I have a few who I communicate with on a regular basis and have been for many years (from when I started my former blog). Some have even written guest posts for me.
One of those friends is a coin collector of sorts. I don’t think he’s really into it like some, but he does buy coins now and then and sends me an email about them.
I live vicariously through him. I LOVE coins (and have since I was a child), collected some through the years (mostly by accident), and would love to start collecting seriously. But I stop myself because I think I would probably go overboard and coin collecting could be a big time and money suck.
This friend emailed me a couple months ago (as you’ll see below when prices are quoted) and asked if I wanted to interview a friend of his who was an expert coin collector. I said I didn’t even know what questions to ask and asked my friend if he’d interview him instead and send me the transcript. That’s what is posted below.
The interview is with “Dr. Dave”. He has his doctorate in Physical Chemistry from the University of California at Berkeley and works in providing compounds used in the semiconductor field. He’s also an avid coin collector, as you will soon find out.
The questions from my friend are in bold italics while Dr. Dave’s responses follow. It jumps around a bit but I think those of you interested in coin collecting and precious metals will find it fascinating. I did. Enjoy!
Dr. Dave, I have known you since senior year of high school (roughly 34-ish years). I knew back then that you were a coin collector and not an investor at that time. I have spoken to you many times about buying coins and trust your opinion and knowledge. What do you think of buying gold and silver in coin form as an investment?
If you just want to buy precious metals, coins are the worst way to go. You’re better off buying just ingots of metal.
Here’s why: turning metal into a coin costs money and people will pay for that.
Example: As I write this, gold is $1,268.4/oz and silver is $17.36.
The US mint will sell you a 1oz gold Eagle for $1,575 plus shipping. The silver Eagle is $22.95 (plus shipping).
The coins do come in fancy packages and cases, but you are paying a premium for the coin over the metal.
Now a coin investor is a person who buys coins in the hope that they will increase in value at a rate higher than inflation.
Just like anything else, sometimes values go up and sometimes they go down – so this investment is not without risk.
I am a coin collector. I collect coins for the beauty and history of the coins and to satisfy my mild OCD urge to have a complete set of something.
Some people do invest in coins, what are some of the coins people hold on to if they want to invest in coins and not just the physical metal?
Condition is everything when dealing in coins. It is also very subjective.
A while back, coin grading companies started “Slabbing” coins. What happens is you send them a coin (and a fee) and they have their experts rate the condition. The condition and description is printed out and sealed inside a plastic slab along with the coin, a hologram (to prevent counterfeiting) and a certificate of authenticity. In this way, the coin is protected and the rating is kept with the coin. This is supposed to make it easier to buy and sell the coin since a disinterested third party has rated the condition for you.
It helps, but isn’t perfect. For one thing — people make mistakes, even people employed by coin grading companies. And a buyer can still disagree with the rating — even if it was done by an “expert”. But the slab does protect the coin.
Confession: I hate slabs. They are bulky. Each one is 2 by 3 by 1/4 inch. The 324 coins in my penny collection would take up a huge amount of room instead of two 1″ thick books.
They also seem cold to me and take a lot of the fun out of collecting. But I started long before slabs came out so YMMV. That having been said — if I were buying a coin strictly as an investment, I’d probably go for slabbed coins.
Every run of coins has “Key dates” that is: dates and mint marks that are difficult to obtain. These are usually the last coins a collector will fill into their set. Most often these are due to a low mintage year or some other anomaly. For instance, the 1909S-VDB and the 1914D penny that I mention below are key dates.
These would be the ones to invest in or buy first for the collection. Most collectors buy them last because the price of these coins can often equal the price of every other coin in that set. You can find key dates for any run of coins with a simple Google search. Key dates are great to invest in because they are easy to sell. Anything that is difficult to obtain is easy to sell.
A Cautionary Tale about Coin Investing
Back in the 90s (before I met him) a good friend decided he needed to diversify his portfolio into some physical assets.
Understand, this is a smart man and I have a lot of respect for him. He had done very well for himself and his family by investing prudently in stocks and mutual funds.
He fell prey to a hard sell by an investment company. The company “guaranteed” double digit or high single digit appreciation. My friend gave them $10K to buy coins for him as an investment.
He had no idea what he was doing. He trusted the company and did not select the coins himself.
