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HistoryStudent | 12-06-2008 09:59 PM
Back to BASICS info for old and new collectors Investment Rules Saving Time And Money The following list can save you time and money because it provides a great set of rules to follow before investing in precious metals or rare coins. Take a few minutes to learn what you can do to protect yourself and your money before a purchase is made. Also keep in mind that there are more excellent dealers than poor ones. We simply suggest a more careful approach. If you have any specific questions please feel free to email me directly at RSchwary@aol.com. You will receive an honest answer and there is never any obligation. Do the best you can to avoid high-pressure sales tactics and take the time to be informed. If you feel uncomfortable buying a coin from a phone person it can be a warning signal. When in doubt sleep on it and decide the following day. CNI does not use commissioned salespeople because it always places the dealer's interest before the customer. To be fair some firms do use commissioned people and they believe in their products. So it's natural for them to get excited over a coin. That's good for it brings you an opportunity, but make sure you ask questions and understand the details. A slower approach is a good idea especially if you are new to this business. Also keep in mind ethical dealers are not interested in bothering you. If you receive unwanted calls just explain this fact, and if they persist draw your own conclusions. The government protects consumers from unwanted phone calls and the process is fast and easy. Check it out by using this link: US Government Do Not Call Registry Make a distinction early on between bullion related coins and certified rare coins. There is a big difference and not understanding this can lead you down a bumpy investment road. Actually the distinction is easy if you keep a few rules in mind. First a bullion investment is defined by a bullion coin which is not certified and trades for close to its weight. It will go up or down following the commodity price, and there is no rarity to the coin or bar. But here is where it gets tricky. Always figure the cost per ounce of a bullion product for yourself. It is easy to figure what a 1 ounce bullion gold coin should cost but more obscure when the bullion coin gets smaller. And don't assume that because the dealer is cheap on large bullion coins he will also treat you right on smaller bullion coins. If you like the non-confiscation possibility which is so often raised today the smaller bullion coins like the British Sovereign (0.235 Oz Pure Gold) or the French or Swiss 20 Franc (0.186 Oz Pure Gold) work well. Just be sure to multiply their weight times the price of gold and add about 5%, maybe as much as 10% if you love the guy and want to send his children to private schools. Don't pay more unless you don't like your money. Some dealers charge up to twice our selling price for these smaller bullion coins hoping the buyer will not compare prices. If challenged on their higher selling prices these dealers tell the uninformed investor that their coins are better quality and so are higher priced. This justification is not true because of the following: All large dealers buy these gold coins from the same international sources, pay the same price, and get the same quality. There is no difference in these coins. The extra money you pay goes into overhead and commissioned sales. Second a certified rare coin may be weight related like the $20 gold piece, but usually is not. When investing in PCGS certified rare coins you are investing in rarity. Price increases depend not so much on higher commodity prices (although it helps) but more on growing demand and shrinking supply. So how do you know if your paying too much for a certified rare coin? Just like anything else you check around and compare prices. After you have established a good relationship with a dealer this issue becomes less important but in the beginning do your pricing homework. When comparing prices make sure you are offered the same coin and same quality. If you're shopping for price on a PCGS coin, make sure you're not quoted on a coin graded by NGC. The Numismatic Guaranty Corporation is one of the other grading services and it's important to understand that prices between PCGS and other services often differ substantially. It is an old and unethical trick to offer people their choice because few investors initially understand the distinction between PCGS and NGC. In 90% of the cases the dealer ships NGC because this coin costs him less so his profit margins are larger. The important point to remember is that different grading services carry different price tags. Grading services are not the same just because the stated grade is the same. When considering independent certification of rare coins PCGS and NGC are the most accepted services. We deal exclusively in PCGS graded coins because, in our opinion, they are more consistent, stricter on assigned grades and actually back up their grades with a cash guarantee. With these PCGS guarantees why settle for anything less? There are however many other grading services. Some are reasonable and some are terrible. The not-so-good ones simply don't have the expertise to consistently and accurately grade coins. Consequently be careful to scrutinize the service you are offered and avoid this problem of "no-confidence" in the stated grade. Like I said, insist on PCGS and be assured of getting all the money when you are ready to sell. Keep in mind that dealership size has little