Managing your budgetCollecting U.S. Coins on a Budget
By
John H. MacMillan Ph.D.
The numismatic hobby is indeed "the hobby of kings" as a virtually unlimited amount of money can be spent on rare items if finances permit. Wealthy collectors such as Col H.R. Green, King Farouk of Egypt and Louis Eliasberg had no trouble acquiring rare items when the became available. Collectors of more modest means must focus their interest and "buy smart" or else risk financial difficulties. Coin collecting can become addicting, and many collectors go over their budget on impulse purchases or spending sprees. It is imperative that you set a maximum amount you will be spend per month or year. This collector has found that on an amount of $1500-$2000 per year rapid progress is possible in many specialties for several years, provided that the periods are from 1850-present and the grades are extremely fine to proof. In today’s age this amount of money could be spent on a single computer or set of golf clubs! The collectors advantage is that the collection will at least give a partial return of his money in the future, as compared to other items that depreciate to zero. The article is written from the perspective of a modest means collector, who wishes to enjoy his coins primarily from an artistic and historical viewpoint. Of course he or his heirs will want to obtain at least a modest return on his hard earned money in the future. I will present the "buying smart" strategies from the context of a U.S. type set collector, but these thought processes apply to other collecting specialties such as date collecting, World Coins or ancients.
Getting started
Getting started as a U.S. type set collector is quite easy if one desires a set of circulating U.S. coins. One may pull nearly uncirculated examples from change and upgrade by ordering proof sets from the U.S. mint at less than $20.00. As many state quarters are circulating, this phase can be quite a lot of fun for several months. After the fun phase the new type collector can focus on earlier twentieth century issues. At this point his first buying decisions must be made. Should he buy uncirculated or proof walkers, standing quarters, buffalo nickels etc or settle for circulated grades? As a rule of thumb, this collector would advise that you proceed by acquiring the best grade you can afford, remembering to not show glaring grade discrepancies if you will exhibit. For example, a fine condition standing liberty quarter will "stick out like a sore thumb" in a collection surrounded by about uncirculated or brilliant uncirculated quarters. Excluding Barber quarters, and gold coins, a twentieth century type collection should be assembled at a minimum of the about uncirculated (A.U.) grade.
The second half of the nineteenth century will provide far more difficult grading and acquisition decisions. Does the collector try for extremely fine as the minimum grade or very fine? Should he include all Red Book varieties, even more exotic variations such as the 1859 "hollow star" half dime, or only the major types? The financial resources of the collector, his preferences and patience, all will influence his decision. I would advise purchasing this fifty year period in a minimum of extremely fine grade, even if the acquisitions slow somewhat due to finances. After all, you have your entire life to collect, and attractive higher grade coins always bring more on resale.
The decisions become even more difficult for the first 50 years of the nineteenth century. Are "no drapery" versions of the seated half dimes through half dollars to be included? I believe they are significant variations and have included them in my set. Prices are quite reasonable for the no drapery series in very fine and extremely fine grade. Early gold coins from 1800-1833 are rare due to extensive melting, and are out of the price range of the average collector. I advise focusing on completing gold type from 1834 on in minimum of extremely fine grade. Certain early gold types are also available as legal reproductions (see below). An additional complication now arising is how to deal with poorly struck issues, such as 1808-1814 large cents and 1800-1805 half dimes /dimes. Well struck problem free examples of these series are rare and cost many multiples of average strikes. My usual advice not to buy weakly struck coins still applies here unless the collector is on a very tight budget. Costs rise dramatically in all series for about uncirculated grade and above. This collector has set a minimum grade of very fine for all coins of this period. As always you the collector must make your decisions based on "finances, preference and level of patience". Never buy "bright shiny" early copper or silver unless professionally certified, as cleaning is probable. A cleaned coin is a difficult sell later.
Choice condition eighteenth century U.S. coins become nearly impossible for the moderate means collector. He may think that difficult choices must be made between obtaining extremely worn examples of many series (chain, wreath cents, early dimes) at greater than $500 each, or acquiring choice specimens only after protracted savings plans. I solved this problem by obtaining a minimum of very fine grade for the type coins costing $1000 or less. The remaining slots were partially filled with choice reproductions from the Gallery Mint Museum in Eureka Springs Arkansas or Royal Oak Mint in Michigan. Vacant slots hopefully await further reproductions! Some discontinued GMM issues such as chain and wreath cents, have actually appreciated substantially in the open market. Several hundred dollars spent on choice copies, in my opinion, is preferable to many thousands of dollars for barely discernable specimens provided that the collector is in the game for fun and history rather than investment.