The company sent him several boxes of coins. All of the coins were in standard coin packaging. STD packaging is a cardboard folder with a cellophane window sized to the coin so that it is protected from handling and you can still see the coin. The holders cost less than a penny each. My friend put the coins away and figured they would be quietly appreciating in value.
A year to the day after buying them, he got a call from the investment company. They told him he needed to bring the coins down so they could be inspected and repackaged “for a small fee”. In this way, they could guarantee his investment would appreciate.
My friend immediately thought “Oh $h!t!”. That’s when he knew he’d been conned. He didn’t know much about coins but he knew you didn’t have to check them regularly. It’s a piece of metal — not a house plant. And you don’t handle them any more than you must as repackaging can cause wear.
Years later, in the early 2000s this friend asked me to look over the coins and give my opinion. There was nothing special there. They were all common coins in fair to good condition. He generously offered to give me any of them that I needed for my collection. I don’t think he had a single coin that was in better condition than anything I already had. There were no key dates or rare mint marks in the bunch.
He asked my help in selling them and I put him in touch with my dealer friend. The dealer took about 6 months to sell them all. This means he didn’t just dump them at the next show, but held out for the best prices he could get.
I think my friend got back about three or four thousand dollars. Keep in mind this is after holding them for over a decade. He got taken.
How did you get started and how long have you been collecting?
My father had a coin collection and I recall being fascinated at a young age by the fact that I could hold a coin that was 100 years old. I had no means to buy coins at the time so the idea of my own coin collection was just a dream. That was until I read an article in Boy’s Life magazine about starting a penny collection. This was back in the early 70s and you could still find Wheat cents in circulation. Wheat pennies were minted until 1956 and had a very different reverse than the current Lincoln Memorial. So, I guess I’ve been collecting for 45 years. OK, now I feel old.
Shortly after that, I got my first paper route and could start collecting all the current circulating coins. I stored them in the blue Whitman coin folders that you could buy in the local dime store. These folders had a cut out for each coin by date and mint mark and had basic information about the coins – mintage numbers, things like that. These folders fed my OCD tendency because I really wanted to fill each empty spot.
Mint marks: The US has three mints that make coins: Philadelphia, Denver and San Francisco. The mints are identified by a P, D or S on the coin. If there is no mint mark – it is a P. In different years, different mints made different amounts of coins and that can affect value. In recent years, the only S coins are available in Proof Sets. Proof sets are a special set of coins in a sealed plastic case that the mint makes to sell to collectors. They cost more than a basic uncirculated set.
Do you focus on anything in your coin collection? Can you explain what and reason why?
See above. I started with change that I got. Several years in retail helped with that, I’d stay late and go through the register to see if it contained any coins I needed. I’ve broadened to older US coins since then – mostly to have something to collect. I also have a nice Canadian coin collection from when I used to live in Detroit and Buffalo. I’ve stopped adding to it since I now live in TX and don’t see those coins anymore.
Where do you buy most of your coins?
These days I get my coins from the mint or coin shows. Every year I buy 2 mint sets and 2 proof sets from the US mint (www.usmint.gov). This year the uncirculated sets cost $20.95 and the proof sets $26.95 (There are twice as many coins in the uncirculated sets as the proof.) I keep one set of each untouched and cut open the other set to put into my coin books. Many collectors consider this sacrilege, but I do it for my enjoyment.
There have also been times in my collecting history when I could buy a complete set cheaper than I could buy a single coin that I needed to complete a year. Does this make sense? No, but welcome to collecting.
Coin shows are held regularly and are just a bunch of collectors and dealers selling items to each other. They are useful for coins that are no longer in circulation.
Have you sold any of your collection? If so do you remember the reason why you sold and did you make a profit?
When I first started collecting, anytime I got a better-quality coin than what was in the collection I’d swap it out and spend the lower quality coin. Now that I buy most of my coins, I will upgrade (By now I’ve probably replaced almost all the coins I ever got in change) and I have sold some coins but I find it to be unpleasant. Currently I have several bags of coins that I’ve upgraded that I tell myself I’m going to sell one day.
