9th National Silver Dollar Convention
St. Louis, Missouri
November 10 – 13, 1988
What a Grading Service Is Not
By Phil Skylier
You buy an uncertified coin. The seller grades it MS65. You send it to one of the grading services. They grade it MS64. Have you been taken by the seller?
You buy an ANACS graded MS63 coin. You send it to another grading service. The service grades it MS62. Was ANACS’s judgment of the coin incorrect?
If your answer is yes to either of the above questions, you should never buy another uncertified coin. Also, you should never buy any certified coin that is graded by any service other than the service you like best. If your answer is yes to either of the above questions, you are not sufficiently familiar with the characteristics of rare coin grading.
A grade on a coin is merely a label, an abbreviated way of comparing a coin of one quality and approximate value to others of the same type. Labeling coins is like labeling human beings. There are far too many variations from one to the next for the label to be of much significance except in its most general application.
Market value is a better guide. If a seller grades a coin MS65 and is asking five hundred dollars for it, he is saying, “I feel this coin is worth five hundred dollars.” If a buyer purchases the coin, he is saying in effect, “I agree; I also think the coin is worth five hundred dollars.”
At that point the buyer owns the coin. He has made the decision to purchase. Whether the coin grades higher, lower, or the same at a grading service, whether the market on it skyrockets, plummets, or whatever, is irrelevant.
Say a month later the buyer sends the coin to a grading service and it is graded MS64. The buyer paid five hundred dollar for it, but price guides show MS64s as being world only three hundred, two hundred dollars less than he paid. The common reaction is for the buyer to feel cheated by the seller. But the buyer is under a misconception. The buyer is assuming that the grading service is a governing body, that by virtue of its popularity and its own marketing claims, the grading service is “right” and the seller is “wrong.” The buyer in this case is overlooking three crucial facts about rare coin investments.
FACT #1: Grading is ambiguous. Grading is a conditioned perception of what a coin is worth based on general market parameters, personal experiences and preferences. Since no two peoples’ experiences and preferences can possibly be the same, no two people see a coin in exactly the same way. A one point difference in a grade assessment can easily fall into the realm of subjectivity. Even two highly experienced professionals often disagree on a coin’s grade, sometimes by two points or more.
There is of course a limit of what can be considered an informed difference of opinion attributed to grading ambiguity. For example, if an investor buys a coin from a dealer as an MS65 at an MS65 price and two different grading services grade the coin AU50, the odds are that the investor has indeed been taken. Such wide discrepancies are usually the result of blatant, intentional overgrading by the seller, since valid differences of opinion of that degree are extremely rare.
Recently, much has been made of the advances in grading standardization and uniformity – and advances have been made. But the reality is that grading is still ambiguous. A few examples from the grading services themselves:
In 1985, when ANACS was the top service, a buyer we know owned a coin that he shipped to ANACS eleven different times to make a point. ANACS obliged by assigning a different grade to the coin each time, a total of eleven different grades for the same coin!
PCGS graders, possibly the best anywhere, disagree with each other on individual grades hundreds of times each day. Our company currently had in stock an 1887-P Morgan graded both MS64 and MS65 by each of the three major grading services, ANACS, NCI and PCGS. An endless list of such examples could be compiled.
FACT #2: No grading service is the authority. A grading service is a business just like a coin dealership is a business. As such, grading services employ marketing techniques to promote themselves. Naturally, it is beneficial to any grading service for buyers to feel that it is the ultimate judge, that its determinations are final and correct, and certainly that its grades carry more weight than grades assessed by other services.
Each service markets itself to reflect this posture. PCGS claims to be “the new standard for the rare coin industry.” NCI promises “real-market” grading. And although ANACS is more subdued in their marketing techniques, it is apparent that ANACS too feels that it is the grading service. Undoubtedly, any new service that evolves will also do whatever it can to appear to be the one that has the final word.
Grading services used to be content to be the providers of an informed, unbiased third opinion of a coin’s grade. Now, however, by offering what appears to be an easy solution to the complexities of grading ambiguity, but is in fact just another informed opinion, a service can be thought of as the Supreme Court of rare coin grading. In reality, no matter how professional, no matter how experienced their graders, a grading service is a self-appointed organization with not more officiality or authorization to decide what is the “correct” grade than any other experienced numismatist.
Our own company has supported third-party grading since its inception, and we meant the services no disrespect. Marketing is a necessity for any business, but buyers should be able to discern marketing claims from bottom line reality. The latter is that there is and can only be one grader with the last word, you the buyer. You don’t grade with MS numbers, you grade with your checkbook.
FACT #3: The buyer makes the decision to purchase. In the earlier example, the buyer made the choice to buy the raw coin at five hundred dollars. If a grading service graded the coin MS66, a point higher than purchased, the buyer would get the upside. Therefore, if the coins is graded a point lower, the buyer must also accept responsibility for the downside. Since a grading service has no more authority to determine the “correct” grade than any other qualified numismatist, unless otherwise specified, uncertified coins are not subject to after-the-transaction approval by the grading service.
Buyers that are apt to take the determination of one grading service as gospel might wish to avoid disappointments by only buying coins already certified by that service.
Even in certified coins, though, buyers should be aware that an MS65 at one grading service may be graded MS64, MS66, or whatever at a different service. The numerical assessment of one grading service has no bearing on how another service will grade the same coin and a buyer should never assume otherwise. In fact, the judgment of a grading service does not guarantee that the coin will receive the same grade if shipped to the same service a second time.
As for dealer guarantees, a dealer can only guarantee that coins sold by his firm are correctly graded at the time of sale and in accordance with the standards then being employed by the grading service whose certification accompanies the coin. To strengthen the guarantee, some dealers will always make a valid offer on any coin sold by them.
But for a dealer to guarantee more requires knowledge of the future. Grading services can fall into or out of favor, standards or preferences can change, etc. What if a few years from now the most widely accepted grading service is two points more strict than the strictest service of today? Every coin held today by every dealer, collector, and investor would appear overgraded under those conditions. All guarantees made today concerning future grading performance are based on projections of the present into the future – a method of forecasting that leaves much to be desired.
Why must it be so? Why does everything about coins and grading have to be so hazy and indefinite? Why can’t there be just one grading service and one way of assessing specific value? Because no two people see a coin the same way. Tastes in what constitutes beauty and value vary widely from one individual to the next. There isn’t one authoritative grading service for the same reason that there isn’t one “correct” condiment for a hot dog. Personal preferences differ.
As for the present, the best way to avoid bad news from your favorite grading service is to buy only coins already certified by that service. If you want ANACS coins, buy them. Don’t buy coins graded by another service because they’re cheaper and then send them to ANACS. (If the coins are much cheaper, there’s a reason. Remember, if the coin could be made worth significantly more by achieving a certain grade at a grading service, the odds are your dealer would have sent it himself.) For the same reason, if you want PCGS coins, buy them. If you want third-party graded coins, unless you are adept at grading and willing to accept responsibility when you are wrong, stick with pre-certified coins from the grading service that you like best.
It is ironic that grading has become numerical today. “Numerical” grading is such a misnomer. Grading is not numerical, it is not scientific. The computer language FORTRAN is numerical; it is explicit, precise, consistent. FORTRAN can be scientific because it is a language of actions, of commands.
Rare coin grading is a language of adjectives. If a picture cannot be described in a thousand words, or perhaps not in ten thousand, how can we expect a single MS number to do the job? Grading language is human speech, but with an infinite number of dialects and accepted pronunciations.