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The 15 Truths No Coin Dealer Wants You To Know
The 15 Truths No Coin Dealer Wants You To Know
THE
TRUTHS
NO COIN DEALER
WANTS YOU TO KNOW
THE 15 TRUTHS
NO COIN DEALER
WANTS YOU TO
KNOW!
If you own coins or are considering owning coins chances are you have
or will be working with a coin dealer, and chances are they are going
to be making a lot recommendations to sell you coins. You need to
walk into that relationship with confidence and a basic understanding
of rare coins. Most will try to tell you about the virtues of rare coins and
perpetuate the many myths out there. Your main source of information
is going to be the dealer that you choose. Unfortunately most dealers
want to sell you coins they make the largest possible profit from.
# MAJORITY OF COIN
INVESTORS LOSE
MONEY
Very few people have made money investing in rare coins, except for
those who have purchased either bullion related coins or the super
rarities. For starters, you cant even buy the super rarities from 90% of
the dealers out there. Why? Because most dealers need to sell coins
they can supply in bulk. They sell and promote what they can control.
Most buyers are then simply sold whatever their particular dealer
is pushing. Most dealers are so blinded by their own rhetoric they
never stop to ask why their clients arent making any real money on
the coins theyve continued to sell for 10, 20 or 30 years. They rarely
evaluate what is really happening, possibly because it would be very
inconvenient to discover the truth. The bottom line is that gold has gone
up as much as 600% since 1999 while most of the Hot Buys in rare
coins have barely broken even.
Its bad enough that every dealer knows this fact. The worst part is that
the dealers use this as a way to avoid repurchasing coins yet use these
misleading charts to make the claim of rare coins performance.
The only truthful charts begin at 1986 or later. No surprise, these tell a
completely different story. In fact the Coin Dealer Newsletter only charts
from 1990 to present. These charts clearly show that rare coin market
as a whole is worth LESS today than in 1990. Not surprisingly, even the
best performering sectors are only up 20% since 1990! Add the dealer
markups and the profit disappears
The charts and statistics most dealers share do not include the mark-
ups, fees and actual prices charged. They are comparing only bid to
bid prices. In reality a coin you pay $1500 for is probably bid at only
$1000. So if youre extremely lucky and that coin doubles - you would
only realized a 33% profit. Plus most dealers want to make 10% to 20%
So in reality, you will be lucky to make $100 to $200 profit even after
your $1500 coin doubles in value. It should be obvious that rare coins
are a losing proposition. Since the greatest Gold Boom in history
started in 1999, rare coins have gone up less than 6 for every dollar
gold has increased.
# SHOULDNT INVEST
IN COINS
I love rare coins and used to invest in them myself. In the 1980s many
of my clients made substantial profits in coins, but today most coins
are speculative luxuries and unsuitable investments for most people.
They do not provide a hedge like gold; they do not react to the dollars
devaluation since they are always dollar denominated. They are not
suitable for funding your retirement, little Susies college education,
or anything where safety or a reliable return is important. Never have
more than a few percent of your net worth in them, if any at all. They
should not be considered diversification. Dont invest unless you are
able to actively monitor your portfolio. Even then the odds of making
money are slim. Rare coins can create problems for heirs because
of appraisal fees, legal fees, disposal, and tax treatment...theyre
generally not for people where estate planning is a major consideration.
New laws can create a nightmare for heirs. If you do manage to
pass coins on without the IRS knowing, it can be difficult for them to
prove what they purchased the coins for and can lead to the entire
amount being taxed as ordinary income. Plus any loss you may have
disappears when you pass the coins on. So, even if you lost money
your heirs will eventually be stuck paying taxes when they sell.
#
OF A COIN HAS TO
DOUBLE OR MORE
FOR YOU TO
BREAK-EVEN
Why invest in something that costs $1,000, but you can only sell for
$500-$750 the next day?
Most dealers charge a 29% or more spread (not markup) for rare
coins. However, many dealers mark up their coins an onerous 50% to
100%...or more, although they go to great lengths to hide it.
Many tell you to hold for 5 to 10 years. This is so they dont have to
worry about buying them back.
This strategy fails miserably. First of all, most of the coins investors
have put away have gone down in value over the past 20 years.
Usually thats because they were poor investments in the first place,
and theyve only become more common and less desirable over the
years. The last real bull market in rare coins ended in 1989. If you
missed that opportunity then holding coins has only cost money.
