Coin Portfolio Outpaces Stock Performance By David L. Ganz, Numismatic
September 25, 2008
For some 30 years, this is the season to look
back on a market basket that gave important, symbolic meaning
to the rare coin market and set coin investment aside as a
growth industry. In the process, it attracted Wall Street
to rare coins as an alternative investment vehicle.
Newsflash that a market basket had been established by the
white shoe investment banking firm of Salomon Brothers came
in 1978. The tip-off came when the economic review publication
of the Federal Reserve Bank of Boston published an academic
article calling attention to an annual study being prepared
under the aegis of R.S. Solomon, a managing director of the
firm looking for new investment vehicles.
Salomon was looking at stock and bond prices - the Dow Jones
industrial average had gone from 831 in 1977 to 816 in 1978,
then up to 839 the following year - and sensing that there
had to be investment vehicles that made better rates of return
than a then-stagnant market.
Rare coins were coming into their own as an investment vehicle;
there were some SEC filings for limited partnerships. There
was also a push from larger firms who outreached to collectors
with telemarketing. There was a lot of direct mail that was
geared toward a program of investing in numismatic product.
Numbers helped this decision along. As the Dow
stood stagnant, Standard & Poors confirmed was at 107
in 1976, went down to 95.1 in 1977, saw a modest gain to 96.11
in 1978 and finally got back to 107.94 in 1979. But how did
other areas do during that time frame, and why coins?
R.S. Solomon created an investment analysis model using a
small number of just 20 silver and copper coins, some proof-63
but mostly choice uncirculated specimens. (No gold was included
because investment was too new - not until Dec. 31, 1974,
was private gold ownership permitted in the U.S. after a shut-down
of more than 40 years.
Surprising results when 20 coins were factored into a portfolio:
it outpaced the equities market. Using the same 1976 starting
point, it would have cost about $33,000 to assemble a holding
of each of the coins. The following year, 1977, showed a 5.61
percent gain. Not rocket gains, but when measured against
a flat market, impressive. The following year, a 4.17 percent
gain and in 1979, the portfolio acquisition cost jumped to
$43,000 and a gain of more than 19 percent.
In the short span of three years, an average exceeding 8
percent annually was achieved.
A couple of things are remarkable about the
coins chosen for the market basket portfolio. First, none
are major rarities. Second, nearly all are in choice (MS-63)
condition; a few are brilliant (MS-63) proofs. An early copper
half cent is XF. They are not completely interchangeable generics,
but each could find a ready substitute that would be an equivalent:
The market basked contains:
1. 1794 Liberty cap half cent, extremely fine
2. 1873 2 cent piece, brilliant proof
3. 1866 5 cent nickel with rays brilliant proof
4. 1862 3 cent silver B.U.
5. 1862 half dime B.U.
6. 1807 draped bust dime B.U.
7. 1866 liberty seated dime B.U.
8. 1876 20 cents B.U.
9. 1873 arrows quarter B.U.
10. 1886 seated quarter B.U.
11. 1916 quarter B.U.
12. 1815 bust half uncirculated Uncirculated
13. 1834 bust half B.U.
14. 1855-O seated half B.U.
15. 1921 Walking Liberty half B.U.
16. 1795 draped bust dollar B.U.
17. 1847 seated dollar B.U.
18. 1884-S Morgan dollar B.U.
19. 1881 Trade dollar proof
20. 1928 Hawaiian commemorative half dollar
(The contents of the portfolio was never revealed by Salomon
but was revealed in a book by Hans M.F. Schulman and Neil
S. Berman in 1986. Coin & Currency Institute published
a new analysis by Berman and Silvano DiGenova in 2007.)
Farmland value is used as a comparison. According to Mike
Duffy, the chief professor who measures it at Iowa State University
farmland was going for over $3,900 an acre by the end of 2007.
On July 6, 2008, Duffy gave me an estimated figure of $4,500
- showing a 26 percent increase (2.2 percent monthly).