to do with honesty, good investment advice, or good pricing. Of the 5 top national rare coin dealers that are well known for radio or television advertising, 3 are so far off the pricing mark on certified coins as to make your chances of making a profit very small indeed. Most investors shopping these companies could have saved a full 25% on every coin! So what to do? The answer is straightforward. Do a little shopping around before you invest your hard earned money. Don't believe that just because the company is large that they have your best interest in mind. Also keep in mind that if you are given a great deal of legal disclaimers before the sale consider carefully before signing off on any transactions. You may give yourself no out if the company you are dealing with has vetted all their paper work to protect them and not you. Avoid short-term trading of rare coins because your capital is used up in commissions. In the old days the common wisdom said purchase rare coins and hold them from 5 to 10 years. Even with the advent of PCGS grading this wisdom should hold. It is true that for the first time in history you can figure the number of coins graded and electronic systems flash prices daily. This means profits or losses can occur faster, but specific holding time is still a difficult thing to determine so here are three rules to remember: First, if you want to buy and sell coins in the short-term stick with bullion coins. Second, remember that rare coin prices run in cycles, very similar to stocks. Sometimes they are up, and sometimes they are down. Avoid dealers that fail to address this in their sales presentations. It is true that investment in high-grade rare coins has been profitable over the long term. But there have been cycles that were bearish just like the stock market. Anyone who purchased good quality rare coins in the 1970's made money until high interest rates caused prices of all rare coins to plummet in 1980. It took almost 6 years for the market to recover and begin to move higher again. Third, when buying a PCGS rare coin study its pricing graph for clues as to where you are in the cycle. The study of price cycles is an excellent way to position your money in quality rare coins that could perform over the long term. The Certified Coin Exchange is a satellite-controlled, computer-based trading system that was owned by The American Teleprocessing Corporation (ATC) for years. It has just recently been purchased by the same publicly traded company that owns PCGS (CLCT). This system is where many PCGS certified coins are traded between 300 major dealers nationwide. Such a system was unheard of prior to 1986, but since that time trades and prices are a matter of record. The Grey Sheet uses these records and other sources to compile graphs that clearly show coin prices for the past 20 years. This information is important to the investor interested in buying and selling certified coins for a profit. Any professional dealer will supply graphs to you free of charge. Ask for them and you will know exactly what any particular coin is worth and where in the cycle you are at the time of purchase. Learn not to leave money on the table when selling your certified coins. Even with the grading standard established by PCGS in 1986 there could be some variance in the assigned grade. That is shop talk for making sure when you sell your coins the buying dealer is not upgrading the coins and putting the money in his pocket. A good rule to follow is that if you have old PCGS coin holders get an opinion as to whether the coin might upgrade before you sell. There are always federal forms that must be filled out when you pay or receive $10,000 or more in cash (the real green kind). And no you can't spend $5000 today and $6000 tomorrow for Uncle Sam does not like to be fooled. If you deal in checks or wires no one cares about the size of the deal and there is no reporting. It is your responsibility to report losses or gains on your income tax returns, but this type of reporting is not our responsibility. Contrary to what some believe your local coin and bullion dealer is not a agent for the government. They must follow a few simple rules which for the most part do not interfere with free trade. Sales over $1000 within California are not subject to state sales tax, and neither is any product mailed out of state. The foundation of rare coin investment centers on a coin's condition. This condition defines its rarity. As condition increases so does rarity. This is true because most people used early coinage for commerce thus making high grade uncirculated examples difficult to locate. This in turn made them more desirable and overtime more expensive. Certified rare coins are described using the Sheldon Scale. It begins at 1 for a just recognizable coin and progresses to 70 for a theoretically perfect coin. As the grade on the Sheldon Scale increases so does rarity and price. It is also generally accepted that the higher the grade the better the investment potential. Most investment grades fall somewhere between MS-63 and MS-66 unless you are considering very early federal issues. These early coins are seldom available in Mint State so PCGS circulated grades are the norm. You will notice we have stayed between MS-63 and MS-66 because you get more for your investment dollar. The cost of so-called "super-grades" (MS-67 and higher) can be prohibitive and accurate pricing is sometimes difficult. Be careful of this area unless you really know what you are doing. When considering rare coins stay within your budget, purchase the highest grade available, and balance