By Mark Ferguson for CoinWeek – MFrarecoins.com

Last week I wrote about “Basic Tools for Buying Rare Coins in Today’s Market.” As I talked about in that article, once you’ve learned the basics of how the rare coin market works, you can start focusing on developing a plan with which to begin building your investment in a collection of rare coins. This plan may even include attending coin shows and auctions just to look at lots of coins and to ask lots of questions. This is the way to learn.

Many dealers in the business stay away from using the word “investment” in association with rare coins. While we’re not selling investments in securities, we’re selling expensive physical objects. You may be spending $5,000, $50,000, or $350,000, for example, on a rare coin, and you don’t expect this money to be gone for good, like when you spend money on a vacation. No, you or your heirs expect to at least get your money back, and hopefully realize a handsome profit when your rare coins are sold.

Therefore, I think it’s fair to consider the financial aspect of owning rare coins. Rare coins are store of value assets. They aren’t intended to be income producing investments. They’re speculative, and could very well lose value. But, rare coins have also earned some very nice profits for astute and lucky collectors. Collecting rare coins involves outlays of significant sums of capital. That’s why I believe using the word “investment” is appropriate. And, that’s why collecting rare coins has been called, “The Hobby of Kings.”

That being said, before sinking (“investing”) a significant amount of money into rare coins, you’d do yourself a favor by trying to think of who will be buying your coins in the future – say, ten years into the future, for example. Will it be investors? Or, will it be collectors? (You might want to read my comments in last week’s article, referenced above, about the investment-driven coin market of the 1970s and early 1980s, versus a collector-driven market of the 2000s.)

Some things to think about are – What will the economy be like in ten years? Will average working people be buying coins? Will the wealthy be buying coins? If so, what will they be buying? Do you plan on selling the coins, or do you plan on passing them on to heirs?

I think it’s safest to say that the wealthy will be buying coins at the time we want to sell. What will they be buying? Probably not common coins, like late date Walking Liberty half dollars, even though they’re beautiful coins – they’ll most likely be buying coins that are scarce and rare, that are not easily replaced with like kind coins, like one of about 125 silver dollars of 1794 that are estimated by experts to exist. And, they’ll want such coins in tip top condition, frequently in MS 66 or MS 67 grades, for example. But, this isn’t to say that early U.S. coins minted during the 1700s and early 1800s won’t be in demand in eye appealing Extremely Fine or About Uncirculated condition. Those grades are becoming popular as prices climb over the generations.

Although we can imagine the kinds of coins well-heeled collectors will want to buy in ten years, it’s next to impossible to guess what series of coins will be in the greatest demand at that time. Therefore, I believe a great foundation upon which to start building a collection of rare coins is a “type coin” collection.
This is a collection of the different “design types” within a denomination, and extended across all the denominations, such as dimes, quarters, half dollars, and $1, $2 ½, $5, $10 and $20 gold coins, etc.

For example, the first half dollars were struck during 1794 using the “Flowing Hair” design for the first two years. Then the “Draped Bust” design was used, from 1796 to 1807, and replaced by the “Capped Bust” design, from 1807 through 1839. The “Seated Liberty” design came next, from 1839 through 1891, which is followed by the “Barber” half dollars, named after their designer, Charles Barber. These coins were minted from 1892 to 1916, the same year “Walking Liberty” half dollars were introduced, which were produced until 1947. The following year, 1948, the “Franklin” half dollar design came next, and this design was used through 1963. “Kennedy” half dollars were introduced in 1964 and are still in production, even though they are rarely encountered in daily commerce. So, collecting one of each of the design types for a denomination, and extending this throughout the denominations of U.S. coins is called a “type coin” collection.

Such a collection can also be extended to include “subtypes,” which are coins that have minor design changes to a series. For example, a subtype is a small change in reverse designs for the Draped Bust half dollar. On the 1796 and 1797 Draped Bust half dollars there’s a small eagle, and on the Draped Bust half dollars minted from 1801 through 1807 the reverse has a large eagle, called the “Heraldic Eagle” reverse. Another major design change to the Seated Liberty design half dollar revolves around the “With Motto” type and the “No Motto” type. The motto, “In God We Trust,” appears within a ribbon over the head of the eagle on the reverse of Seated Liberty dollars of later years, and for the earlier dated Seated Liberty half dollars, there is no motto.

There are different themes that can be used to build a type coin collection. One theme is to build a collection around first year of issue examples for each series. Another theme is to collect by key dates, which are the scarcest and most expensive coins in a particular series. By planning and developing a collecting plan, you can establish a budget and price limits for each coin in the collection. This will help determine the grades you collect.