Gold was figured at $661.50 last year - it went
to $931 this year and retreated into the $850s. Silver was
figured in the mix at $12.69, a steady price rise since 1999
that just kept going. The other big precious metal, platinum,
was figured at $1,307 an ounce last fall - when I started
charting this summer, the figure was $2,001. (For the purist,
silver gave a rate of return of 42.79 percent; platinum's
$700 gain turns out to be a 53.1 percent change.)
The CPI (Consumer Price Index) showed inflation averaging
about 3.43 percent annually in late fall 2007; it was at about
208 on the 1982=100 scale. It was at 216 in May, and on Sept.
16, 2008, edged still higher to 219.08, according to the Bureau
of Labor Statistics.
Okay, I bet that by now you want to know about where coins
stand in all this. First, a word about the portfolio that
has been averaging a 12.4 percent rate of change since 1928
- and about 9.65 percent annually since 1965. (The Dow during
the same period averaged about 7.21 percent using year end
numbers as a basis for the average from 1928 to date.)
Components of the Dow Jones have changed during the period
(though the results have not); thus, AIG insurance was removed
on Sept.18, 2008, and replaced by Kraft. Phillip Morris (which
Kraft used to be a part of) acceded to Chevron.
For the analysis that follows, the Salomon Brothers
raw data was not used, but instead, both back (older) and
forward (future) pricing was independently examined. Coin
grading changes over the years are taken into account. The
coins, with the exception of a high-end circulated early American
copper are either choice uncirculated or proof (about MS-63
or proof-63 on the numerical grading scale); if higher grades
were utilized, such as a MS-65, the results would be substantially
In fact, Dennis Baker, whose NumisMedia has supplied me with
working data for the past six or seven years, has also included
MS-65 data so I can compare the two. It is so off-the-chart
as to make the comparisons ridiculous. Besides, broad based
market purchase of MS-63 are possible; by their nature, MS-65
versions of many older rarities are either thinly traded or
just not widely available.
There's a lot more data on that in "Profitable Coin
Collecting," a 264 page color-chart and photos book published
this past July 20 by Krause Publications ($19.99, available
through the trade and through Amazon and Barnes & Noble).
A total of 20 different individual coin types were included
in the Salomon Brothers examination, none of them gold, most
of them subsidiary coinage (dimes, quarters and half dollars),
some of them minor coinage (half cent through three cent nickel),
and a couple of silver dollars and a commemorative half dollar
Each is broadly representative of a class of
coins, or a type that is widely collected and hence easy to
value, even if the individual coin date and condition is not
easily replicated. For example, an 1876 20-cent piece in uncirculated
condition is approximately the same as an 1875 20 -cent piece
and even an 1875-S.
A 1795 draped bust dollar is similar to the 1796 or even
the 1797 or 1798 silver dollar.
Mintages and scarcity vary, but overall trends can be followed
with reasonable adjustments. The coins were initially selected
for Salomon Brothers by Stack's, the well known New York coin
dealer, and were designed so that if, for example, an 1873
two-cent piece in proof is not seen on the auction market
or in over-the-counter trading, then an 1871 or even an 1865
(with adjustments) can be substituted to check on the appropriate
Tracking the coins on a computerized spreadsheet
has been done by me for many years. Besides the coins, statistics
include a total amount (aggregate) for the coin portfolio
and its annual average plus rate of change from year to year;
the average price of gold and silver; the CPI and its rate
of change; gold's rate of change; the Dow Jones Industrial
average and its rate of change and the price of platinum.
All of them in my original reporting went back to 1947; last
year, I brought it back to 1938 (except or platinum which
I had initially tracked back only until 1978). I recently
found good data (government mining sources) that allowed me
to value it for charting purposes back first to the late 1930s,
then to 1928 - 80 years ago.