rarity with popularity. An MS-64 example of any coin is better than the same coin in MS-63 condition. Likewise an MS-65 example is better than an MS-64 if it fits your budget. The reasoning behind this rule is simply that as the condition of a coin increases, its rarity moves up dramatically. A one-point increase on the grading scale may increase rarity by 2 or 3 times. Also keep in mind that coin popularity can be more important than rarity. It does no good to have a rare coin if it is not popular and therefore demand is poor. Never purchase an investment rare coin unless it is graded by The Professional Coin Grading Service (PCGS). It follows that you should avoid other grading services that are described as "just as good, or even better than PCGS". This is important because the price of a rare coin is tied to its condition. A mistake in the grade can alter value dramatically. Differences in grading prior to PCGS (1986) led to difficulties. What was an MS-65 dollar to one might not qualify to another. This issue was resolved when PCGS began independent grading and encapsulation of rare coins for a fee. PCGS is not in the business of selling coins and developed "Third Party Grading" to such a degree that it is an accepted standard among America's top 300 dealers. You can buy PCGS MS-65 coins in California and receive fair value for them in New York. This universal approach modernized coin investment. Remember The 40-Year Rule in rare coin investing. Simply stated you should avoid rare coins that are less than 40 years old. Why? Because there has not been enough time to establish a secondary market that will provide valuable pricing information. Remember that age does not equal rarity. An Indian Head cent in circulated condition is old but will never be rare because the US struck millions, most of which are still available today. For investors considering coins struck after the Civil War an uncirculated example is a good choice. From the early beginnings of the Philadelphia mint (1794) to the early 1860's uncirculated examples become rare and expensive so investors consider higher grade circulated pieces. Avoid high premium Mint Issues, Proof Sets and modern so-called "investment" coins by the China Mint unless you don't like your money. The recent move into "certified bullion coins" is a prime example. Certification only matters if the condition of the coin is important. Since all bullion coins trade for close to their metal content the notion that certification adds something to the value of the coin is nonsense. If you are buying bullion coins pay for weight, there is no rare coin value to consider and the resultant populations are meaningless. Buying a high-grade coin emphasizes that coin's condition and therefore its rarity. As opposed to making its date and mint mark an important feature. Investing in condition rarity has a large and well-developed following. It also has plenty of printed material, including price graphs, which makes investing easy. It is sometimes better to avoid coins of lesser grade because they can be too common, which limits your upside. Coins like this are recommended on the assumption they have potential because they are inexpensive. An example is gold in PCGS MS-62 condition gold. It is inexpensive because it is plentiful. A better choice is PCGS MS-63 gold or, if your pocketbook allows, PCGS MS-64 gold. Silver coins, on the other hand, are generally less expensive than their gold counterparts, and therefore one can afford the higher grades of MS-65 or even MS-66. Always explore the difference in cost for the next higher grade. Why? Sometimes you can purchase a coin that is significantly more difficult to find, yet its additional cost is nominal. You can also combine a high-grade coin with a rare date and mint-mark. Sometimes called "Key Date" investing, you now have two reasons that work together to make this coin desirable. This area also has a large following, but some caution is necessary. Just because there is a lower population for these coins (meaning fewer have been graded) does not necessarily mean they are worth more money. It may well be that no one considers the date better and therefore does not submit the coin for certification. Here the rule is simply that the coin in question must be a bona fide better date to be worth more! So what about a better date that does bring a premium? There are a number of these significant coins in grades PCGS MS-63 through PCGS MS-66, and they have great investment potential. Good examples of qualified better-dated material are MS-65 Morgan or Peace silver dollars. Better-date Walking Liberty halves are also excellent long term investment coins. All of these coins and many others have been collected by date for decades, and are recognized as costing more in A Guide Book of United States Coins. Look them up to know which ones are within your budget. There are also better date areas with excellent potential that have not had time to develop a large price tag. Many $10 and $20 gold pieces fall into this area. Ask plenty of questions before you purchase hard assets. Any professional dealer will welcome the opportunity to fully explain these markets. That is his job, and such knowledge will help you decide which coins are right. If a dealer cannot explain the good and bad points of any coin transaction be careful, as it may indicate he is more interested in a sale than your long-term business. Sell a coin now and then to get an understanding of how the market works. We don't suggest using this tactic with abandon but it is a great way to see how you're doing. Even if you're not