I have made a profit a few times, here’s an example of that and why I find the experience unpleasant:
The mint makes a third collectors set called a silver proof set. Your quarters, half dollars and dimes haven’t been made of silver since the mid-sixties. Currently, they are a mix of copper and nickel. But the mint makes a special set where those coins are pure silver. It costs 2 or more times as much as a regular proof set. I bought these for a while then stopped because they take up a lot of room. If you’ll recall, back in 2010, Silver broke $40/oz. So, I had two things going for me here – appreciation due to time (No guarantee, YMMV) and appreciation due to metal content.
When you go to sell a coin to a dealer they will pull out something called a “Grey sheet”. This is a publication that you can buy that gives the “Bid” and the “Ask” for each coin. (Bid is what you buy for, ask is what you sell for.) This number will vary depending on condition and you will often find yourself arguing condition with the dealer. In my case, however, this should have been an easy transaction because a proof set is sealed by the mint and the coin’s condition is therefore fixed.
Well every dealer I approached found one way or another to drive the price below bid – even to the point of critiquing the outside cardboard package! This left a very bad taste in my mouth and I can only imagine it is worse when you also have the condition of the coin to take into consideration and argue about. I still made a nice profit and, more importantly, freed up room in the safe from something I no longer wanted to collect, but it wasn’t fun and I collect coins for fun. (And to sate my OCD tendencies).
I now have a relationship with a dealer – a man I trust who travels the state going to shows every weekend. He also buys and sells coins via the internet. I tell him what I want and he keeps an eye out for me. The next time I want to sell something, I’ll let him do it for me. He’ll take a small commission, but will probably get a better price than I could just wandering around the 6 shows per year that I go to. This will also eliminate stress and the bad taste in my mouth,
What has been you biggest surprise in a purchase?
That you can buy a coin for less than its current value.
I was looking at a coin that was worth $100. I knew it was worth that because I had done my research. The price was $100. It was fair. The problem was that I only had $85 left in my coin allowance for the show. The dealer noticed me looking at it and asked if I was interested. I decided to be honest with the man and told him that the price was fair, it was a nice coin, but I just didn’t have the money for it. He asked me what I had and I told him $85. He looked at the coin, read his code on the back and said he’d take the $85. I was happy – so was he.
This illustrates a very important point – the value of anything is exactly what someone else is willing to pay for it. All the books in the world can say that a coin is worth $100, but if the best offer you get is $85 – then the value is $85. Also, keep in mind that the dealer didn’t pay $100 for it either. He paid less either by buying it a long time ago or by buying a large collection or by paying less to someone who was desperate to sell.
Most dealers know what they paid for a coin and have some code on the back of the package that tells them that. Most dealers also know that the key to being profitable is turnover. It’s better to make a few dollars on a coin and turn that money over into new stock than it is to sit on stock that isn’t moving.
You should always bargain. Full disclosure: I am terrible at bargaining. My wife, on the other hand, can just smile and ask and usually get between 10 and 20% off. (Oh yeah – coin shows are predominantly male. I’m sure this has NO influence on her getting discounts.)
What was your biggest disappointment?
It must be the multiple times I’ve bought a coin I already had in my collection. Worse yet, sometimes I bought a lesser quality coin than what I already had. You need proper records and you need to keep them up to date.
What was your biggest mistake you felt you made?
When I was new to coin collecting I wanted all my pennies to be clean and shiny. That same Boy’s Life article had a method for cleaning coins that involved boiling them in a mixture of vinegar and table salt to clean them and then polishing them with vegetable oil.
NEVER CLEAN COINS! The mixture above produces a mild hydrochloric acid solution which eats the copper along with the corrosion. The vegetable oil soaks into the coin book and weakens the paper allowing water to get in and corrode the coins. You will see coins downgraded by a grading service (see Slabs) because they’ve been cleaned.
I know you have a collection of pennies from all the different mints from some date to present. Can you elaborate on this collection? Like how long it took you to complete? What was the hardest penny to find? Other than face value and all the hard work it took for you to find all these would this be of value to someone else as a collection? Is this something of worth to an investor or more of a collector? Why did you decide to do this?
Most of this was covered above. I have a Lincoln cent collection that spans 1909 to the present year. I have every mint mark made.
I do not have the errors – yes people collect those too and there are some famous ones that even make their way into the storage folders.
I do not collect error coins because they are way too much money and they can be counterfeited. Example: In 1922 there were no pennies made at the Philadelphia mint. The penny did not have a P mint mark at that time so all 1922 pennies should have either a D or an S. But one of the dies wore out to the point where the D was missing. This is an error.
