4th National Silver Dollar Convention
November 10 – 13, 1983
Fallacies, Facts and Realities in the Coin Industry
By Dick A. Reed
Editor’s note: Dick A. Reed is president of Metro Coin, Ltd. of Phoenix, a firm he founded more than 20 years ago to specialize in silver dollar investments. Since then, he has travelled worldwide to present seminars on silver dollars; has contributed to one of the first books written on silver dollars, and authored his own complete guide to silver dollar investments; has written articles and columns for major publications, and has assisted tens of thousands of investors in developing successful silver dollar portfolios. He is a life member of the American Numismatic Association and charter member of the National Silver Dollar Roundtable.
Over the years, one difficulty has arisen again and again concerning the silver dollar industry in America. This problem relates to pricing and grading of individual coins and the lack of standardization that now exists in this very individualized area of our industry.
Much has been written to bemoan the fact that grading and pricing are not standard in the coin industry in the United States, but this area is considerably more complex than it at first appears.
Grading and pricing are interwoven by the fact that a human being is actually doing the evaluation of each coin. Since human beings are not “standardized,” and our attitudes are subject to a wide variety of influences, our efforts also vary considerably, even with the best of intentions.
Pricing does slightly affect grading, since they are interrelated. For example, imagine that you are asked to grade two coins. One is a silver dollar valued at $100, the other is a silver dollar that is obviously much higher priced, perhaps as high as $50,000. The two coins can be graded at the same time, in the same light, by the same person, but the apparent value difference will make a difference in how the two coins are examined.
In this example, a person grading the two coins will almost always examine the $50,000 coin in much greater detail. This is not to say that this is a sound method of grading; only that it is human to be affected by apparent differences in value. (Most professional coin dealers’ egos may not let them agree with this fact.)
This is an extremely important part of our business, in spite of the fact that it is based on subjective standards in many cases. The reason is that since pricing and grading are so interwoven, an error in one is really two errors: if the coin is mis-graded, it will undoubtedly be mis-priced.
But putting value before grading is very much a case of putting the cart before the horse. The inherent value of the coin should always be based on its characteristics and a comparison with a “perfect” coin, (MS-70).
Nonetheless, if the top ten silver dollar experts in the nation were put in one room with 1,000 coins to grade two times, the grading would not only vary from dealer to dealer, it would also vary from grading to grading by the individual experts. Grading is not an exact science. There is no clear-cut, 100 percent, world-wide accepted opinion of any given coin’s value and grade consistently by all.
This is true for a variety of reasons, not the least of which is that silver dollar experts all use slightly different methods to standardize their own grading efforts as much as possible. One expert may use only the “odd” numbers in the Mint Grading System. Another may use a dual grading system, with one grade for the obverse, and another for the reverse (such as MS 63/65). Yet others, use the number in the Mint State Grading System as they appear appropriate to a particular coin or range of coin characteristics.
For example, we at Metro Coin, Ltd. have for some time advocated the use of an MS-64 grade, a grade which is appropriate for a fairly large number of coins in my own grading experience. These coins are “nicer” than the silver dollars normally found in MS-60 – MS-63 rolls, but not so unblemished as a true MS-65 coin. In the past, these coins have been graded either MS-63 or escalate to a MS-65.
In The Complete Investor’s Guide to Silver Dollar Investing, I outlined the following criteria for the MS-64 grade:
First, the coins that are higher in quality than MS-63’s and lower in some significant way than MS-65’s. Second, there are coins that are not so fully struck on one side as the other, but in other ways is an MS-65 coin. In this case, it could be graded MS-64/65, as some dealers do, or simply as MS-64, since that is the lower of the two grades potentially involved. Additionally, there are those coins which qualify in almost every way for MS-65 grade, but have a large bag mark in an obvious location, such as the cheek of a Morgan silver dollar. It would be inequitable to overlook all of the other attributes of the coin and downgrade it to MS-63; and equally unjust to increase the coin’s grade to MS-65. The result is the MS-64 grade.
To date, this MS-64 grade has not received widespread acceptance, but in my own grading efforts, I have experienced enough coins that fit its description to warrant use of the grade in my own efforts. This is somewhat hampered by the reluctance of others to use this grade, as might be imagined. Even Allen Harriman’s otherwise excellent weekly publication The Coin Dealer Newsletter has not yet begun to list MS-64 prices for this very realistic grade.
It is important to remember that the coin industry is a marketplace; one that is maintained by, and based firmly upon, free enterprise.
For this reason, 100% standardization of pricing and grading in our industry will never become a reality. It is the individuality and subjectivity of grading and pricing that make our industry work.
Without the kind of individual judgment that is the foundation of free enterprise, no coins would ever be sold. Differences of opinion are essential to our industry’s continued health. If we all believed that a coin had one, and only one, true value, no one would sell them because there would be no room for profit.
Don’t misunderstand me, just because a dealer has made room for profit does not mean that you have necessarily made a wise investment.
On the other hand, if you take one silver dollar to ten dealers, you are very likely to get ten different opinions as it its value, and ten different offers, should you wish to sell the coin.
The difficulty comes when our industry is compared to other industries who provide investments to the general public. While no one wants to pay “ask plus commission” for a coin, the same investor would not hesitate to pay “ask plus commission” for a share of stock on the Stock Exchange.
An educated consumer can make his or her own choice. That is the basis of capitalism: individual preference is an important part of market considerations. So is the level of sophistication of the consumer involved.
As John Ruskin said, “There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper and the people who consider pricing only are this man’s lawful prey.”
By educating consumers and dealers, we can have a positive effect on the industry.
