PRICING: THE NEW CORNERSTONE
OF CONSUMER PROTECTIONBy 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 aIn determining the prices for The Insider's Guide, I
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.
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.