A type coin collection will give you diversification across all the segments of U.S. coinage, from copper and nickel coins to silver and gold coins. In the process of building a type coin collection, many collectors discover one or more specific series they’re interested in, like Standing Liberty quarters or St. Gaudens $20 gold coins, for example, and begin building “date sets” in those series. A “date set” is a collection that comprises each date and mintmark combination for a series, like St. Gaudens $20 gold coins, minted from 1907 to 1933.

As rare coin prices have risen over the generations, type coin collecting has become increasingly popular, especially as prices for scarce and rare dates within a series have climbed so high. Collecting by design types allows one, if your budget permits, to own coins that are truly scarce and rare. I recommend going after coins that are difficult to replace, that only come on the market infrequently. More common coins that can be found all around a coin show are easy to replace and likely won’t appreciate anywhere near the rate scarce and rare coins will appreciate. So a great plan to begin investing in a collection of rare coins is with a foundation of a “type coin” collection.

Mark Ferguson was a coin grader for PCGS , a market analyst for Coin Values and has been a coin dealer for more than 40 years. He has written for the ANA, Coin Dealer Newsletter, Coin World, Numismatic News, , Coin Values, The Numismatist and currently has a weekly column on CoinWeek. Mark can be reached at Mark Ferguson Rare Coins ( www.mfrarecoins.com)

by Louis Golino

To view Part 1 of this article…Click Here

Steve Estes is a Portland, Oregon coin dealer and a professional numismatist who has been in business since 1963. He and his wife, Debbi, sell primarily PCGS and NGC-certified and some raw coins, especially Morgan and Peace dollars, Walking Liberty halves, and a wide range of other U.S. coins. He conducts business through his web site, www.steveestes.com , advertises regularly in publications such as Coin World, and attends coin shows.

Mr. Estes has developed a 1-10 scale for assessing a coin’s overall eye appeal, and this forms the heart of his coin philosophy. The scale represents his view of how a coin compares to one that is average for the grade and issue. Average coins would get a 5 on his scale, but he specifically looks for higher end coins that are further up the scale for his clients, especially what he calls EA-9 and EA-10 coins, which represent some of the best coins for the grade. EA stands for eye appeal.

He has also published a lot of very useful information for coin collectors on his web site that draws on his numismatic expertise and business experience, such as recommendations on coins which may be undervalued and suggestions about what grade to buy when putting together a collection of a specific series and overall budget. He also has numerous articles about Morgan and Peace dollars, Walking Liberty halves, and other series that focus on the main surface characteristics of specific years and mint marks, such as strike, luster, and contact marks, and other issues. I have found this information, especially that on silver dollars, to be extremely useful and comparable in many ways to Q. David Bowers’ Guidebook of Morgan Silver Dollars without all the historical background.

I recently had the opportunity to interview Mr. Estes.

1.) What led you to become a coin dealer? Did you begin as a collector?

A small accumulation of coins from my grandmother led me to the coin business, which I began as a dealer. I have always been intrigued by the artistic, historic and intrinsic value of coins.

2.) What do you like most about Morgan and Peace dollars, and what led you to specialize primarily in selling those coins as well as Walking Liberty halves?

Though I like all series of U.S. coins, silver dollars always held a special fascination. In the early 1960s I would rush to the bank on my lunch hour, purchase a $1000 bag of silver dollars, scan the contents for better dates and grades, then sell the remainder back to the bank before returning to work. The “good stuff” was quickly shipped off to dealers with buy ads in the back of coin publications. I learned a lot about Silver dollars very quickly!

I’ve enjoyed learning about and being part of major coin meltdowns and hoard discoveries. Though the silver dollar series ended in 1935, there were still lots of coins available. When the U.S. government removed the gold backing from our currency in 1973, I felt certain Silver dollars would remain popular for their bullion and numismatic values.

3.) Common-date graded and raw Morgan and Peace dollars in grades up to MS66 have had an amazing run recently, although they are still below their all-time highs from the late 1980′s. The remarkable rise in the price of silver clearly plays some role in this, especially for the lower-end BU coins whose price is more sensitive to the price of bullion. What do think is driving these increases? Do you believe they are driven in part by dealer promotions and telemarketers? Do you think these prices are sustainable, and do they still have more room to increase in the near future, as Laura Sperber of Legend recently predicted?