For example, a knowledgeable investor or collector should have some idea of the relative value of a coin that is offered. If an investor or collector is willing to buy a coin he knows is worth about $300 for $600, that buyer is getting what he deserves. If you are a sophisticated buyer, you know there is a difference in commissions, but not as wide a variance as this example represents. Therefore, the quality must be a reflection of the price. If a person wishes to be take advantage of, it is certainly possible to do so in the coin industry. However, the same may be said for many other industries as well.
Second, if a buyer were not interested in a difference of opinions, he would shop company commissions, as well as price as he would in considering a stock purchase. No investor ever pays a premium for a stock of a particular series simply because he especially likes that individual stock certificate. Yet, in the coin industry, records are set for coins every year for that very reason; someone always seems to like that given coin more than the person who owned it before him.
Now that we’ve reviewed pricing and grading, it’s important to take the next steps and examine how to prudently purchase or sell assets.
“Prudently” is the key word in that sentence. You wouldn’t take a Rolls Royce to a motorcycle dealership for an evaluation, even though they are both vehicles of transportation. In the same way, it is not advisable to take investment quality coins to anyone who happens to be in the coin industry. The variables and considerations in evaluating coins involve the same level of complex differences as those between a Rolls Royce and a motorcycle.
Whether your coins are from Metro Coin, Ltd., or any other coin dealer in the world, in my personal opinion, there has never been, nor will there ever be, a coin bought or sold for which every coin dealer agrees on price and/or grade.
As a result, whether you are a dealer or a client, it is always important whether buying or selling, to do some prudent “shopping.” Just as you would if you were shopping for groceries, you should compare quality, quantity, price. And, should you ever have a problem, will that company be there (in other words, in business) when you return?
There will naturally be differences in the considerations of quality and price, but the range should be minute. This is not to say that the person who pays the highest price gets the best quality, or that true bargains are not possible. But a person who is seeking a “killing” may awaken to find himself the victim.
Therefore, for the protection of the consumer, he or she should educate himself through reference materials, books, and periodical publications (whether they are my own publications or not) regarding grading and grading methods. The consumer should then learn to transfer the resulting grade into pricing. Allen Harriman’s Coin Dealer Newsletter, with its bid and ask columns is an excellent source of current pricing information, and is a standard nationwide reference for dealers.
Once the consumer has a vague idea of grading and price, he is in a position to evaluate the skills and reputation of a dealer. Since grading requires years of dedicated experience to master, it is inevitable that even a sophisticated investor will have to rely on his dealer for advice. This may or may not be an economic disaster.
As is the case in all other industries, dealers offer a wide range of expertise in grading and pricing, and learning to discern which dealer is the expert may take a little time and effort on your part. Remember, a coin dealer, like any other advisor, must be evaluated in terms of track record, basic policies, and your ability to deal with that person to your satisfaction.
Coin dealers, by and large, are no different than any other businessmen in the world. The oddity is, however, that only in the coin industry does one encounter a consumer who expects an immediate profit on purchases. The reality is that a holding period is required to achieve profits. At Metro Coin, Ltd., we advise our clients that the real profits begin after a minimum holding period of three to five years. (Often less than three years to receive substantial profits but never less than one year to receive long term tax benefits.)
Another important consideration when selecting a dealer to advise you is his guarantee. If a dealer is willing to give you a guarantee of authenticity in writing, of the exact numismatic grade, and personally guarantee the product (and is not hiding behind a corporation that can legally declare bankruptcy), that’s the finest guarantee possible in this industry. The actual receipt or invoice you receive from this dealer should guarantee authenticity, correct grading, and accurate pricing (including the appropriate commission, which obviously varies from dealer to dealer).
Now the part arises that is of most concern to the investor: what are my coins worth?
Many people are seeking fast profits. This can be done in as little as one day, if the buyer knows where to liquidate that con profitably before buying it. The reality is that most people are advised to hold coins for a period of time until the investment “matures.” In most instances, again this holding period is a minimum of three to five years, depending upon the coin and market condition at the time.
Once the maturity of the coin is achieved, then the consumer should go back to the original seller for his well-deserved profits. If the coins were accurately graded and fairly priced, and two other factors exist, he should receive a fair profit on his investment. Those two key factors are: 1) does the dealer need this particular coin in his inventory; and 2) does he have the funding at that moment to purchase the coin or coins offered.
Too often, a consumer will pressure a dealer to repurchase coins. As a result, the consumer often finds that he is offered (and very often, paid) only as much as remains in the dealer’s checkbook at that particular time; not the true value of the coin investment.
Due to purely economic considerations, the ultimate buy-back guarantee and repurchase programs are a sham, if for no other reason than the fact that a dealer, like myself, who has been in this business for more than 20 years, would buy back in excess of $1 billion worth of coins at their present values to repurchase all the coins he has previously sold. The fact is, unfortunately, that my checkbook certainly isn’t that big, and I don’t know anyone else’s in the coin industry that is.
Therefore, consumers should be happy for the differences between dealers: it offers a future for their investment, and a matter of opinion to “shop.” Dealers, by the same logic, should be glad when consumers “shop” their prices and business practices. If it were not for this spark of free enterprise, that the government is working hard to extinguish, none of us would be here at this convention today.
Indeed, it is the free market that makes possible the profits of both consumers who invest in coins and those of the dealers who specialize in them. This remains as true today as it was in the past.
It is not a well-known fact, but a man named Rothschild started out in the coin industry and his empire now touches our lives in many ways. Basically, the industry works. There are vast profits to be made. But along the way, we must keep our values in order.
It is important to remember that the greedy may win in the short run, but the prudent investor wins in the long haul.