By Charles Morgan and Hubert Walker for CoinWeek …..
Hubert and I like to use our position as writers for Coin Week to advocate for everyday collectors. We believe that one way to grow the hobby is by focusing on areas that have traditionally been the purview of new collectors: modern coins and circulated classics. They’re easy to get into and they’re also how most collectors cut their teeth. And sure, many collectors eventually move on to other corners of the industry after they get a little experience under their belts. But one side effect of this accessibility and the collector’s shifting interests is that the marketing and selling of moderns and circulated classics tend to be problematic.
All too often, inexperienced collectors are preyed upon, sold problem coins, or left with the impression that they’re getting a fair deal, when in fact they are not. Obviously, there’s only so much that can be done to reign in the unprincipled, and at the end of the day, it’s up to the collector to educate themselves and practice due diligence. That doesn’t mean that more can’t be done to facilitate fair, open, and honest transactions.
One of the areas most in need of marketplace reform, in our opinion, is the circulated classic coin market.
Circulated classic coins provide inexperienced and budget-minded collectors instant access to the past. Part of the joy of collecting coins is the ability to travel back in time and hold in your hand a coin from a bygone era. For most collectors just starting out, Mint State examples are beyond reach, and even with Third Party Grading, the price differences within the grade and between grades can be so drastic that approaching any classic series is daunting and intimidating. Almost always, when a collector starts out, the first classic coins purchased will fall between the apparent grades of good to extra fine.
But are these coins actually gradable? Have they been handled properly throughout their time in the marketplace? We’ve grown so accustomed to the notion of net graded raw coins that the idea that we should expect circulated coins to be problem free in coin shops has become antithetical to reality. When it comes to circulated classic material in the raw, we’re not much better off now than we were before the “plastic revolution”.
The reason is cost, of course.
Professional numismatists may scoff at the notion that the hobby needs to become even more focused on plastic-holders expressing grades, but we disagree, and not for the reasons you might think.
A coin’s intrigue lies within the sum of its parts – planchet quality, the design’s eye appeal through the stages of wear, color and sharpness, and the story behind its issue. We ascribe value to coins based upon the interrelationship of the above factors combined with our desire to collect. A Third Party Grading company can provide part of the evidence relating to a coin’s quality, but essentially, the value proposition remains with us.
If more circulated material were submitted and looked over and deemed market-gradable, we’d see a resurgence in interest in classic material by collectors who would otherwise be shut out of the market. It would also start the long overdue process of weeding out problem coins. The sooner problem coins are weeded out of the mainstream numismatic marketplace, the sooner their drag on coin values and perceptions of availability will start to go away.
The reason these coins are not streaming into the likes of NGC and PCGS is because their pricing formulas are heavily skewed towards moderns. A coin minted after 1965 will cost you $16-$20 to get graded, while any coin minted before that costs $20 (Economy Tier for coins of any date valued up to $300 …. it’s $25 for the Secure service). Coins Valued over $300 cost more.
For modern material, most of what’s submitted is believed to be, on the part of the submitter, high end. The low prices are necessary to sustain and develop this market. For classic material, this pricing scheme is meant to cater to Mint State examples, where minute differences in grade can lead to large fluctuations in price. For circulated classics, the $30 price all but wipes out any margin a dealer or collector might have. The low submission rate skews population reports towards the Mint States, creating an unrealistic expectation of the state of the surviving pool of coins for virtually every classic issue. To fix this problem, the price of submitting circulated classics needs to mirror the price of moderns.
Numismatics Is Not Just for the Elite Anymore
It’s remarkable when you look through prices paid by some of the elite collectors of the 19th and 20th centuries for rare coins. The relatively low prices are masked by the raw purchasing power of an ordinary American. Yes, a Pan-Pac $50 slug sold for $100 in 1915, but $100 was a tremendous amount of money. Even as prices steadily climbed for this set in the decade or two that followed, the total number of collectors with the means to spend money on such frivolities was still relatively small.
When coin collecting became a popular middle class (and working class) pursuit in the post-war period, collectors focused on finding rarities, mostly circulated, in change. The appeal of the 1909 S VDB and the 1932-D and S quarters, even in very circulated grades, was the result of this mainstreaming. An elite collector wouldn’t concern themselves with such coins, unless, of course, no finer specimen was available.
Third Party Grading companies were founded, in part, to continue to cater to the well-heeled and carve out an even more sophisticated and lucrative (to the dealers at least) market for buying and selling rare coins.
However, the economic reality of the marketplace meant that TPGs had to evolve and find a segment of the market that was more reliable than the trickle of rare coins (many of which had already found their way into plastic). The result was the modern marketplace.
We now have a situation where there are more MS-69 Silver Eagles preserved for posterity, but the number of collectible and problem-free circulated 19th century coins is disproportionately low to the surviving populations of these coins.
Dealers Also Need to Learn Their Way around Circulated Coinage
Are a coin’s surfaces original? Has a coin been cleaned, retouched, or damaged?