interested in selling ask your dealer what your coins are worth from time to time. It is good business for both buyer and seller and it will give you some valuable insight. At the same time such interchange may produce opportunities to better your position should a particular issue move up or down. Don't be afraid of a falling market. Believe it or not there are many great opportunities to build significant collections when prices are going down simply because everything begins to look affordable. You should be investing for the long term and over many years markets tend to recover and move higher. So the investor who has time on his side has a significant advantage. If possible visit your dealership, for this will tell you many things about the way they do business, as opposed to taking their word for everything. A dealer's place of business will tell you much about how he looks at you, the customer. If your collection is a bunch of "stuff", take the time to sell inexpensive and common material. You are then in a good position to replace it with quality. This is important because poor quality coins are more common than higher grades and therefore do not perform as well in a rising market. If you're not sure we are happy to look at the collection and make recommendations based on your needs. And should you decide to sell we always pay more in trade. Avoid misleading ads designed to make you think the coin offer is coming from our government. This is done all the time and first-time buyers are easily fooled. This investment folly is easily avoided if you shop around. Those "100 year old Morgan silver dollars, just released from the Federal Mint, being sold for $23 while they last" will dissolve in a puff of smoke. It has also become popular for coins to be sold on television. When people see coins and banknotes on T.V., they may believe there is a great deal at hand. In fact just the opposite is true. Any article sold on television requires a substantial markup because such advertising is expensive. Beware of unrealistic promises for there are no coin genies waiting to recommend the one coin that will make you rich. In fact no one knows for sure if any coin investment will produce a profit. Read carefully our section on cycles and it will become clear that hard assets can and do go up and down in price. The best chance anyone has is to prepare for an up cycle with quality coins. It is fair to say that investors have made fortunes in rare coins over the long term. But just a much money has been lost to those who were forced to sell in a down market. Avoid dealer controlled coin storage programs. Even those offered by reputable and well-established firms. Literally millions of dollars in investor funds have been lost when the company closes its doors and coins "on deposit" are nowhere to be found. Take delivery of coins as soon as possible. If the volume of material is large, or you simply don't want to store the coins yourself consider a professional independent storage facility. We recommend DDSC which is used by the CBOT and is referenced on our site under Secure Storage. Avoid quoted prices that seem too good to be true. Reputable dealers know what they must make to stay in business and the good ones are happy to discuss price. If you are quoted prices that seem too cheap, be cautious. You may never see the coins, the quality delivered will reflect the price, or you won't have a return privilege. Rare coin and bullion prices do vary from dealership to dealership. That is why we offer a guaranteed lowest price policy which states that at the time of purchase if you can cite a bona fide source willing to quote less on the same coin just let us know and we will beat the price. Read a few related rare coin books along the way. One of the best is a classic and should be part of everyone's library. The Official Red Book or A Guide Book Of United States Coins by R.S. Yeoman. We have 50 examples of other rare coin books in stock and can recommend specifics depending on your interests. Which coin transactions are reportable to Uncle Sam and which are not? The Industry Council For Tangle Assets suggests the following rules: ICTA Link An example might also help: When an investor sells 25 gold Krugerrands a dealer must fill out a federal form. The same investor selling 25 gold Eagles requires no such form. Why? Because these rules are not consistent. So if government reporting requirements bother you, do your homework before investing and avoid products which fall into the reporting area. There are many gold bullion coins that have no reporting requirements. If you're an advocate of the secrecy gurus, and can visit us in person, take advantage of "no name" invoices that are legal and make up a great number of our daily transactions. The buying of rare coins is not reportable unless you pay more than $10,000 in cash. Finally, do business with members of The Professional Numismatists Guild (PNG). The PNG has represented the very best the coin industry has to offer since 1955. Members must past strict background and financial scrutiny while demonstrating complete competence within the trade. This organization is the only one that offers the consumer binding arbitration in case of problems. If you don't like the way a PNG dealer treats you it is easy to contact the Guild's Executive Director and arrange a simple three way arbitration that costs nothing and is legally binding. The above came from the CNI website - In Inglewood, CA I always say that one should remember the basics - in everything. HS best wishes

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