Last year I added University of Iowa farmland survey going
back more than 25 years on Iowa farmland, replacing the prior
U.S. Department of Agriculture statistics for the value per
acre of farmland. It appeared in the old Salomon Brothers
survey, too, using sporadic interpretive data that I never
thought too reliable.
With Professor Duffy's help, I managed to get solid data
back to 1951 (annual) and then sporadic data back to 1935
- again fine for charting purposes. Duffy then helped me with
raw data going back to pre-Depression Iowa, 1928.
About three years ago, I added Moody's "AAA" rated
corporate bonds as a point of comparison. I took the time
to count, and what all of this means that the current spread
sheet has over 3,700 data entry points that analyze a variety
of markets. For convenience, this year, some of the charts
cover only the last quarter century, from 1979 to the present.
Standard & Poors, which once started in 1957, now also
goes back to 1928.
There are no secrets about this; when you chart
gold, there's not a lot of movement between 1934 and 1968
- a $35 an ounce rate was enforced by the government's purchase
and sale program and by a prohibition against domestic private
gold ownership. The charts are more interesting when looked
at over the last 25 or so years when gold or platinum are
Regardless, my index points utilize the same coins that Salomon
Brothers did from 1978 to 1990, and about which I have written
extensively over that period of time. It also utilizes the
same chart and target points -- though expanded -- that I've
utilized in more than 40 years of writing about the rare coin
Here's an actual example of pricing for a particular coin,
the 1794 half cent in XF-40 condition, which shows that rare
coins go up, down and sideways - that is, sometimes they don't
change from year to year at all. Even with no change, the
overall picture over a 68 -year period shows an average annual
return of 10.65 percent since 1935 - not bad for a circulated
coin with a mintage of over 81,000 pieces. One obvious flaw
in the study is that none of the coins were gold because,
as Harvey G. Stack delicately put it, Salomon Brothers was
evidently afraid that the price of gold bullion would be too
much of an influence that way.
There is some truth to that. A well-respected
Market Analyst and New York coin dealer Scott A.. Travers
asserted that common date $20 gold pieces, and many others,
are wholly bullion driven. I doubted his analysis, but then
conducted an extensive analysis over 20 years and concluded
that he, Stack, and Salomon were all correct: common-date
Saints and bullion are virtually interchangeable.
(It is less true with other denominations, such as a $1 and
$3 gold pieces, and certainly not with truly rare coins costing
tens of thousands of dollars, or those in gem condition; there,
the bullion content is but a minor component of the value).
Comparison of one or more of the coins with the portfolio
as a a whole affords an opportunity to compare not only how
rare coins compare with the consumer price index and the Dow
Jones Industrial average, but other coins as a well - and
specific issues like, say, an MS-63 half dollar of 1921 versus
an X.F. half cent from 1794, and the coin portfolio average
as a a whole.
By 1989, the results were impressive. As a the survey written
by Salomon Brothers itself stated, "Conclusion offered:
during the succeeding 12-month period of time, rare coins
offered a return of more than 30 percent," ranking behind
only old masters' paintings and Chinese ceramics. Stocks and
bonds were seriously threatened.
If the market basket had been compiled in 1928, it would
have cost about $140 to assemble; by 1948 it would have cost
about $520 to build the collection. Considering that lawyers
were being paid $31 a week to work on Wall Street that year,
the sum was not inconsequential.
Fast forward some additional years. In 1956, it went over
$1,000 for the first time ($1003)to acquire the portfolio.
By 1961, it had increased to $2,168; in 1964 it went over
$4,453 not surprising considering the market was fueled for
success. By 1974, the number tripled to $13,040, amidst Nixonian
In 1985, a decade afterwards, it weighed in
at $54,800, by 1997 it had increased to $74,810. The price
as a of mid-2002 was $104,230 - an increase of about 3.07
percent over the previous year. By 2006, the value of the
portfolio was $144,800. It's now at around $187,000 and going
While there's no telling what tomorrow will bring, the charting
shows the clear past - and perhaps if trend lines are followed,
what the future might bring.