These are the kinds of questions you’d expect to be asked by neophyte collectors, but the reality is, we get asked these questions from local small-shop dealers. Many of which have opened up coin shops or bullion shops without the slightest bit of training in numismatics. It’s frightening to think of the undoubtedly numerous mistakes these dealerships make when buying and selling coins to the equally unknowledgeable but eager collector.
One particularly egregious example still infuriates us. We know a local shop that bought a book of Lincoln wheat cents (1909-1958) for $700 because it contained both the fabled 1909 S VDB and a 1914 D. Unfortunately, the mint mark on the VDB had been altered, as had the date on the “1914” D. We were asked to authenticate the key dates and had to break the bad news. Instead of taking the loss (and maybe deciding to learn about coins or hire an expert to consult before buying them), the shop owner did the unthinkable and sold the book to an unwitting buyer.
How many similar things happen online? Personally, we’d never buy key date and commonly forged coins without some degree of third party certification, but we’re kidding ourselves if we think that most circulated specimens are submitted for authentication.
The fraud mentioned above had two complicit principals: the original seller (who we believe knew they were passing counterfeit goods), and the store owner, who successfully passed off his mistake to an overeager and overly trusting collector. We guarantee that collector won’t be “over” eager much longer, and certainly not very trusting. Forget building the hobby, that’s not even a good way to build a customer base.
Two Price Tiers Make Cents
On the one hand, we understand the TPG business model. A company like PCGS guarantees the grade on the insert label to be accurate. If a coin is returned for a guarantee review, PCGS is obligated to buy it back if PCGS concludes that they got it wrong. Obviously, an arrangement like that puts much of the power to arbitrate that decision in the hands of the party with the most interest in not paying, but it’s a stabilizing force on the market and one of the reasons why people make significant purchasing decisions based on what’s on a PCGS label. If a coin is worth hundreds or thousands of dollars, you’d expect the grading service to want to retain some ability to pay out claims.
Non-scarce circulated coins, for the most part, will never be worth a substantial amount of money. What collectors and dealers are really looking for in grading this material is: are the surfaces original, is the coin in any way damaged, and what’s the grade? The potential payout for the TPG is minimal, and the ease at which a skilled grader can notice these problems and affix a circulated grade P-01 through AU-58 takes less time than it does splitting hairs between MS-66, MS-66+, and MS-67.
Without having a real plan to differentiate quality circulated federal coinage and the piles and piles of junk out there that’s being foisted on unwitting collectors, the harder it will be to attract, maintain, and grow the hobby – especially at a time when there are so many other things a person can do with their discretionary income.
Unlike many complicated problems that vex the hobby, this problem has an easy and obvious fix. If Third Party Grading companies provide a discount submission service for circulating classics, where dealers AND collectors can submit coins and pay the same rate as they do now for moderns, then we’ll see a great shift in the marketplace, a culling of problem pieces, and finally a sensible remedy to a problem that has existed ever since coin collecting became a mainstream hobby – the possibility of accurate and honest grading and the authentication of all material bought and sold.
* * *
Flip of a Coin:
If this is Political Correctness, I’d hate to see Benign Neglect: The 2013 Girl Scouts Centennial Commemorative dollar is the first legal tender U.S. coin since the 1893 Isabella quarter issued to commemorate a woman’s organization.
Are you an Active Collector? At one time, the term “active collector” didn’t just mean someone actively engaged in collecting coins. According to numismatist and author Joseph Coffin, an Active Collector also had to be a member of the ANA.
1,000,000,000. In the United States, that figure refers to one billion. In some parts of the world, that same number – a one with nine zeros behind it – is called a milliard. And a billion is the number 1,000,000,000,000, or a million millions. You know, your typical modern mintages…
The grading services also need to get serious about their overgrading problem. An AU-55 graded coin isn’t what it used to be 15 or 20 years ago.
Great article! I am one of those coin collectors that does not have the means to buy expensive coins, which are usually any coin that has been graded by a TPG. I looked to see what the submission fees are, and to be honest, it is not worth the cost of sending any of my coins in for grading. I my best case, the fee would probably equal or be just below the actual value of a coin. I have collected since 1976. It would be nice to know what my collection is in terms of grading. But I just cannot afford to have them graded by a third party like PCGS. I guess I will always feel like a novice because of this. I hope the costs of grading will come down so that the average collector like me can find out what they truly have in their collection.
Terrific piece, and nice point on the GSUSA silver dollar.
I strongly agree with the recommendations for the TPG’s on classic circulated coins. Sending them in for grading today almost always devalues the coin because there are so few coins with original surfaces left, and the TPG’s have different standards now than they did in the past. Yet buying raw coins is such a gamble. The net result is it pushes collectors of average means away from classic coins.
