The other side of the coins - coin collecting

Nation's Business, Oct, 1985 by Ray Brady

Every so often, you may get one in the mail: a lavishly illustrated brochure in four colors, containing pictures of shiny, mint-bright coins and claims that the investment outlook for coins is as bright as the metal in them.

Coin enthusiasts point to yearly studies by Salomon Brothers, the investment house, of how various types of investments, including collectibles, have fared. Time and again, by Salomon Brothers' calculations, coins have outperformed investments ranging from stocks to Chinese ceramics and from gold to old masters.

Also, say the coin enthusiasts, look at price increases like these:

* From 1954 to 1984, the 1875 CC 20-cent piece rose from $20 to $7,500.

* The 1893 CC Morgan dollar jumped from $65 to $4,000.

* And in Minneapolis this past spring, a bronze 1943 Lincoln penny changed hands at auction for $20,350. Only about a dozen of these World War II coins are known to exist.

As glittering as such increases may seem, the collector should bear in mind that the world of coins currently is standing on edge. Coins that have long been price leaders could drop sharply in value, and others could rise.

Some dealers frankly concede that the outlook for coin collecting (and investing) may be grim.

The reason is a word that strikes terror into the hearts of coin collectors everywhere--"melt.

Remember when Nelson Bunker Hunt was buying every scrap of silver he could lay his hands on, and silver bullion soared to an all-time high of $50 an ounce? Covering the story, I watched Americans bring into New York coin stores bags of silver plate, knives and forks and--here is the heart of the matter--silver coins.

Americans turned in many common coins, but at $50 an ounce (vs. a price now of around $6 an ounce) it also made business sense to turn in a lot of coin collections, as well; they were simply worth more as raw metal melted down. A prominent New York dealer, Joel Coen, believes that he alone sold $400 million worth of fabricated coins to metal refiners over a one-year period.

"One day I melted 100 bags of 1963 Franklin halves," says Coen. "I must have gotten about $14 for each coin and today the most they bring is maybe six bucks."

Shouldn't that giant meltdown make the remaining coins even more valuable? After all, it is the old law of supply and demand--as the supply goes down, the price goes up.

The trouble is, the meltdown may have choked off a lot of the demand for coins. Reason: Many coin collectors start as kids, buying low-priced items (Joel Coen himself became interested when his parents gave him a book containing slots to be filled with coins). As they grow up, those kids turn into serious collectors, buying high-priced items and keeping the market going.

But, say dealers, the meltdown destroyed a lot of "starter" coins, as they're known in the trade, making collecting less attractive. Leon Hendrickson, a major dealer, points to Humpty-Dumpty, who could not be put back together by all the king's horses and all the king's men, and says: "That's the way it is with the coin market, too."

Before the melt, Roosevelt dimes--the 1949-S and the 1955-P, D and S--were considered scarce. So they escaped the furnaces. Now, though, because so many other coins were melted, these varieties rank with the commonest coins in the series.

As an investment, coin collecting carries may risks. Things like hairline scratches, abrasions and details of how precisely a coin was struck can make a big difference in value.

Even worse, fakes abound. That brozne 1943 Lincoln cent is a classic example of a coin that has often been counterfeited. If you think you have one, incidentally, test it with a magnet. If the magnet attracts the coin, you have one of the fakes.

Adding to the risks are high-pressure promoters. Some, says Joel Coen, "are selling coins at unbelievable prices. One man came in with coins he had bought for $20,000, and I said to him: 'I can offer you exactly $3,500 for those coins, and I'm being generous.'"

Coen's clincher, if you get one of those brochures that promise lavish rewards: "Listne, if I had a coin that would double in value in 3-1/2 years, I wouldn't sell it to you--I'd keep it."

The big meltdown has complicated the problem of figuring a coin's worth, say many dealers, because it is hard to know just how many coins are still in collectors' hands. By some estimates, the melt wiped out 98 percent of all U.S. silver coins in existence.

If the coin market snaps out of its current slump, some coins may shoot up in value. ("I have a $10 gold piece that used to sell for $1,200," says one dealer. "You can have it today for $500.") However, there may be more of others around than anyone knows.

All this means that now, more than ever, is a time for the investor to follow that old warning of caveat emptor--buyer beware. It is a Latin expression undoubtedly coined around the time the Romans first set up a mint.