Buying Rare Coins: Numismatics and Credit

The famed collector John J. Pittman is legendary for having the foresight to have mortgaged his home to have funds to acquire coins in the 1954 King Farouk Palace Sale. His guts and determination were well rewarded when he was able to capture some of the finest coins in the collection at bargain prices. Coins that sold for hundreds of dollars, sold for hundreds of thousands when his collection was disposed of in the 1990s. This was a man who used debt to his great advantage.

In the 1950s United States coins were extremely affordable. John J. Pittman also had the advantage of being a very astute collector. He did not go after trophy coins, which even then sold for several thousand dollars. Pittman concentrated on obtaining value for the limited funds at his disposal. One of my favorite examples is the Gem Proof 1833 Half Eagle that Pittman purchased for $635. The coin sold in 1997 for US$467,500 at his estate auction and later in 2005 for nearly $1 million. Clearly Pittman’s use of credit for this unique opportunity paid off handsomely.

Today, the numismatic landscape has changed dramatically from what it was in the 1950s. Great coins are much more expensive, and the risk of mortgaging one’s home to make a purchase would be considered ill advised by almost everyone. This does not mean credit is not utilized in the rare coin market. Credit is actually often a part of many numismatic transactions. Coin dealers have been using the leverage of credit for about as long as there have been coin dealers. Collectors also get into the act when trying to make a major purchase.

The use of credit for numismatic purposes is not a bad thing, but must be used responsibly. Many coin dealers over the years have gone down in flames from using credit irresponsibly. I have also seen collectors get themselves into a similar circumstance. Collecting rare coins can be an exhilarating and almost addictive habit. Buying coins beyond your means with the use of credit can lead to severe financial difficulties.

For years auction houses have offered dealers and collectors special extended terms for creditworthy clients when selling a large collection. They know the extra dollars chasing lots will greatly improve results. Most individuals use this credit wisely, and the auction houses are very selective on who they allow credit. Problems do occur, however, and anyone who has conducted auctions can tell you this is one of the hardest parts of the business.

My advice to most collectors is to avoid buying coins on credit when possible. If you cannot afford to pay for a coin now, then you are probably not making the correct purchase. Buying on credit also diminishes your negotiating power. I have seen many dealers and collectors who make purchases with little regard to price as long as they have time to pay. The use of credit cards is even worse when factoring in the extremely high interest rates most charge. Saving for the purchase of something that is beyond your means is a much wiser choice.

Leverage with credit can also be used for numismatic speculation rather than collecting long term. Speculation usually leads to financial problems for all but the most astute. Several years ago one of my clients thought generic gold coins were extremely underpriced. He was able to find someone who would loan him money to purchase something that seemed so risk free. To his dismay, generic gold coins dropped over 40% in just a couple of years and his initial investment was wiped out.

The use of credit is usually only a great choice when faced with a unique opportunity, such as what John J. Pittman had in 1954. Credit can also be a wonderful tool when purchasing a fast-appreciating asset. Rare coin prices in recent years have been anything but fast appreciating, and the borrowing cost would add substantially to the final purchase price. This can mean the difference between success and failure as a collector or dealer.

Not every major auction conducted in the last 20 years offered extended credit terms or any terms for that matter. When David Akers sold the John J. Pittman collection in the late 1990s for about $30 million dollars, it was strictly cash and carry. No credit or checks accepted. Buyers had to wire funds before the coins were released. Dave Akers was old school and one of the last of his kind.

Questions about the rare coin market? Send them to [email protected].

About Jeff Garrett

Jeff Garrett, founder of Mid-American Rare Coin Galleries, is considered one of the nation’s top experts in U.S. coinage — and knowledge lies at the foundation of Jeff’s numismatic career. With more than 35 years of experience, he is one of the top experts in numismatics. The “experts’ expert,” Jeff has personally bought and sold nearly every U.S. coin ever issued. Not a day goes by that someone doesn’t call on Jeff Garrett for numismatic advice. This includes many of the nation’s largest coin dealers, publishers, museums and institutions.

In addition to owning and operating Mid-American Rare Coin Galleries, Jeff Garrett is a major shareholder in Sarasota Rare Coin Galleries. His combined annual sales in rare coins and precious metals — between Mid-American in Kentucky and Sarasota Rare Coin Galleries in Florida — total more than $25 million.

Jeff Garrett has authored many of today’s most popular numismatic books, including Encyclopedia of U.S. Gold Coins 1795–1933: Circulating, Proof, Commemorative, and Pattern Issues; 100 Greatest U.S. Coins; and United States Coinage: A Study By Type. He is also the price editor for The Official Redbook: A Guide Book of United States Coins.

Jeff was also one of the original coin graders for the Professional Coin Grading Service (PCGS). He is today considered one of the country’s best coin graders and was the winner of the 2005 PCGS World Series of Grading. Today, he serves as a consultant to Numismatic Guaranty Corporation (NGC), the world’s largest coin grading company.

Jeff plays an important role at the Smithsonian Institution’s National Numismatic Department and serves as consultant to the museum on funding, exhibits, conservation and research. Thanks to the efforts of Jeff and many others, rare U.S. coins are once again on exhibit at the Smithsonian Institution’s Museum of American History. We urge everyone who visits Washington, D.C., to view this fabulous display.

Jeff has been a member of the prestigious Professional Numismatic Guild (PNG) since 1982 and has recently served as president of the organization. In 2009 and 2011, Jeff ran successfully for a seat on the Board of Governors for the American Numismatic Association (ANA), the leading numismatic club in the world. and he is currently the ANA President.