If these investors had checked up on their coins every year or so, they
would have been able to identify the ones that were bad investments
and they could have done something about it. Instead, many investors
simply wait until they need the money, and then find out their coins
are worth a fraction of what they paid. In the meantime they may have
completely missed out making money elsewhere. Worse yet is that
most people believe their coins were appreciateing while gold went
up and find out that wasnt true years later. Re-evaluating and trading
into bullion coins would have increased the value of their holdings by
as much as 792%. Any good money manager evaluates their holdings
You should regularly monitor your portfolio to make sure the coins you
thought had great potential when you bought them, still do. If not, adjust
your portfolio accordingly. Many people own rare coins because they
were talked into them when in reality they wanted to buy gold. If that is
the reason you own rare coins a smarter move is to simply trade your
rare coins for bullion coins such as Eagles, Buffaloes, etc. and take the
dealer out of the process. You can check your newspaper or T.V. to find
out where you stand daily or call American Federal at 1-800-221-7694.
We are here to help investors!
Make sure your rare coins are actually meeting the goals you set. If not
its time to get out. Chances are - if you take an honest look at it, your
coins are probably not doing what you hoped.
The truth is, this is one of the worst ways to invest in bullion or rare
coins. When gold and silver are cheap, they typically cost you much
more per ounce than bullion items like American Eagles, Buffaloes,
Canadian Maple Leafs, or bars.
When gold and silver are high, they often not only lose their entire
premium (the so-called collector value), sometimes they even sell
for a few percent under their bullion value. Why? Bullion is extremely
liquid, rare coins require your dealer to find a buyer. It can take months.
Consequently, semi-numismatic coins become extremely illiquid
in these markets. When gold first hit $1000 you could find $20 St.
Gaudens MS-63 for only $960! As gold rocketed towards $2000 the
collector value all but disappeared even in MS-65 and MS-66.
Many rare coins are only sold to investors interested in buying gold, but
who are talked into buying coins. If there is no interest in buying gold,
then the number of people available to talk into buying coins drops.
With the lack of new coin buyers coin prices plummet, often far more
than gold and silver.
People holding coins will run to sell when no one wants to buy. It a
perfect storm for the collapse of a market. So, if anyone tells you to
buy coins because they will hold their value as gold price flatten or fall,
again dont walk, RUN. History just simple doesnt show that to be true.
This is why I say when gold prices are going up or down, coins are The
worst of both worlds.
# CONSULTANT USED
TO SELL VACATION
TIMESHARES
Most large coin companies hire salesmen based on their selling ability...
not their numismatic knowledge.
The following was taken directly from the terms on a major dealers
website:
i.e. their salary is based, at least in part, on the amount and profit
margin of the Precious Metals they sell. In addition, from time to time,
sales representatives may receive other compensation tied to sales
activity = e.g., contest, bonus tied to the sale of certain denominations
types or grades of precious metals. Sales representatives are not
licensed and their knowledge varies markedly.
Theyre trained to tell you what you want to hear and prey on your
fears. Much of what they say is based on myth not reality. Most care
about their commission check more than your investment. Ask them to
buy your coins and they run for the hills, unless you will trade for more
over-valued coins. Its the only way they can make their quotas.
When investing in coins, or selling your coins, you want to deal with
companies known in the industry for their expertise, and deal with true
14 American Federal Rare Coin & Bullion
numismatic experts. Ask to talk to clients who have made money.
Check their affiliations. The best association your dealer should be a
member of is:
They are the only organization that really keeps their members
accountable. They make members abide by a Code of Ethics and retain
the right to arbitrate conflicts.
Most other organizations take anyone who simply pays the membership
fee. It is no surprise that American Federals owner, Nick Grovich has
been a member of the Professional Numismatic Guild since 1987.
#
DEALERS CARE ABOUT
IS SELLING YOU A
GOOD INVESTMENT
Unfortunately most dealers care only about their profits not yours.
Most promote coins that they make the biggest profit on. They sell
coins they can buy in adequate quantities and that are easy to sell to
less experienced investors, or sell super rare coins at huge markups.
The track record of many of the boiler room type companies calling
you are abominable. The proof is that many companies sell the same
thing for years, even decades, and continue to tell their clients what
great potential these coins have, even though their clients have done
nothing but lose money on the recommended coins year after year! All
while gold has continued to appreciate as much as 600%.
The fact is that no matter how well intentioned the dealer is, it may
be impossible for the dealers to get their clients out when the time is
right. If a dealer is high profile in a certain area of the market, it quickly
becomes common knowledge in the industry. The coin industry is really
a very small community. If a dealer who was previously a major buyer
of a certain type of coin all of a sudden decides to have his clients sell,
the market could tumble when he becomes a seller instead of buyer.
For example: If a dealer is the market maker in Morgan dollars and is
constantly at coin shows and on the computer trading system buying
hundreds or thousands of coins and then suddenly turns around and
tries to resell these same coins into the market, it will collapse the
market. He has gone from creating huge demand for silver dollars to
being a supplier. Other dealers will be aware of how many coins he has
In the mid 1980s Silver Dollars in MS-65 were the hot buy. After
rising to close to $1000 a coin they tumbled to just over $100. Twenty
years later they still have not recovered. More recently $2 Indians
were highly promoted. They did well at first, but as the promotion lost
momentum they too collapsed. After MS-65 graded coins hit a high of
around $7000 they have tumbled to less than $2000. Unfortunately,
no amount of promoting is likely to make them repeat their earlier
performance. Investors pin their hope on the dealer repeating the
promotions with ads and pushy salesmen, but its not likely to work.
