buy coins. No more than 15 percent
of your total net worth (excluding the value of your primary
residence) should be invested in rare coins.
SEVENTH PRECAUTION: Become familiar with the basic
standards of certification services.
You should become familiar with the idiosyncrasies of
the certification organizations --- for the reasons listed above, as
well as so you don't get angry at your dealer when you submit coins.
Mint-state coins can be graded with any number from 60
through 70.
Leading grading services include, but are not limited to, ANACS,
PCGS and the Numismatic Guaranty Corporation of America (NGC).
EIGHTH PRECAUTION: Buy a rare coin, not a certified
product.
Buy the coin, not the papers. Coins can be a wonderful
investment; certified products rarely are.
Michael R. Fuljenz, a former American Numismatic Association
Certification Service authenticator-grader, said in 1987 that "ANA certified
coins, unlike fine wines which increase with value as time progresses,
turn to vinegar." ANA has tried to halt this problem by removing
the dates from its certificates. Grading standards have
changed --- and, for that reason, some certification
organizations are not as popular as others.
A coin might be priced at $4,000 in MS-65, $1,200 in MS-
64 and $200 in MS-63 --- so even a slight variation in grade
can mean a big difference in market value.
There probably are more coins of this type which trade
between $200 and $1,200, and between $1,200 and $4,000, than
trade at the exact MS-63, MS-64 and MS-65 prices. Don't balk
at paying a bit above an MS-63 or MS-64 price for a high-end or
premium-quality specimen of that coin. When you pay the
minimum price required to secure a certified product, your
investment is in the certification organization. When you pay
the premium, it's likely that you have a nice coin, provided
you are an educated consumer and the seller is honest.
All MS-65 coins from each respective certification
organization are not the same. A coin could, for example, be
a dramatic cameo Proof-65, with startling contrast between
snow-white fields and reflective devices. Or it could be a
non-cameo Proof-65, with toning that isn't so attractive. If
you pay the lowest price for the grade, you'll get the lowest
quality coin for the grade.
NINTH PRECAUTION: Don't give your credit card number to
anyone that you haven't called.
I'm not saying you shouldn't buy coins from
telemarketers. But, if a dealer calls you on the telephone
and asks for your credit card number for a coin sale (and it
is your prerogative to buy coins that way if you so choose),
at the very least get the dealer's telephone number and call
him or her back.
Many wildly criminal activities have occurred with
credit cards: non-delivery; unauthorized charges; no credit
for returned merchandise; and charges to the card after the
death of the card-holder. Further, if a reputable dealer is
asking for a credit card, you might be able to strike a deal
and pay a lower price for the coins by paying cash instead.
If a coin firm has to give the credit card company 5 percent
of the value of the transaction, you might be able to get a
2-percent or 3-percent (or even higher) discount on your
order by not using a credit card.
The advantage of using a credit card is the recourse
this gives you through the credit card company if the coins
are misrepresented or not delivered. The disadvantages are
limitless.
TENTH PRECAUTION: Take action against anyone who has
sold you overpriced or overgraded merchandise. If you
discover that you have purchased such material, take swift
and immediate action.
Government agencies such as the Federal Trade Commission
have been very helpful in looking out for the public
interest. But the FTC is so structured that it helps
consumers collectively, not individually. The FTC can and
will do little for an individual investor who claims to have
lost $1,000 --- or even $10,000 --- to a particular coin
firm. But it can help if many thousands of investors
appear to have been bilked out of millions.
In seeking redress, you'd be much better off getting the
dealer to agree to legally binding arbitration if you can't
reach an amicable agreement between yourselves. As discussed
earlier, PNG requires its members to submit to arbitration
in disputes.
ELEVENTH PRECAUTION: Save all original holders,
receipts, canceled checks and other proofs of purchase.
This material will come in handy to prove you purchased
the coins when you say you did. It also will confirm that
these coins were sold to you by the dealer who you claim sold
them to you.
Coins in unsealed holders without photographs signed by
the coin firm are an unending source of frustration for the
investor. Some firms have been known to accuse investors of
switching coins. When you buy "certified" coins, have the
coin firm record the certification number on your invoice.
TWELFTH PRECAUTION: Be certain your coins are maintained
in the same grade in which you purchased them.
With coins, there's an unfortunate risk that if you buy
a coin for $5,000 and drop it on the way home, its value may
plummet to $1,000. An improperly preserved coin can be just
as financially harmful as an overgraded or overpriced one.
Coins should be neutralized in Koinsolv for long-term storage.
A vapor-phase inhibitor, such as Metal Safe (E&T Kointainer Co.,
P.O. Box 103, Sidney, Ohio 45365) should be used to prevent
deterioration. Vapor-phase inhibitors change the molecular composition
of the air so the coins don't deteriorate.
There you have them: a dozen helpful hints on how to
protect yourself when buying coins.
None of these safeguards is foolproof; there still may
be occasions when a coin deal doesn't work out as well as
you'd hoped.
But, if you observe these 12 important rules, the
setbacks will be less frequent and less painful --- and the
triumphs will outnumber the tragedies.
