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How do rare U.S. coins stack up as investment?
By David L. Ganz| Numismatic News
August 7, 2007

When I first started writing about coins professionally in 1965, the Dow Jones Industrial Average topped out the year at 911 on its way to 792 the following year. Corporate bonds paid out an average of 4.49 percent according to Moody's, which quoted the rate for corporate Aaa bonds.

Treasury bills (government obligations of more than a month in duration) were averaging about 3.93 percent, on their way, thanks to the Vietnam War, to 4.76 percent the following year, and the Standard & Poor's 500 average was an odd-sounding.

Gold was priced at $35 an ounce officially, and $35.15 on the free market that barely existed, since Uncle Sam would gladly exchange gold for dollars from anyone in the world except its own citizens, who had all been prohibited from owning gold (except for rare and unusual coins) since 1933.

Silver was $1.2929 an ounce, a Rubicon of sorts since above that price, melted silver dollars bought at face value turned a profit for the holder.

2007 Washington Dollar
This graph compares the performance ofthe S&P 500 stock index with that of the rare coin market basket

Silver coin still circulated, but barely, in 1965; by July, the Coinage Act of 1965 ended silver in the dime and quarter and moved toward a 40 percent silver half. By 1967, silver ended the year above $1.55 though gold stayed at $35.

Platinum was a mere $98 an ounce (up 10.8 percent from the previous year), and farmland in Iowa, according to the U.S. Department of Agriculture and Iowa State University, was selling at $318 an acre - up 9 percent from the year before; over the succeeding 42 years it would average advances of about 5.4 percent annually (though obviously with some ups and downs).

Welcome to the American Numismatic Association convention edition of the Salomon Brothers review of the corn market, something that I've followed for more than 40 years, and written from the perspective of a collector who also buys stocks and remembers when it made front pages of the New York Times that the Dow had moved downward by a mere 15 points in a single day.

As I'm writing this, the Dow has gone over 14,000 and then retreated some. My charting that accompanies figures the Dow for what it was earlier in the summer at 13,649. (It takes six to eight weeks to prepare the data and then more time to do the graphing and charts). Some of the other relevant numbers: farmland, according to the chief professor who measures it at Iowa State, is now going for $3,500 an acre ("or more," he said in an e-mail interview in early July).

Gold is figured at $661.50, up consistently since 2004; silver figures in the mix at $12.69, also a steady price rise since 1999; platinum is figured at $1,307 the ounce, also right up there since 2001.

The CPI is catching a little bit of inflation, averaging about 3.43 percent annually, now at about 208 on the 1982=100 scale. OK, you want to know about where coins stand in all this. First, a word about the portfolio that has been averaging a 13.5 percent rate of change since 1937 - and about 9.8 percent annually since 1965. (The Dow during the same period averaged about 7.5 percent using year-end numbers as a basis for the average).

Both the Dow Jones and the index compilation for rare coins utilized in this analysis use a market-basket approach, measuring selected coins designed to represent the whole marketplace, and selected stocks that are broadly representative of the industrial sector of the American economy.

Components of the Dow Jones have changed during the period (though the results have not); the coins are static because the index was initially compiled by someone else and was discontinued 17 years ago. I keep the flame alive with the original components because it is such a good representative mix.

Dow Jones statistics are calculated daily, and based on actual components and prices published in many periodicals. The coin list was first compiled annually by Salomon Brothers going back to 1978, and carried through 1990. It was always done on an annualized basis. That can lead to somewhat misleading results, but still a useful analysis at a specific point in time.

For the analysis that follows, the Salomon Brothers raw data itself was not used; instead, both back and forward 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 MS-65, the results would be substantially higher.

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. It is so off-the-chart as to make the comparisons ridiculous. Besides, broad-based market purchases of MS-63 are possible; by their nature, MS-65 versions of many older rarities are either thinly traded or just not widely available.

I said last year that a subsequent column might look at that over the last couple of years; figure on that to come one of these weeks. I still intend to do it when I have some spare time, but regular readers of this column know Kathy and I have been traveling.

Annual review of the rare coin market, contrasting it with the rate of inflation, the price of gold and other precious metals, and specific rare coins has been done since the late 1970s when Salomon Brothers, then a Wall Street powerhouse institution, did the annual accounting and contrasted it with collectibles and other tangible asset components across the board.