Interesting article. At PCGS we certainly want to grade all the coins, modern or classic. There is one tiny problem with the story though – the facts are incorrect. Yes, PCGS does charge collectors $16 to grade Modern (1965 to date) coins. But, PCGS also charges collectors $20 to grade a coin of any date valued up to $300 (it’s $25 for the Secure service). Not $30. Big difference. That little mistake aside, we very much appreciate your support.
Don,
Thanks for the feedback. Yes, you are right and we stand corrected about the pricing tier of $20 for economy submissions. We still feel that this price point is prohibitive for this type of material and a reduction in price to the modern level would have an impact.
To us, the proof is in the pop reports, which are heavily skewed towards the UNC side of the grading scale.
From an investor standpoint, lowering fees to grade these coins will lower margins. In general, lower margins are bad for public companies. This article is idealistic, not practical. It’s like advocating that Apple make a $100 phone for the masses made out of inferior products that costs them $90 to make. Apple would probably plummet by 30% on an announcement of that sort. I find it interesting that PCGS’ margins are higher than Apple’s.
PCGS has in fact RAISED prices across the board by 10%-20% as of Jan 1 2013 and coin submissions have soared this year. There are obviously people who are willing to pay for quality products and services.
@Db
I kindly disagree with your viewpoint, which I think oversimplifies our position. Yes, all TPGs are business to make a profit for their investors, but we are asking for proper consideration to be paid for material that can be a better served on the marketplace by TPG participation. The bad coins in circulated grades drag down prices. certified circulated coins, if enough of them entered into the marketplace, would improve their position in the marketplace. Collectors would be better served by getting the junk out- and right now there are too many dealers willing to sell bad coins to collectors.
Furthermore, we are at a period where the bulk amount of quality classic material has already been seen. If the TPGs are to focus on numismatic coins at all they will have to turn their attention to getting more volume of circulated classic coins. However they can do that and be practical, is what we are talking about.
Sounds like you should start your own TPG then. Everyone always wants to tell PCGS how to run their business. I invest in them because I think they have really smart guys running the company. I doubt they can make money with $2 submissions and please investors. Their current growth strategy is to expand in Europe and China. The Hong Kong office is growing so fast (now about 4K coins/month) that they will be opening a new Shanghai office next month.
Graders can make $200K/yr. To handle the influx of new $2 submissions at a 50% margin means someone would have to grade 400K coins/yr or about 1K/day. A virtual impossibility.
I chose $2 as it seems that is the price point you are going for.
@Db
“Everyone always wants to tell PCGS how to run their business.”
I know what you mean, but I’d rephrase it, myself. I think everyone is looking out for their own interests. Can the average collector, no one elite, no one submitting bulk, tell PCGS to jump and PCGS asks “How high?”
No.
But so what? The average collector should be quiet?
Db-
It’s hard to have a conversation with someone who is using non-sensical extreme arguments to disprove someone else’s position. $16 per coin is what we asked for. It’s in the body of the story.
Charles
No you don’t. Read your own article. All you stated was what PCGS charged: “A coin minted after 1965 will cost you $16-$20 to get graded, while any coin minted before that costs $30 or more.” And Don Willis himself had to comment to correct an egregious mistake in your article which you still have NOT corrected.
So I therefore inferred a LOWER price than $16. The avg ticket price for PCGS last quarter was $17.85. You are advocating a LOWER avg ticket price which will crush gross margin. Obviously, you don’t understand accounting or demands of a public company. It’s hard to have a conversation with someone so ignorant in these important matters.
Please at least correct your article.
DB: Before you blow a gasket, we have updated the article mentioning the “ecomony Tier at $20”.
Next, the article does indeed call for rates on these submissions to be the “Same as Moderns”, That means $16 (see the last paragraph)
Finally, why are you so snarky? No one is telling PCGS or Don how to run their business. They are professionals. The issue being discussed has nothing to do with your investment interest in PCGS or “crushing gross margins”. We are talking about budget coin collectors and a segment of the market that has been historically under-served.
So relax a bit, your investment is safe.
Charles has identified a real problem. There is a (financial) stratum of collector between those who can get what they want from circulation, and those who can spend a couple of hundred bucks per coin routinely. I say *financial* stratum because of course such collectors can be just as devoted and knowledgeable as ones with a bigger budget; I am in no way disparaging this!
But the grading services seem to be too expensive to really make sense in this context, yet it would be nice to be able to have an expert authenticate and/or screen a coin for problems. there is indeed a lot of trash out there masquerading as affordable coins.
Unfortunately I suspect Charles’ detractors have a point too, in that it’s probably very difficult to do this cheaply enough to make a difference. At least with the present level of service.
Maybe one could come up with a more cut rate service, that ONLY states the coin is genuine and problem free, and seals it into a mylar flip. It leaves the coin ungraded, but circulated grading is usually easier (once you know the coin itself is good) than dealing with the difference between a 63 and a 64.
not a bad idea. I addition, no warranty. So you get a “genuine”, problem free coin in a mylar flip with no warranty.