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Extended Survey Depicts Good Coin Market

by David L. Ganz

Column 6 - July 7, 1999
Law and Coins David L. Ganz

1394 Third Avenue
New York, N.Y. 10021

Phone: (212) 517 5500   Fax: (212) 772 2720

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         It was just 21 years ago that Salomon Brothers, the white shoe Wall Street brokerage firm, turned coin investment on its head by announcing that the genteel field of rare coin collecting was one of the hottest investments, anywhere.

         Some nine years ago, the annual review by the premiere investment-banking firm was discontinued, as the Federal Trade Commission cited the potential for abuses in the process, and more importantly, the misuse of data by the unscrupulous.

         Even with the market-basket survey discontinued, its basic concept had fundamental value -- so much so that for the past decade, I have continued my own mini-version of the Salomon Brothers survey -- without their consent, but using their basic premise, and data.

         Not surprisingly -- at least to those who are familiar with the rare coin field over the long haul -- rare coins have turned out to be a fairly good investment vehicle. In some periods, they have out-performed the stock market, the bond market, Chinese porcelain, farmland, real estate, precious metals (gold and silver), Treasury bonds, and a cacophony of other investment vehicles.

         Salomon's original intention was to contrast the tangible asset market with the equities market and show that there was an alternative -- though their undoubted hope was that the stock market would do what it has always done over any 15 year period of time: go up, substantially.

         What may be somewhat surprising is that the same is true of rare coins. Over the long haul, that market has done very well, turning a modest investment into a grand one, and making the case for diversification at the very least, and at the most, giving more value to a hobby that turns out to be a darned good investment.

         That rare coins, over time, constitute an excellent investment vehicle comes as no surprise to those who have followed the market for many years. In fact, close observers might say that the steady trend in the rare coin market is better than the jerky movements of the Dow Jones Industrial Average, with which coins is inevitably compared.

         The Dow, of course, is a market-basket of 30 industrial stocks that are carefully weighted -- the aim is to take stocks that are representative of the marketplace as a whole, and use it as an average that can be perennially compared or contrasted.

         Like most market-baskets, the Dow began in a non-computer age when addition, averaging, multiplication, and mathematics in general were a more challenging event than with today's computers. It is, in fact, a hundred years old.

         It is nonetheless a very useful guidepost because it can be viewed and contrasted so easily. In 1974, for example, during the Nixon-Ford years, the Dow stood at year's end at 605 (the prior year, Nixon's last full year in office, it was at 852).

         Today, of course, it is over 10,000 -- or at least has sputtered in that direction more times than not. It is not unusual, in 1999, to see the Dow change over a week's period by going up two percent, then down one percent, up a modest amount, and then down two percent.

         Where, a scant quarter century ago, a 10 point Dow Jones gain made front page headlines in the newspaper, now there are 100 point plunges, and gains, that are not deemed significant enough to merit even a passing mention.

         Components that make up the Dow are carefully chosen. Rooted to an 11 stock average that covered railroads, and was first published by Charles H. Dow in 1886 in his Customer's Afternoon Letter (the forerunner of the Wall Street Journal), the Dow as an industrial average of 12 stocks was first begun 103 years ago on May 26, 1896.

         Starting with just a dozen stocks in 1896 (only one of which, General Electric, is still easily recognizable today), the Dow Jones Average expanded to 20 stocks in 1916. Since October 1, 1928, 30 stocks have been employed.

         Through the years, the components have changed in the Dow Jones Average for a variety of reasons. In 1928, AT&T was dropped and replaced by IBM. In 1939, IBM's fast growth made it a target for elimination from the Dow and AT&T was added back.

         In fact, on March 24, 1997, four stocks that had long been Dow components were removed and replaced by newer issues that were deemed more representative of the market as a whole.

         Today, AT&T (owned by more shareholders than any other company in America) and IBM are used as a barometer with American Express, Boeing, Coca Cola, Disney, DuPont, Kodak, Exxon, General Electric, General Motors, 3M, Proctor & Gamble, Sears Roebuck, and others to measure the nation's economic health.

         It was long thought that rare coins could have a comparable index, but many attempts failed because of a perception that it was simply too hard to create a valid market-basket that was representative of the coin market as a whole.

         Rare coins have been sold at auction for many years, and it is fairly common to be able to trace coin pedigrees to see the price changes that have taken place-- and to use this to keep track of the state of the market.

         One example cited frequently in the late 1970's was New York Attorney Harold Bareford, who spent about $14,000 over a 10 year collection period (1945-1954) purchasing gold coins -- and whose heirs, in 1978, turned that $14,000 collection into more than $1-million at auction.

         One coin and its subsequent history suffice to explain the process. Take, for example, an 1859 $1 gold piece, superb uncirculated, today called an MS-67 coin but with a provenance that dated back to 1950, when dealer Hans M.F. Schulman sold the piece to New York attorney Harold S. Bareford for $10.50.

         Bareford's collection was sold by Stack's in October, 1978, where my catalogue records that bidding was commenced at $900, and thereafter was very active until it was hammered down at $4,750. No buyer's charge was imposed at that time.

         At a time when the Red Book (which had been published just a few months before) listed the coin as $350 for uncirculated, my catalogue notes say that "NIF" were the letters of the winning bidder. (Numbers did not become in vogue until much later).

         Those in the know were aware then that NIF stood for Numismatic Investments of Florida, whose purchases -- even when they were not on behalf of one of its principals, Martin Haber -- always stood for quality.