Grading
The topic of grading will always bring controversy, but I will give brief guidelines.
a. Buy a copy of "Photograde" by James F. Ruddy and study all the pictures. Read the fine print about idiosyncrasies in each series. Try to grade yourself all circulated type coins you view, as moderate means collectors will include many circulated coins in their type set or other series.
b. If you are uncomfortable grading yourself, buy only Professional Coin Grading Service (PCGS), Numismatic Guarantee Corporation (NGC) or ANACS certified coins, even if they cost more. The old cliches read true in coin collecting, "you get what you pay for" and "there is no Santa Claus in Numismatics". On eventual resale, a high percent recovery of cost, or even profit, is more probable for coins graded by these services. Lesser known services are more spotty in their standards and should be avoided.
c. Do not buy weakly struck coins, even if attractively priced. A weakly struck coin shows design obliteration only in specific areas, not on all, as is the case for a worn specimen. If you are unsure, pass on it.
d. If you do not like how a coin looks don’t buy it, as others probably wont like it either.
e. View as many coins as possible in all series. Internet auctions such as E-bay, and Internet dealers on-line catalogs are great starters. Go to all local shows and scan the bourse floor! Learning to grade your self before bidding is especially critical for internet auctions, as many coins offered there are grossly over graded.
Optimal Collecting Grade (OCG)
Eminent numismatic scholar Q. David Bowers has presented this wise collecting strategy in his recent work "The Experts Guide to Collecting and Investing in Rare Coins" and elsewhere. Basically, the budget conscious collector will "get the most bang for his bucks" by avoiding grades where the next lower grade is dramatically lower in price. Three examples will illustrate the concept.
Data are from a recent "Coin Values" issue.
The highest grade listed for all three should be avoided. For the 1877-S, AU-58 may actually be the best value and the most attractive, as most MS-60 coins are heavily bag marked.
Avoid "MS-70" certified common modern coins. They are usually highly priced and extremely subject to price downturns, as many more of them will be certified in the future.
Common Mistakes
I have made most of these mistakes myself. "Act in haste, repent in leisure". Warning you of these pitfalls will help in economical collecting. .
a) Buying low grade low price coins to "quickly fill the holes" is always a mistake, as low grade coins have poor eye appeal and have practically no resale value. If you are a compulsive and impatient individual like me you can easily fall into this trap.
b) Not returning a coin with some problem as it is a "hassle" to repackage and mail. Believe me, it is a bigger hassle to be stuck with a "doggy" coin and face the necessity of upgrading it later. Ship it back to the dealer and don’t look back!
c) Buying for profit. Coin collecting is for fun, and a collection acquired over many years can sometimes but not always be sold for gain. Most circulated type coins bring only 30-60% of retail. If you seek profit from collecting buy only P.C.G.S or N.G.C. certified coins in mint state 63 and higher. Even for these coins profit is not guaranteed. The coin market is extremely cyclical with constant switching of "hot" and "slow" series. An advantage for the type collector is his intrinsic diversification by possessing many different series.
d) Impulse buying. Always have a short list of coins you wish to add in the next several months, their range of conditions, and expected price ranges. If the next morning after purchase you have regrets, return the coin immediately.
e) Going off the track. If you wish to enjoy collecting to the fullest, you should focus on at most two collecting specialties at a time. Doing otherwise will squander money and time on what will look like a mishmash with no theme. This collector in addition to U.S. type coins also has small collections of political hard times tokens, civil war tokens and ancients. I focus on only two of these in a calendar year.
Upgrading
In general, if you have the patience and discipline, it is always best to buy your coin just once in a pleasing grade that shows all the design details. Buying lower grade coins to fill the holes was mentioned earlier as a mistake. When you upgrade you become saddled with a lower grade duplicate that you probably cannot sell at retail value, or even at a loss. Thus you are paying more for the item in the long term. If you must upgrade, my general rule is that upgrading less than two full grade units is not worth it. For example, upgrade a very fine coin to about uncirculated, a fine coin to extremely fine, etc. At least in this manner you will also see a significant upgrade in eye appeal and detail, partially compensating for probable financial loss.
Legitimate Reproductions
It was mentioned earlier that many early U.S. type coins are high priced even in low grades. It is a matter of collector preference if you wish to fill these holes with modern reproductions. All legitimate reproductions contain the word "copy" on obverse or reverse. Avoid counterfeit coins or old reproductions without the word "copy" as they present resale and legal difficulties! This collector has been well satisfied with those manufactured by the Gallery Mint Museum in Eureka Springs Arkansas and the Royal Oak Mint in Michigan. They are made with close reproductions of original mint equipment, are original size, and are quite attractive. I collect the uncirculated rather than the proof versions, as they more closely resemble the look of the original coins. "Medal size" reproductions are junk. Avoid them.
Final Thoughts
The extremely successful state quarters and westward journey nickel series have drawn millions of novice collectors into our wonderful hobby. Many of these new collectors have limited finances but have been "bitten by the bug". They will wish to expand into other collecting areas without straining their budgets. I hope this article will assist them in enjoying many years of collecting pleasure.
Author ID
John H. MacMillan, Ph.D.,a collector for over 50 years, is a chemist and teacher who lives in suburban Philadelphia. His collecting interests are U.S. Type coins, Civil War Tokens, Hard Times Tokens and ancient coins. His Numismatic research is on identifying trends or statistics that have not been identified before in existing data. He would like to hear from collectors and researchers and can be contacted at jhm@ix.netcom.com.