Today’s technology allows unscrupulous people to remove a mint mark with an industrial laser that is almost undetectable. One of the most famous errors in US coin history is the “Three legged buffalo” where the buffalo nickel die became clogged resulting in a missing leg. Some people estimate that there are more counterfeits of this coin than originals.
The hardest penny to find was the 1909 – S VDB penny.
This is a cool story. When the mint commissioned the design for the new Lincoln cent to replace the old Indian head cent the designer put his initials “VDB” on the die. The mint did not notice at first and, when they did, they got upset and removed his initials, but a half a million pennies had already been minted and released. This caused a rarity of the mint’s own making. These coins are very desirable and popular with collectors. I resisted buying one for a very long-time due to the premium but eventually broke down and bought “The last coin to complete my collection”.
Side note, the second most difficult coin to get (and thus second most expensive) is a 1914D coin and I’ve had that in my collection since my paper route days – meaning I got it in change. Now that’s cool!
Selling coin sets is an interesting conundrum. Believe it or not, most collectors are in it for the thrill of the chase. A complete set like I have has a distinct value, but most of the time, you will get more by parting it out. This is what my dealer friend tells me.
I know there is a difference in collecting and investing. Some people are more collectors than investors (for the hunt and fun of it) while others are more investor than collectors (for a profit). Can you explain to us your view of where you classify yourself as on this scale over your years?
I am and always have been a collector. If I wanted to make a profit, I’d need to pay for a table at the shows and go to a show every weekend buying and selling. This does not sound like fun to me. There is another way – identifying coins that you think will move faster than inflation and buying them. Just keep in mind that you can be wrong and there can be costs involved in selling.
What are your best resources for education?
The internet of course. Beyond that, buy and read (I mean read!) “The Red Book”. The official title is “A guide book to United States Coins” They come out with a new one every year with coin values updated for the previous year, but the information about coins and collecting is very useful. You can probably find older copies for very cheap. Also, if there is a local coin club – join it.
If someone were to buy coins as a hobby and just collect for fun and knowing that it could make a profit or loss what advice do you have for them?
Buy the Red Book, look through your change, buy good storage materials (I like the books, other people like the individual cardboard holders).
Read about coins online and in the books. There are internet coin dealers. Some are good – some are bad. I don’t do that because I want to hold a coin in my hand before I buy.
If you have a small local bank, build a relationship with one of the tellers. Tell them what you are looking for. A lot of them will help you.
Back in the 80’s I was buying all the Ike dollars I could get my hands on. These were a large silver dollar (copper nickel, but everyone called them silver dollars) that the mint had discontinued in 1978 and I was convinced that they were going to skyrocket in value so I asked my local bank to hold any they got for me.
One day I walked in and heard the tellers say “Shh. Here he comes.” I completed my business and then asked if they had any Ike dollars. The teller proceeded to dump about 70 of them on the counter in front of me. They all had a good laugh. At the time, I only had about $20 on me and asked if they would hold the rest until tomorrow. They were happy to do it.
So, how did that “investment” pan out? Well I have around 100 Ike dollars that I paid $1 apiece for in, let’s say, 1985. I haven’t gone through the set to see if there are any key dates, but I kind of doubt it. The market for circulated Ike’s is $1.80. So, my investment is worth $180. Maybe. What would that $100 be worth today if I’d put it into an index fund? A heck of a lot more!
But (and this is important.) I would not have put that $100 into an index fund at that time of my life. This was hobby money. If I hadn’t spent it on coins, I’d have spent it on something else.
If someone wanted to invest in coins (for a profit) what advice would you have for them?
Do your homework.
Buy slabs. Buy key dates to keep your count of coins low.
Build a relationship with a dealer.
Buy gold coins when gold is low so that you are paying for the collector value – not the metal value. The same goes for silver.
Have a safe place for storage – safety deposit box, safe, something.
Last story: I used to work retail in Grosse Pointe, Michigan. This is a very rich suburb of Detroit. Every now and then some kid would get into dad’s coin collection and spend it. You could always tell when this happened because Mercury dimes and Liberty quarters along with Franklin halves would suddenly appear in the cash register. I would then hit up the other stores in my area and pay 10% over face value for these coins. The other retail workers were happy to get the premium and I added a lot to my collection on those weeks.
LOCK UP THE COINS!