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Coin Collection Life Cycle Model

Originally published on March 31 2015

In yesterday's blog, I introduced the concept of a collection life cycle. A coin collection life cycle can be defined as the period of time during which a collector amasses a substantial coin collection along with its sale or disposal. Coin collection life cycles will be dependent on the collector's objectives, financial capabilities and attention span. Following are some typical coin collection life cycles:

Buy and Hold - There are collectors who buy coins with no intention of ever selling in their lifetime or simply plan to leave this task to their heirs.

Buy and Dispose in the Future - These collectors build a substantial collection and recognize the value will be important as a financial asset during retirement years. However, they don't like to part with their coins and sell very little from their collections until a health or financial crisis requires the collection to be sold

Buy and Manage Duplicates - These collectors build a collection and are vigilant about selling duplicates in order to fund upgrades and secondly, to learn the resale value of prior purchases. They also may have a long term horizon for set building goals but realize that earlier purchases are best sold to clear space and monies for pieces at higher quality or rarity levels.

Churn and Flip - There are collectors with very short attention spans who enjoy purchasing coins but become quickly bored with a series or their coins. They decide to sell within a few years of purchase and move on to something else within or outside of numismatics. Also in this group are the collectors who aspire to be dealers and will attempt to purchase coins that might generate a small profit if flipped quickly.

Let's face the facts, most collectors are men and the "thrill of the hunt" drives our numismatic pursuits. We enjoy walking the bourse floor of small and large coin shows while attempting to complete a "coin collection." More recently, we spend time on eBay, visit dealer websites or employ major auction house online auctions as an alternative "thrill of the hunt" to visiting bourse floors. Collectors spend much more time pursuing coins for their collection than thinking about selling their coins. This is human nature as we are taught at an early age to be consumers or shoppers with little education for how to dispose of purchased items. The same applies to dispositioning a numismatic holding that may have been purchased over 5, 10, 20 years or even a lifetime. 

However, selling coins from a coin collection is an important feedback loop and learning opportunity for refining individual purchasing skills. Without actively selling duplicates, there is no opportunity to assess the strength/weakness of the purchasing side of the equation. Many of you might say, "I use a trusted dealer therefore I have nothing to worry about." That well may be the case but unlike doctors or lawyers that require years of university study, training and certification, there are no strict standards for certifying the skills and capabilities of individual coin dealers. For numismatic purchases, collectors should learn how to grade themselves and also self educate on the subtleties of coin surface conditions, striking characteristics and potential types of coin doctoring that are employed to "enhance" market sale price.

How can a collector self educated? One potential approach is selling some duplicates as a feedback loop to the coin purchasing process. Remember that as human beings, if we are not making mistakes, then we are not learning. If a collector does not actively sell duplicates, then how can he understand if there were some mistakes or less than well thought out purchases that result in a substantial loss of monetary value?

In yesterday's blog, the concept of a coin collection life cycle was introduced along with outlining several different collecting and disposition approaches. Today's blog will focus on a concept that may surprise a few readers; the coin collection life cycle equation for optimum set building and securing maximum financial return. This equation is a concept and some readers may disagree. Please understand that what comes next is being offered as free advice from several advanced collectors who attended the LSCC's Baltimore show dinner. I believe this concept and advice is well grounded as follows....

Building and selling an advanced coin collection while securing maximum enjoyment and financial return can be accomplished with knowledge, patience and careful planning. The entire process can be described by this equation:

Coin Collection Construction Time = Coin Collection Disposal Time

Blog readers well understand the amount of time necessary to build a quality collection. This journey could take multiple years or a decade to achieve certain goals as the numismatic marketplace is dynamic and locating certain pieces at desired grade levels requires persistence and some luck. The selling side of the equation is not as well understood or planned by most collectors. The concept of a coin collection life cycle Bell Curve may bring the challenge of dispositioning a coin collection into perspective.

Many readers may find this graph to be unexpected or even alarming. Does Gerry really believe that it would take 10 years to properly sell the contents of an advanced collection if the collection took 10 years to assemble? Well then, let's step back for a moment and think this through carefully as the standard approach touted by the major auction houses is so contrary to this graphic.

I believe we can agree that locating high quality coins including the rare dates for an advanced collection takes time. Personally, it took me 15 years or more to locate strictly original 1871-CC, 1872-CC, 1873-CC and 1874-CC dimes in certified EF grade even though many came to market during the 15 year timeframe. The issue was lack of originality and/or affordable pricing. Today, price guides values for these four dates have been impacted by the number of less than stellar examples coming to auction. These marginal examples reside in a certified TPG holders at EF and AU grade levels, but the surfaces may not be strictly original or worthy of a superior collection. What are the financial risks if I decide to sell my four Carson City dimes tomorrow at auction? First, there has to be several individuals currently building advanced seated dime sets who need these dates in EF grade and have the financial capabilities to bid an amount that is consistent with their true value when compared to marginal pieces that come to market. If these collectors are not available, then what happens? The dealers step into the equation and look for a wholesale price acquisition. Many of the more expensive coins sold at auction are purchased by dealers as they provide market liquidity.

Let's consider a worst case situation....there is only one active Seated dime set builder in the market at the EF grade level and the overall market is soft as dealers are having liquidity issues. The probably of achieving maximum value is low as the collectors only needs to outbid the most aggressive dealer. Bringing top quality Carson City dimes to the market via unreserved auction may lead to seller's remorse. One well known example was the Stack's Alan Lovejoy sale in late 1990. Many of his pieces were sold unreserved for well below market value as the timing of his auction was during a dealer liquidity timeframe.

Securing maximum financial return for top quality coins is derived by selling these coins to other collectors who understand their true value and have the financial strength to purchase. The numismatic market place can be impacted by many economic issues and is far from a level playing field as the price guides would imply. Selling a substantial collection and realizing the best possible prices will take longer that most of us had previously planned. Selling to collectors in a control manner can be accomplished via consignment with a well respect dealer who has the customer base for your coins. The dealer essentially brings about the liaison between seller and buyer for a commission. However, this process can take time and patience to accomplish. Selling a collection via major auction house is straightforward but risky as one needs to negotiate terms, sign a contract and then pray for strong economic tail winds to bring collectors to the auction during the sales event. Market timing, auction venue and sale date are critical to secure maximum dealer exposure to ensure a strong backstop against potential weak collector demand.....there are many factors to consider when releasing a cherished collection to auction to secure a sale in a short time frame.

In summary...Long Sales Timeframe = Low Risk = Potential Best Rewards