5th National Silver Dollar Convention
St. Louis, Missouri
November 8 – 11, 1984
By David Hall
The United States silver dollars made between 1878 and 1935 are the world’s most popular coins, the subject of considerable controversy within the numismatic community, and one of the best investments you can make. We’ll examine the reasons behind the popularity of these large silver coins, explain the pros and cons of the dollar market, and analyze the investment potential of Gem quality silver dollars.
Why Dollars are Different
There’s a big difference between silver dollars and all other U.S. coins. That difference is availability. Silver dollars are the most readily available U.S. rare coin. The history of the politics behind the minting of the unnecessarily large quantities of silver dollars has been documented in several silver dollar books. I won’t re-tell the story in detail, but the basic principle is the most important factor to comprehend if you want to truly understand the silver dollar market. In a nutshell, silver dollars never should have been made! They are large, bulky coins that were as cumbersome 100 years ago as Ike Dollars are today. You don’t want Ike Dollars clanging around in your pockets, and the people didn’t want silver dollars clanging around in theirs. Consequently, with the exception of a few very sparsely populated Western States (Wyoming, Nevada, Montana, etc.), silver dollars were not widely circulated. Why did the government mint so many coins that were clearly not needed for commercial reasons? It was simply a political favor to the Western mining interests (and their Eastern bankers). Under the authority of several different Congressional Acts, the government agreed to purchase between two and five million ounces of silver per month. This unneeded silver was minted into unneeded silver dollars. And these Uncirculated silver dollars sat around in Treasury vaults gathering dust for more than half a century!
Because silver dollars were saved (by the Treasury) and not spent, they are now the most available U.S. rare coin. You can go to any coin show and there will be several dozen dealers who have between one and one hundred rolls of Uncirculated silver dollars sitting in their showcases. Have you ever seen a roll of Barber Halves? Or Liberty Seated Dimes? Of course not! Coins that were contemporary with silver dollars were not saved in significant quantities. And it’s not just that dollars were saved in large quantities. You can go out and buy Uncirculated bags (1,000 coins) of silver dollars. They are literally available by the millions!
Say’s Law of Market states that supply creates demand. The silver dollar market offers dramatic proof of that. There are hundreds of coin dealers who specialize in silver dollars exclusively. There are newsletters devoted to silver dollars. There have been more books written on silver dollars than any other U.S. coin. In short, silver dollars are the most popular U.S. coin. The overwhelming popularity of silver dollars has led to a demand for high quality examples by collectors and investors. In the past, this demand has been translated into spectacular price gains. But their great availability, demand, and price performance has also been a source of considerable controversy within the industry. We’ll now address one of the most important issues.
There are two parts to the grading controversy (and that’s exactly what it is): the actual grading itself and the question of which grade has the best investment potential. Let’s look at the actual grading first. As is true with any collectible, the grade of a silver dollar dramatically affects its value. Look at the following price spreads from the April 8, 1983 issue of the Coin Dealer Newsletter:
An 1889-O is bid $21 in Almost Uncirculated and $1,700 in Gem Uncirculated. An MS-65 1894-O is worth over a hundred times as much as an AU. Small differences in grade can and usually do result in tremendous differences in price.
With such big price differences, you might guess that dealers would be overly optimistic in their grading. And you’d be right. In fact, overgrading is an epidemic in the coin market in general and the silver dollar market in particular.
IN MY ESTIMATION, 90% OF ALL SILVER DOLLARS SOLD THROUGH THE MAIL OR AT AUCTION ARE OVERGRADED BY AT LEAST HALF A GRADE!
Just pick up any issue of “Coin World” and you’ll see dealers advertising silver dollars at 10%, 20%, 30%, and even 50% or more off of current Coin Dealer Newsletter bid levels. These advertisers are blatant overgraders. If you order a Gem BU dollar at an AU price you get exactly what you pay for – every time!
So where does all this overgrading leave the silver dollar investor? Well, the silver dollar investor must confront and conquer the grading problem if he wants to take advantage of the tremendous investment potential in the silver dollar market. There are several things you can do to protect yourself against overgrading.
The first (and hardest) thing you can do is learn how to grade. You cannot learn to grade like an expert overnight, but you can make yourself aware of the basic principles. Look at every coin you buy. Now that may sound like a dumb statement, but you’d be surprised at how many coin buyers don’t even look at the coins they buy. “After all, the ad said ‘Gem BU,’ and the holder said ‘MS-65,’ and the seller is the largest coin dealer in the world, so the coin should be properly graded.” Yes, it should be, but it probably isn’t. So examine all of your coins and compare them with one another. Notice which coins have the fewest marks, the sharpest strike, the most “blazing” luster, etc. If you have friends who are involved with coins, get together and look at coins. It may be helpful at this time to provide a definition of the various Uncirculated grades:
MS-60. Average Uncirculated. These are coins that have never been in circulation, i.e. there is no evidence of wear or “rubbing” on the high points. They may have numerous mint defects. They may be heavily bag-marked, lightly struck, and/or have dull luster. These are not very attractive coins.