These included Chinese porcelain, stamps, farmland, foreign exchange, vari¬ous precious metals, the CPI and a variety of stock and bond devices. Some of the other collectible components are not replicated in my analysis because of the practical difficulty in creating a database that is reliable over the extended period of time or because they are simply areas that I am not sufficiently familiar with.

For example, when Kathy and I traveled abroad, we bought Chinese porcelain, but that hardly counts as a basis of price comparison. I was able to find a farmland index, but no luck, yet, for stamps or foreign exchange in market basket form. I could use the Federal Reserve Bank of St. Louis database, but not this time.

Mike Dufijj an Iowa State professor, took the time 'to provide me with good data on farmland value. I guessed originally a 5 percent increase over last year. He set me straight: "The bankers estimated that our values went up 7 percent in just the first quarter. I would think that we are probably about 10 percent up from the November estimate. That would mean about $3,500. It could even be higher. Tilings have slowed down a bit, but there is still a lot of strength in the market. At a meeting I have I asked the increase for the year and that group thought it would be about 20 percent."

Internet research developments - not available widely until the last couple of years - have made it possible to use government and other statistics for farmland value (based on average value per acre of American farmland), corporate "Aaa" rated bonds and other items.

This time, as in my January report, I retroactively changed farmland to cover only that in Iowa because the data seems more current, is reliable and accessible. U.S. government statistics are sporadic and finalized numbers are still two to three years old.

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 commemoratives.

Gold was left out because it was felt by Salomon that general gold coins would mirror the gold market (a measured component) and be influenced by non-numismatic events. Scott Travers advanced the same argument to me a year or so ago and I spent a hundred hours or more to try and prove him wrong - only to discover the data does not lie; it might work with $3 gold pieces, but generic Saints just parallel the gold market.

Coins included in the market basket are each 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 (though clearly not the 1794, in a class by itself - you'll have to wait for the book to see that one).

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 price.

I understand why a market-basket approach was initially taken. It was in a pre-computer age except in the most technologically advanced offices. That's the origin of the Dow, as well; 30 numbers and calculations are easier than 1,200. For coins, 20 is easier than 2,500.

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 initially went back to 1947, then for several years as I got more data, back to 1938 (except for platinum, which I initially tracked back to 1978). I recently found good data (government mining sources) that allowed me to value platinum for charting purposes back to the late 1930s. I expanded coin prices back to 1935, when Numismatic Scrapbookbegan and when reliable auction prices made it possible to test price levels.

Last year I added University of Iowa 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. With Prof. 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.

The average per-acre price was an average of the federal statistics, which actually do it for each of the 50 states and make it available through the USDA Economic Research Service and National Agricultural Statistics Service. The current figures quoted by me are Iowa State University's agricultural extension program.

Two years ago, I added Moody's "Aaa" rated corporate bonds as a point of comparison, picking up the numbers from the Statistical Abstract of the United States, a Census Bureau-Department of Commerce publication. Updates on this were picked up off the Internet. The Statistical Abstract in print runs a little behind.

I took the time to count, and what all of this means that the current spread sheet has over 4,100 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 & Poor's, which once started in 1957, now goes back to 1935.

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 35 or so years when gold or platinum are involved.

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 market.

Prior to 1999,1 used a wide variety of independent sources for the chart, checking my data against reliable price guides. Since then, Dennis Baker of NumisMedia has been kind enough to lend me the Fair Market Value pricing for each of the coins. Dennis used to be the editor of the Coin Dealer Newsletter. He struck out on his own and NumisMedia offers a fine print as well as a fine online pricing guide (www.NumisMedia.com).

Dennis actually does the pricing (I don't go to the Web site - we do this by e-mail) at great cost of time and effort, and he is truly my unsung hero. Without his help, I could never find the time to do this column even once a year, much less twice.

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.
Take a look at the 1794 prices over the last 30 years (from 1977):

Although the listing of the components of the Salomon Brothers market basket was never made public by its purveyor (Stack's, the rare coin dealership in New York which compiled it) or the source (the investment banker, Salomon Brothers, which was swallowed up by Smith Barney and Citibank more than a decade ago), the list was disclosed in the Neil S. Berman and Hans M.F. Schulman book on coin investing that the Coin and Currency Institute published in 1986.

Earlier this year, a newly revised edi¬tion of the book was published by the Coin & Currency Institute, and it is chock full of data and statistics. The statistics in The Investor's Guide to U.S. Coins includes research by Dr. Jason Perry, a financial economist at the Federal Reserve Bank of Boston.