The bulk of his buyers already owns
the coins and are not likely to
buy more. Its more likely
they are looking for an
opportunity to sell.
A client paid $60,000 for a rare date $10 Indian piece graded by
an off brand grading service. This service had no guarantees or
acceptance in the coin industry. There are dozens of these types of
grading companies. You need to realize that there are no oversight
organizations or regulatory restrictions on
them. Anyone can start their own grading
company and claim to certify coins.
The coin was graded MS-64. In reality,
it was a polished, circulated coin
worth maybe $1000!
These are not what you will buy from your typical dealers which have
rooms full of salespeople or brokers. Generally, they cant afford to
sell you these types of high-grade, prime investment coins unless they
are grossly overpriced. They need coins that they can buy in large
quantities and with little effort. Therefore, they are selling coins that by
definition are not rare.
The only way to buy the super collector coins is usually one on one with
a dealer who gives you personalized service and has a lot of experience
and expertise. And, these types of coins typically have bigger markups
that can eat up all your profits.
# WANT TO BUY
BACK THE COINS
THEY SOLD YOU
Realize that you are buying into a one-way market. Rare coins have
poor liquidity. Deals with as few as 100 or 200 $20 Liberties are enough
to send prices down 20% overnight! That is a thin, illiquid market. That
is not what you want when it is time to sell.
The brokers who work for these dealers get paid to sell coins, not buy
them. Again this is why so many people encounter resistance when
they try to sell. Many companies actually reprimand or blackball
brokers who buy coins back. They are isolated and not given new
leads.
Thats why they are suddenly sick, on vacation or too busy to take your
call when you want to sell.
# TO GET THE
TRUE VALUE OF
YOUR COINS,
IN WRITING
Of all the advice Ive ever given, this is the most important. One client
summed it up for me. He said, People want to believe whoever tells
them what they want to hear. This is very true. So, when someone
quotes you high coin values, test them. Have them PUT IT IN WRITING!
Most dealers want to make you feel good and tell you that your coins are
more valuable than they actually are.
They do this for many reasons. The dealer you bought from will do it
so that you cant figure out his real mark-up OR they tell you inflated
values hoping you wont sell OR they hope by paying you too much
they can trade you into something else. A trade will almost always put
you farther behind. They may pay more, but make it up on the mark-
up. I see people make this mistake almost daily. The true value of the
trade is usually much less than what is charged.
There are plenty of dealers out there who will be happy to purchase your
coins. If your dealer puts up road blocks or makes it obvious they are not
interested, find one who wants the business. Remember how anxious
your dealer was to talk to you when you bought coins? If they are really
going to perform for you, they should be just as interested to hear from
you when you are ready to sell. At American Federal, we are happy to
buy and sell and will make sure you have all of the reliable information
that you need to make a solid investment.
Time after time, people have a tendency to believe the broker on the
phone even when that same dealer is the one who offered misleading
information in the first place. People believe because it makes them feel
better and because the dealer is telling them what they want to hear. Its
hard to believe someone giving you bad news, even when your gut tells
you its the truth.
A recent example was a client who had been dealing with one of the
Many dealers know you are looking only at the supposed offer, so they
quote high but make it up by over charging on what they give you in
exchange. Many investors ended up with coins worth only half the value
as they were charged in an exchange.
Most dealers refuse to put their offers in writing. Others will take weeks
or months to get back to you. With no written offer, you do NOT have a
transaction. Read the fine print when you get what you think is an offer.
Many times it is nothing more than an indication - not an agreement to
purchase, or only good for the day it was made.
The Supreme Court recently ruled that pricing is the clients responsibility.
This has emboldened dealers. The debate between a NY Congressman,
a California dealer and talk show host drives it home. In an interview on
Bill OReilly, the talk show host and OReilly both claimed that the dealer
is only an advertiser and the buyer needs to be responsible for checking
prices instead of assuming the sponsoring talk show host has done so.
Most dealers claim they always buy back and many try to. However,
there are reasons that sometimes they cant. Even PCGS has warned
that there may be no market for coins at certain times.
The following are terms, offers and disclosures posted on the Internet at
the time of this printing are from actual documents sent to clients.
Blanchard
This company is one of the early hard money dealers. Even they
admit that they cannot guarantee to make a bid on every coinor
that it will exceed those from other coin dealers.