         Bidding, a decade later, in 1988, when Haber's collection was sold, started at about three times the purchase price at the Bareford sale, and precisely 1,142 times what Harold Bareford had paid for the coin 38 years earlier, in admittedly different times.

         Bidding rapidly rose in thousand dollar increments until the $19,000 mark, which with the "juice" or 10 percent buyer's fee imposed by David W. Akers, and most other auction firms, brought the total purchase to nearly $21,000. The winning bidder: number 256, John Dannreuther, a PNG member who was also a principal in the PCGS grading service.

         The comparable market-basket used to measure the state of the numismatic economy includes a 1794 half cent, an 1873 two cent piece, an 1866 nickel, 1862 silver three cent piece, 1862 half dime, 1807 bust dime, 1866 Liberty seated dime, 1876 quarter, 1873 quarter, 1896 quarter, and 1916 Liberty standing quarter.

         Other coins rounding out the portfolio of what would constitute a nice type set of minor, subsidiary and dollar coinage includes the 1815 and 1834 half dollars, 1855-O Liberty seated half, 1921 Walking Liberty, 1795 draped bust dollar, 1847 seated Liberty dollar, 1881 trade dollar, 1884-S Morgan dollar, and 1928 Hawaiian Commemorative half.

         All of the coins in the portfolio were chosen by Harvey and Norman Stack of Stack's Rare Coins, New York City, the auctioneers and coin dealers who were initially selected by Salomon Brothers to create the portfolio, and also to monitor its progress.

         "We chose these coins because they were representative of the kind of coins that were widely collected," Harvey Stack said in an early, explanatory interview in which he noted that the collection was intended to represent a nice type coin collection.

         That meant, in 1978, that most were choice uncirculated (the equivalent of MS-63 today), rather than gem uncirculated. But, as events clearly showed, that didn't mean that the coins weren't of investment quality.

         No gold coins were included. This was not because type coins didn't include them, but because Salomon Brothers believed that it would cause an unnatural result based on the price changes in the world gold market.

         The Bareford coin collection, and its rapid increase over a lengthy holding period, would more than justify the conclusion -- and perhaps even make for a stronger picture -- but that which was chosen is still a useful planning tool as well as an explanatory one.

         It's easy to argue that the Dow is not the most accurate of barometers; just 30 stocks (which themselves have been weighted to account for stock splits) may not necessarily represent an entire marketplace.

         Yet it is the Dow that is reported daily in the newspapers, in the government's annual publication, The Statistical Abstract of the United States, and even available, historically back to its origins, on the Internet.

         Graphically, the Dow Jones Industrials are easily compared to the Salomon Brothers index. The means of doing this is to use the annual pricing data that appears in various sources, to which condition must be correlated.

         For some time, I have used data originating in the mid-1940's with the Red Book, but this year decided to try and give a 60 year perspective and to include other sources going back to the mid-1930's. That meant finding a reliable source.

         To me, the best guide for that time is one of the older Wayte Raymond guides, called the Standard Catalog of U.S. Coins. It has a longevity (published until 1957) that gives it credence. For the later period, A Guide Book of United States Coins (the Red Book) is useful.

         Most contemporaneously, I have used NumisMedia, whose web site and printed materials offer a very reliable indication of what the fair market value of a coin is.

         There are some adjustments that have had to be made necessary to the process. First, only in the last 20 or so years has grading focused on different states of uncirculated. The early books and quotations are "uncirculated" only. Later prices are MS-63, MS-64, and so forth.

         Other problematic elements are that at one time, MS-65 was used to mean "choice" rather than "gem" in the official vocabulary of the American Numismatic Association, but not many other places. So again, compromise was made.

         Accompanying is a graph that I have prepared with the assistance of a spreadsheet program using about 1,200 separate prices to cover some 60 years of rare coin investment potential. Depicted are coins of the Salomon Brothers portfolio, contrasted with the Dow Jones Industrial Average.

         From 1939 until about 1972, there is a close correlation between the two, with price changes moving almost in tandem. A purchase in rare coins or a purchase in Dow Industrial stocks would have yielded the same approximate rate of return -- stocks perhaps a little more.

         Explosiveness of inflation, most of which was an accompaniment of the Vietnam War, resulted in wage and price controls starting August 15, 1971. This had a profound effect on the stock market: it was part of an overall slump that lasted for years.

         By contrast, the collectibles market jumped dramatically -- though after 1979/80, a peak led to a long valley before prices began to make a recovery in the form of a dramatic march back to the top.

         In 1972, the Dow Jones Industrial Average ended the year above 1,000 for the first time; earlier in the year, to commemorate the occasion, The Franklin Mint sent as a present to all of its shareholders an ingot remembering the instant historical event of the breakthrough to the 1,000 mark.

         The inverted triangles on the accompanying graphs all reflect the Dow Jones average. Of considerable interest, as well, are various coins that are components in the Salomon Brothers market basket, the price of silver, the Consumer Price Index, and other factors.

         The Dow's volatility is well known to anyone who has invested in, or even followed the stock market slightly. One of the charts compares the Dow Jones Industrial Average over a 45-day period (May 1-June 11, 1999) with silver, thought to be far less volatile.

CONTINUED ON PAGE 2

Copyright 2000 by Krause Publications, all rights reserved. Reprinted by permission of the assignee, David L. Ganz. Unauthorized reproduction is a violation of Title 17 of the United States Code and other statutes.


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