The coins in the Salomon Brothers report and the report itself (which was an annual event) took on a life of their own and made an indelible impression on the rare coin market from 1978 to 1990. It took over the glee with which the Red Book's annual prices were given when they arrived on bookshelves each July 1.

(Those collectors of a certain age remember how important Red Book price changes were - and the reliable way that, even now, old Red Books have come to represent a historical point in the marketplace).

Importance of the data was heightened when the Federal Reserve Bank of Boston published extracts in a famous 1978 publication that called stocks- undervalued and drew attention to the rate of return of rare corns and other tangible assets.
The New England Economic Review, a publication of the Federal Reserve Bank of Boston, made the study the focus of an article in May 1979, entitled, "Are Stocks a Bargain?" (It concluded that stocks were well off their historical rate of return and hence were a bargain that a serious investor ought to consider.).

It was given more widespread industry credence in 1982 when A Guide Book of United States Coins, the Red Book, published an important essay that discussed the survey and the market-basket approach to valuing coins as an investment. I wrote that essay, which dis¬seminated the information to hundreds of thousands of people.

During its dozen-year run, the Salomon Brothers report was used in a manner similar to the Dow Jones Industrial Average to measure growth of selected areas of rare coins; it was a market basket, designed to measure trends, though incidentally it showed how several defined areas of collecting did.

I recall calendering each year to call Robert Salomon to both get the data and to interview him on its meaning. (The data was initially disseminated only to clients of the white shoe firm, but its media life ended up giving it greater publicity and dissemination.)

One unfortunate aspect: trends from the report were marketed by the unscrupulous. As the Federal Trade Commission and the American Numismatic Association warned in a joint brochure, "Dishonest dealers often mislead buyers by quoting appreciation rates for rare coins from an index formerly compiled each year by Salomon Brothers, a New York investment bank."

The brochure continues, "These quotes show appreciation of 12 percent to 25 percent a year. However, the Salomon index was based on a list of 20 very rare coins, while the coins sold by dishonest dealers are more common coins that are not likely to appreciate at the same rate, if at all."

The FTC and the ANA warned that "almost all dealers, legitimate and dishonest alike, have used the Salomon quotes. Therefore, it is particularly important that you choose your dealer carefully. Remember, there is no guarantee that any coin will appreciate in value. "

Use of the quotations and the indices was necessary because there was no other index done by any disinterested third party who examined the coin market, and other points of comparison. The Salomon study was looked at, and eagerly awaited, for as a much as it told about coins as a it did about stocks and other investment vehicles.

After Salomon discontinued its index and annual comparison - under pressure from the FTC - points of comparison were left to universal indices or even specialized comparisons that examined the market as a whole but failed to show earlier periods. (I've done a column on it in Numismatic News, at least annually since then, but the Salomon Brothers version was more universal in its appeal and coverage).

None of the 20 coins included in the market basket are of gem quality - the word "gem" was used then, but not as strictly as it is today - so most of the coins included were choice uncirculated, the equivalent of MS-63 on most of the numerical grading scales that are now employed, though except for coppers, it was not in widespread use during the Salomon era.

Comparison of one or more of the coins with the portfolio as 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 XF half cent from 1794, and the coin portfolio average as a whole).

By 1989, the results were impressive. As the survey written by Salomon Brothers itself stated, "Conclusion offered: during the preceding 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.

The accompanying charts prepared by me utilize the 20 coins that are found in the Berman-Schulman list. Some show only from 1979 (a conceit of time) and then show the prices for them from 1935 to the present expressed as a total portfolio. It also shows how the Dow Jones has done - ups, downs and all - and compares them.

If the market basket had been compiled in 1935, it would have cost around $125 to assemble; by 1947, it would have cost about $430 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.


Activity since 1970 of farmland, gold, the coin portfolio average and the individual 1873 two-cent piece are compared.

Fast forward some additional years. In 1956, it went over $1,000 for the first time ($1,003) 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 inflation.


Shown from 1990 are movements of the coin portfolio average, Dow Jones index, 1916 Standing Liberty quarter, 1884-S dollar, 1815 half dollar and 1795 dollar.

In 1985, a decade afterwards, it weighed in at $54,800, by 1997 it had increased to $74,810. The price as 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 $170,000 and going strong.

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

Numismatic News - August 7, 07


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