The coin market is typically driven by two forces: collectors and investors. From 1992 to 2005, collectors drove the coin market. Investor participation dramatically increased during 2010 and is strongly affecting the current market. Some of this investor interest is created by promotions and telemarketing.

Common date dollars are usually the first to rise in price, followed by all the better dates. As long as demand for silver remains strong and the overall economy improves, I see continued potential for price increases in all Morgan and Peace dollars.

4.) As prices for common-date silver dollars continue to rise, prices for lots of better date dollar coins appear to be undervalued. For example, 1881-S MS65′s graded by NGC or PCGS are retailing for about $230, while a 1903 MS65 is still $300, as it has been for a long time. Do you agree with this view, and are there any dates you would recommend besides what is listed on your web site?

There are definite disparities when looking at price levels of various dollar issues and grades. A few dates I think have special potential due to current pricing include: 1879-S R78 (MS-63, MS-64), 1892 (MS-63, MS-64), 1897-S (MS-64, MS-65), 1899-S (MS-63, MS-64), and 1902 (MS-64, MS-65). Buy these issues in NGC or PCGS holders.

5.) Do you have any other advice for Morgan dollar collectors?

I recommend collectors continue to hold better date issues and wait for the cycle to peak. I suspect better date dollars will increase in price between 50% and 200% within the next 3 years.

Postscript: Laura Sperber of Legend Numismatics posted a market report on April 29 in which she reversed her previous view on the near-term outlook for common-date, or generic, silver dollars. She said that current prices are being driven by telemarketer demand, that generic dollars are in a bubble, and that she recommends people sell now while prices are high. Although I agree with this view, I do not believe it changes the medium to long-term outlook for silver dollars, especially for better dates, as Mr. Estes explains. During the month of May the wholesale market for generic dollars has declined, as silver declined from almost $50 to about $35. But so far the retail and auction market has not yet caught up with the decline at the wholesale level. Over time, reduced demand at the wholesale level should drive retail prices down. Dealer buy prices already reflect the decline.

by Louis Golino

The Morgan silver dollar, minted between 1878 and 1921, has no real peer in the numismatic world. It is by far the most widely collected and traded numismatic coin in the world. Attend any coin show and you will quickly see that slabbed and raw Morgan dollars are everywhere. Look through the typical mail order dealer’s catalog or advertisement, or those of higher end dealers and auction houses, and again, you will encounter lots and lots of Morgan dollars. Peace dollars are popular too, and have the advantage of being a much shorter set that is not very hard to complete depending on the desired quality, but they have never been as widely collected as Morgan dollars.

There is certainly no shortage of Morgans in the marketplace. Hundreds of millions of the coins were minted in large part because of legislation that required them to be made in quantities that far exceeded what was needed for commerce. That is because there was a very powerful lobby in the late 19th and early 20th centuries that represented silver mining companies. In 1918, in an effort to prop up the price of silver, more than 270 million Morgan dollars were melted, and the silver bullion was sold to India. Millions more were melted later.

No records were kept of which coins were melted, so over the years numismatists have attempted to piece together estimates of surviving coins from various written sources. Even with all that melting, millions of the coins survive to this day. According to estimates by Q. David Bowers and other noted experts, there are 100 to 200 million Morgans and as many as 65 million mint state coins alone, with more than 10-15 million of them 1921 dollars.

As a result of all the overproduction of Morgans, some dates, especially the 1921 coins, as well as others such as the San Francisco mint marked coins from 1880-1882, are quite common even in high states of preservation. The 1921 coins are by far the most common, with more than 85 million minted between the Philadelphia, Denver and San Francisco mints. They were made from a different die than coins from 1878-1904 and are flatter and generally less attractive, especially the San Francisco coins which are very poorly struck.

Morgan dollars are an endlessly fascinating coin series. Completing the full set of approximately 100 coins, depending on whether or not one includes overdates and major die varieties, even in circulated grades is a daunting challenge, and for many a lifelong quest. Some people chose to build a date set and don’t worry about having one from every branch mint. Others focus on VAM’s, which are die varieties that are named after Leroy C. Van Allen and A. George Mallis. To acquire the scarcer dates, be prepared to spend substantial money even for lower grade coins. The 1895 only exists in proof, and the 1893-S is the rarest business strike issue, with fewer than 100 in existence.

