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Seeking profit only leads to loss

CoinsInBoxYesterday, as has happened hundreds of times before, a customer approached me who is considering taking up the collection of rare coins for a hobby. He was nearing retirement and looking for something to do with his anticipated spare time.

There are a lot of basic bits of information to share with a prospective new collector. However, I like to begin with a cautionary note on someone’s underlying motivations for becoming a numismatist.

My company was founded in 1971 by R.W. Bradford. He did well enough in the 1979-1980 bullion boom to retire, selling out the last of his ownership interest in 1994. While serving customers selling collections, Bradford asked them about their level of involvement with their holdings and whether they had made a profit at the time of sale.

He heard two kinds of answers with remarkable consistency. Those who had started collecting coins solely with the idea of making a profit and not wanting to invest the time to become numismatists lost money more than 90 percent of the time. On the other side, those who had educated themselves as numismatists and stayed with collecting for at least five years ended up selling at a profit more than 90 percent of the time.

This was a repeated pattern over a number of years, in good markets and bad. If you think about it, these kinds of results make sense.

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An investor in rare coins often just wants a dealer to select good rare coins to purchase. As a result, some dealers may choose to sell coins where they maximize their own profits rather than suggest purchases that would be in the best interest of the buyer. Of course, a buyer who is not knowledgeable about the quality of the coins and paper money they are purchasing is more likely to be stuck with “problem” pieces or “optimistically” graded items. Often, such buyers also end up paying much higher prices for the rare coins and paper money they acquire than if they take the time to comparison shop.

Serious collectors, on the other hand, tend to develop grading skills for the series they collect. They usually know enough to avoid damaged or cleaned specimens. They also pay attention to prices in all respects. For instance, experienced collectors judge which grade of a particular coin represents the optimum value in the current market. They also pay attention to a market to stay away when prices are strong and be a buyer when the market is near a bottom.

By studying rare coin and paper money markets, collectors are more likely to detect the occasional overheated market and cash in at an opportune time.

Becoming an experienced numismatist does more than expand your knowledge and enjoyment of the hobby. It also helps you achieve better results than someone who just wants to make a quick profit from an “investment.”

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Other commentaries are available at Coin Week. He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly.” His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing.

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