MS-63. Choice Uncirculated. These coins will have some noticeable bagmarks. The strike should be decent and not totally flat. Luster should be good. Though these coins are somewhat attractive, there will be one or two defects that are just too noticeable. I call this the “if only” grade.
MS-65. Gem Uncirculated. These coins will have a bare minimum of minor abrasions. They will be sharply struck and have full, original luster. They may be brilliant or toned. This is the most overused term in the dollar market. In my opinion, only 20% of all EXISTING Morgan Dollars meet the standards of MS-65, (Peace Dollars are even tougher). And I’m not saying that 20% of all Morgan Dollars currently available are MS-65. When people sell coins, they often sell their MS-60’s and MS-63’s and keep their MS-65’s. So the majority of MS-65 dollars are semi-permanently “impounded” in collector/investor “strong hands.” Probably less than 5% of all available silver dollars are MS-65 or better.
MS-67. Superb Gem Uncirculated. Virtually flawless surfaces, 100% fully struck, and full blazing luster. In short, “wonder” coins. Contrary to what you see in Coin World ads, MS-67 dollars are very seldom encountered in the real world.
Besides learning to grade, or at least learning the basic principles, there are several other things you can do to conquer the grading problem. If you are aware of the pricing structure of the market, you can avoid some of the blatant over graders. Subscribe to the Coin Dealer Newsletter. Just because someone prices coins over C.D.N. bid doesn’t guarantee that the coins are correctly graded. But if you are offered coins at a significant discount off C.D.N. prices, you can bet the coins are overgraded. You should also get to know your dealer. What are his credentials? And what is his grading guarantee? Does he guarantee that his coins will meet A.N.A.C.S. standards? Does he guarantee to repurchase his coins at the same grade as they were sold? And note that guaranteeing to auction the coins at the same grade as sold is an empty guarantee that merely results in the terrible prices realized that you see for auction companies that are associated with investment firms. Grading and credentials do not insure proper grading, but they are definitely a step in the right direction.
Now let’s attack (and that’s what it’ll be) the other half of the grading controversy. Are MS-60 and MS-63 silver dollars the investment coins of the future? And why are most of the so-called investment firms trying to sell them to you?
The case of quality, specifically MS-65 or better Gem quality, is so OVERWHELMING that this shouldn’t even be a question. However, there are numerous large promotion-minded coin “investment” firms that are currently flooding the mails with MS-60 and MS-63 hype. So let’s stay away from opinion, and let’s look at the cold, hard facts:
1. Past Performance. You probably already know that MS-64 and MS-65 silver dollars have out performed the lesser grades, but did you now by how much? There are 39 dollar rolls (Average Uncirculated) that have been listed in the Coin Dealer Newsletter since late 1966. MS-60 dollars (approximately 120 issues) have been listed in the C.D.N. since late 1975. MS-63 dollar listings first appeared in late 1980. Using the same year-to-year percentage increase methods that appear in the David Hall Rare Coin Study, let’s examine the performance of Average Uncirc. dollar rolls, MS-60, MS-63, MS-64* and MS-65 dollars:
Dollar Rolls vs. MS-65 Dollars
$1,000 invested in dollar rolls on Jan. 1, 1967, would now* be worth $24,013.
$1,000 invested in MS-65 dollars on Jan. 1, 1967, would now* be worth $116,233.
(*Figures are basis year-to-year performances and are as of Jan. 1, 1983.)
MS-60 Dollar vs. MS-65 Dollars
$1,000 invested in MS-60 dollars on Jan. 1, 1976, would now* be worth $3,733.
$1,000 invested in MS-65 dollars on Jan. 1, 1976, would now* be worth $21,307.
MS-63 Dollars vs. MS-65 Dollars
$1,000 invested in MS-63 dollars on Jan. 1, 1981, would now* be worth $705.
$1,000 invested in MS-65 dollars on Jan. 1, 1981, would now* be worth $1,210.
(*Figures are basis year-to-year performances and are as of Jan. 1, 1983.)
So, you see, when we say that Gem quality (MS-65) dollars outperformed lesser quality examples, we’re not just talking about a minor 10% or 20% difference. Since 1967, MS-65 dollars have outperformed dollar rolls by over 400%. Since 1976, MS-65 dollars have outperformed MS-60 dollars by over 600%. And since early 1981, MS-65 dollar prices have gone up 21% while MS-63 dollar prices have dropped nearly 30%. Finally, there’s the great dollar roll flop of early 1983. Between February 25, 1983, and March 25, 1983, silver dollar rolls dropped an average of nearly 10%. Every dollar roll dropped in price. During the same time period, MS-65 dollars edged up an average of .6% and NOT A SINGLE ISSUE dropped in price! Now the MS-60 and MS-63 promoters would argue that because MS-60 and MS-63 dollars haven’t gone up as much in price, they’re underpriced. Well, the promoters are wrong for several reasons (see below). But even if there was a possibility that MS-60 and MS-63 dollars were “underpriced,” why take a chance on a mere possibility? Stick with a proven winner. As the old horseplayers’ saying goes, “The race isn’t always won by the best horse, but that’s the way to bet your money.” And as the past performance records show, it’s not that MS-60 and MS-63 dollars don’t belong in the same race as MS-65 dollars, they don’t even belong in the same race track.