Another very popular specialization is to collect only the coins minted in Carson City, Nevada, especially those still in their original black boxes from the General Services Administration. The GSA conducted a series of auctions and mail order sales of the coins from 1972 to 1980. Some of the Carson City coins, like the 1882-1884 issues are common in grades up to MS-66, but others are extremely rare, especially the 1889-CC, of which only one coin exists in the original GSA holder. When NGC grades the GSA-housed coins, it uses a blue and white band that goes around the holder with the grade indicated instead of removing the coin from its GSA box. But a larger number of CC coins on the marketplace are not housed in the black boxes and may have come from a different source than the GSA sales.

To collect Morgan dollars it is critical to understand the differences in key surface characteristics, especially strike, luster, and contact marks, associated with different branch mints and with coins of different years. To specialize in Morgans and build a collection of lasting value I strongly suggest consulting experts who have studied the coins for many years. Since most people can’t afford to pay for an expert consultation, or spend years studying the series before beginning a collection, it is helpful to rely on published sources. The best single one is Q. David Bowers’, Guidebook of Morgan Silver Dollars, now in its third edition.

Mr. Bowers is widely considered the dean of American numismatists, and is the most prolific coin author of all time having written well over 50 books. He became a coin dealer at the age of 17 and writes a weekly column for Coin World. He has bought and sold virtually ever major rarity and is the person who was chosen to appraise and sell by auction the greatest coin collections of all time, the Garrett and Eliasberg collections. Mr. Eliasberg, a Baltimore, Maryland banker, is the only person who ever owned a complete collection of American coins.

The prices in the third edition of his Morgan guide book from 2007 are now outdated, but the information on the history of the coins and especially the date-by-date and mint mark analysis is absolutely essential to building a solid collection. Coins of one year and branch mint were struck very well such as many from Philadelphia, whereas, for example, coins from New Orleans are notorious for their poor strikes, particularly in the obverse center of Miss Liberty’s hair just above her ear and on the reverse on the breast feathers. Coins from 1878, which are very popular, are made from different dies and always come with shallower breast feathers. There are also several major varieties of 1878 dollars based on the number of tail feathers on the eagle.

If a collector does not understand these points, he or she will not know what to look for in selecting a good coin for the grade. When I look at Morgans at a coin show or dealer’s store, I always zero in on the center of both sides, carefully studying the strike, luster, marks, and overall eye appeal, which is the most important factor when assessing a coin’s appearance. And before I look for a certain date, I make sure to consult Mr. Bowers guide book and other sources.

One also needs to know how to grade Morgans and to understand the differences between say an MS63 coin and an MS65 coin, which are substantial despite the two-point difference. In fact, the major coin grading companies were in many ways created because in the 1970′s and early 1980′s Morgan dollars were traded very widely by many coin dealers with subjective grading designations such as “Gem BU.” Subjective grading terms proliferated and prices for what seemed like the same grade varied dramatically. Some kind of more scientific approach was needed to protect the consumer and undergird the market.

The various published grading guides are very useful for learning the basics, but there is no substitute for seeing lots and lots of coins. One reason dealers tend to be better graders than collectors, which is not necessarily true if the collector is more advanced and experienced, is that they come across so many coins in the course of their work.

So many mint state Morgan dollars exist today in large part because they were saved over the years in canvas Treasury bags, where they knocked against each other when moved, and hoarded by people such as Lavere Redfield. This resulted in bag marks, contact marks and abrasions, and sometimes colorful toning even though they were never used in commerce. In 1962 the Treasury department discovered large quantities of Morgan dollars in bags that had been sitting around for decades, including the three million Carson City coins that were later sold by the GSA, and many previously scarce coins.

One of Mr. Bowers’ favorite tales is that of the 1903-O Morgan dollar, which in the 1960′s was the rarest Morgan dollar. Mr. Bowers said he never encountered a mint state one in his years as a young dealer. But in November 1962 when bags with hundreds of thousands of the coin in uncirculated condition were discovered, overnight the coin’s value plummeted from $1500 to $15. Today it is a mid-range date and sells for approximately $400 depending on the grade. In March 1964 the Treasury halted sales of Morgan dollar bags. By 1967 the New York Mercantile Exchange was trading bags of these coins for more than twice face value at a time when the price of silver was fixed at $1.29, as Mr. Bowers recounts in a new book on precious metals called “Precious Metal,” which I plan to review soon.

In the second part of this article (Click Here), I will interview one of the most experienced Morgan dollar dealers in the country, professional numismatist Steve Estes of Portland, Orgeon. I will ask him about the recent explosion in prices for common-date uncirculated coins and whether he thinks those prices are sustainable and other issues.

Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.

By CoinLink on Monday, September 20, 2010