Lear Financial
Their website states sales representatives are commissioned
sales persons their salary is based, at least in part, on the amount
of profit margin of the Precious Metals they sell. And LCI does
not guarantee that it will repurchase any Metals that Customers
purchase and finally LCIs repurchase offer may be raised or
lowered on a daily, even hourly or more basis.
Goldline
Encourage you to sell, but says the law prohibits us from
guaranteeing to repurchase the coins we sell
These companies could not be more up-front, yet buyers are consistently
surprised when they cant resell their coins. The way to stay out of trouble
is be specific about what you expect, get a cash offer and get it in writing
by fax, e-mail or mail. At American Federal we will send you the offer in
writing through any of those communication formatsyou choose.
#
YOUR HEIRS CAN
BE EXPENSIVE,
AND COMPLICATE
YOUR ESTATE
If you have truly significant rare coins, and heirs who appreciate them,
passing them down to a new generation can be a historical legacy.
However, in most cases, heirs have little interest in the coins they inherit,
and end up selling them. As you can imagine, not only can this be time
consuming and a lot of work for them, they often end up selling them to
a local dealer, a pawn shop or hotel buyer for much less than they could
get if they knew where to go. (See Truth 15)
If your heirs arent interested in coins, its generally much better to sell
the coins and leave them cash, stocks, bullion coins, or other traditional
financial assets instead. Not only will this make things much easier for
them, it will make settling your estate less complicated and costly, as
well.
Think about ityour trustee will have to have the coins appraised,
identify your cost, and then possibly argue with the IRS over the taxes
due. This can make settling your estate a costly and stressful event for
your heirs at a time when theyre least able to handle it. New laws will
make it harder for them to sell the coins without IRS reporting. Estate tax
changes could also work against them. Coins are no longer private.
If your coins are worth less than you paid for them, you should seriously
If you are frustrated with coins, why leave them for someone else to
deal with and clean up your mistakes. Leave them something liquid and
easy to deal with, like cash or bullion coins. Call or e-mail American
Federal and we can help make that happen.
#
DETERMINE
WHETHER YOU
MAKE OR LOSE
MONEY IN COINS
Its been proven time and time again, unless youre an active and highly
experienced investor, your dealer will be the primary factor deciding
whether you make or lose money in coins. You want to work with a
dealer that has your best interest in mind and is dedicated to achieving
your investment goals. Unfortunately many dont! This will be a huge
challenge.
Their dealer bragged that they turned $1.5 million into $2.7 million over
13 years. However, if they simply purchased gold and silver bullion
coins they would currently have $9 million to $10.5 Million. Adding insult
to injury, the coins they were sold are not liquid. When I advised them
to sell part of their portfolio back to their dealer, they could not confirm
In the end the investor only made 50% profit, while gold went up nearly
600% I maintain that he made money in spite of the company Portfolio
Manager.
Select your dealer with the same degree of research and care youd
select a doctor or lawyer. Your dealer must have a long track record
of helping his investors achieve real profits. After all, unless you take
profits, you havent made profits.
Find a dealer who asks about your goals and doesnt continually try to
force rare coins on you. Deal with someone who is willing to sell you
Bullion coins, such as, Eagles, Buffaloes, Maple Leafs, etc., instead of
using scare tactics to sell you rare coins time after time.
If you own rare coins, try this test. Call your dealer to see what would
happen if you want to sell. Even if youre not ready to sell act as if you
are. Find out how hard it is going to be when you do decide you want
to sell. You need a dealer you can depend on when the time comes to
sell.
#
HOW TO SELL
YOUR COINS
- PROCEED AT
YOUR OWN RISK
There actually are many places to sell your coins. But, it can become quite
confusing and difficult to choose the best method. I have listed below the 7
most common places to sell coins.
1. The Internet - Many people use Craigslist, eBay, etc. to sell
everything from used shoes to multi-million dollar mansions. It takes a
certain personality and comfort level to do this with coins. My experience
with auctions is that most people are looking for a cheap deal, unless you
have something super spectacular. In addition, if you dont know the
market very well, you can easily be in over your head. Many people lose
money and were taken advantage of using the internet to sell their coins.
People, including other dealers, who have done this have told me its a
real hassle and extremely time consuming. You must be willing to set up
an account, answer endless questions, ship to various buyers and worry
about getting paid. Even after all this, youll still have to pay the fees and/
or commissions. Plus there are numerous accounts of copies being sold
on the Internet if you happen to be buying or using it as a pricing guide.
2. Small Coin Shops - I cant say anything categorically about small
shops. Some are great and some are horror houses. Since gold took
off, it seems like everyone is a gold and coin expert. If you look to local
shops, unless they are involved nationally, attend major auctions and
shows they may only be knowledgeble of their own little market. They
are at the whim of the local collectors and not in touch with the broader
market. I hear complaints that a local dealer paid half of what it was
worth. Some people feel ripped off if this happens. The local dealer