2. Desirability. If you own any silver dollar rolls, take out a few MS-60s (they’re the ones with all the marks and gouges) and look at them very carefully. Now ask yourself if any collector would even want a coin that ugly – at any price. Is that BU (which in the case MS-60s stand for “Beat Up” not Brilliant Uncirculated) dollar really good for anything other than melting? Coin aesthetics are more than personal opinion. The majority of “coin people” agree that Walking Liberty Half Dollars, $20 Saint-Gaudens, and MS-65 dollars are beautiful and that Ikes, Jefferson Nickels, and MS-60 dollars are not. This is not just my opinion. Look at the past performance records above. The marketplace has clearly said that MS-60 dollars are ugly and MS-63 dollars aren’t pretty enough.
3. Demand. Collector demand for MS-65 silver dollars is by far greater than collector demand for MS-60 and MS-63 silver dollars. In fact, collector demand for less than MS-64 dollars is virtually non-existent. I’ve been in the rare coin mail order business for over ten years. I have a big following among serious collectors, and many of them regularly send me “want lists,” i.e. lists of the particular coins they’re interested in buying. I very rarely get want lists for MS-60 and MS-63 silver dollars. I always have want lists for MS-65 or better silver dollars. Currently I have several hundred want lists on file of serious collectors willing to buy specific dates of MS-65 silver dollars, but I don’t have a single want list MS-60 or MS-63 silver dollars. In the past few years, a new factor has been added to the demand equation. Large investment-oriented, mass marketing firms have been promoting and selling significant quantities of MS-60 and MS-63 silver dollars, mostly in the form of Average Uncirculated dollar rolls. This activity has substantially added to the demand for MS-60 and MS-63 dollars. This is not a false demand; these people and their investor customers are spending real money. However, it is a fickle demand. Just take a hard look at what happened during the great silver dollar roll flop of late February and early March. The thrust of the collector demand will always be toward the finest quality dollars, specifically Mint State 65 or better silver dollars.
So, there you have the “case for quality,” at least part of it. In fact, I feel so strongly that this is one of the most important problems for the rare coin investor that I’m going to devote the next INSIDE VIEW to this question of quality and how it applies to all U.S. coins. For now, let me leave you with this:
THE BIGGEST MISTAKE A SILVER DOLLAR INVESTOR CAN MAKE IS TO BUY LESS THAN GEM QUALITY COINS!
Most of the so-called coin investment firms will tell you differently, but if you buy MS-60 and MS-63 silver dollars, when it’s time to sell you will be trying to sell coins to dealers who already have large inventories of the same material. The alternative is to ignore the hype and buy Gem quality MS-65 or better silver dollars. Then when it’s time to sell, you will be offering the dealers coins that they’ll have multiple customer want lists for, coins that they probably don’t already have in inventory, in short, coins that they’d love to buy!
The New Market
Because silver dollars, (including Uncs.), were available at face value from the Treasury until 1964, one of the most common dollar investment mistakes is loss of perspective. This is what I call the “old-timers’ syndrome.” It goes something lie this. The current bid for MS-65 1880-S dollars were bid $50, or $40, or even $30. Maybe you bought your 80-S dollars six or seven years ago when they were just $10 (I personally sold thousands of Gems at that price through my biweekly ads in Numismatic News.) The first Gem Prooflike 1880-S dollar I had to buy cost me one dollar and twenty cents. The point is not how much coins cost in 1976 or 1972 or 1966, or how easy it was to find Gem Peace Dollars ten years ago, or how much prices went up last year or the year before. The important thing is what’s available today, how much the coins cost today, and how prices will be tomorrow. It’s a new day in the rare coin market. So avoid the “old-timers’ syndrome (“I remember when you could buy all the Gems you wanted for $3 each, Sonny!), and position your portfolio to take advantage of the new bull market in Morgan and Peace Dollars.
The following is the most likely scenario for the silver dollar market. For the next six months or so, the dollar market will be fairly stable with prices edging up slightly. Then sometime in the next six to eighteen months, MS-65 dollars will literally explode and begin a twelve to twenty-four month run that will carry prices to 500% or more above current levels. I, therefore, suggest the following strategy:
1. During the next six months, you should be an aggressive buyer of Gem quality and Morgan and Peace Dollars. Use our current Portfolio Mix percentages as a guide as to how much of your coin funds should be committed to this area.
2. Sell all of your off-quality (less than MS-65 dollars, including dollar rolls, and get into coins with more potential.