Do you know any investor who would rush to an unfamiliar stockbroker, hand over $10,000 and say "Buy me some stocks."?
Probably not, yet many otherwise sophisticated investors have used their discretionary funds with indiscretion by blindly asking a "rare coin dealer" to put together numismatic portfolios for them. The horror stories told by some of these now dismayed and disillusioned buyers indicate they would have seen a better rate of return on their investments if they tossed $100 bills from skyscraper windows.
(Before you reach for your pocket calculator, that comes to only $240 per coin, and was considerably below the prevailing wholesale prices at the time for such top quality coins.)
The advertised price would appear to be a spectacular bargain. However, that assumes all the pieces ordered and received are indeed Gem quality, or even Choice B.U. quality.
It also assumes the buyers actually receive all 50 pieces they ordered; only 20 coins were sent by the mail-order dealer to the Detroit buyers.
Repeated requests for shipment of the remaining 30 coins brought repeated explanations that the company's coin buyers were still busy scouting around for the Gem quality merchandise needed to fulfill the complete order. In desperation the Detroit investors finally turned over the matter to their attorney.
Now, a few months of frantic numismatic marketplace activity had passed during the exchange of increasingly hostile correspondence, and the Detroit investors decided they would sell some of the coins they actually had received and thus realize a nice profit. After all, they "bought them right," at well below wholesale costs.
So, they sent five of the gold coins to one of the largest rare coin dealerships in the United States located in California and sent another five to one of the country's oldest rare coin establishments located in New York.
Surprise! All ten coins were returned with polite suggestions to send them to the American Numismatic Association Certification Service (ANACS) in Colorado Springs, Colorado.
The coins were accurately graded as Gem quality. Too bad they were all counterfeits.
The financially-stunned Detroit investors soon received another surprise. Agents of the U.S. Secret Service, the government agency responsible for investigating counterfeit money, visited the Detroit dentist at his office which he used as his address when buying coins through the mail (a smart move!).
The agents had found the address while inspecting the records of the Pennsylvania dealership from which the coins had been purchased. The agents eventually confiscated all 20 gold coins, giving the Detroit investors' attorney a receipt for them.
Instead of making a quick capital gain, the investors declared a $12,000 loss on their taxes. Not quite what they had in mind.
Producing more frustration is the fact that within two years of their original purchase of the coins, true Gem quality U.S. Indian Head $10 gold pieces went into orbit and were selling for about $4,000 each during the 1980 numismatic market boom.
Remember, these investors had ordered 50 of them at only $240 a piece. Had these buyers purchased quality, genuine merchandise their story would have a happy ending.
The advertisement in a respected financial newspaper offered Krugerrands at considerable savings, just a few dollars above the price of gold bullion. An Aurora, Illinois businessman responded with a $1,950 cashier's check. An order from a Milwaukee medical professional amounted to $40,000.
Neither customer received any merchandise from the mailorder company, only frustration, grief and an expensive lesson,
Untortunately, these two investors were among the thousands of nationwide victims of a Florida-based company that, according to the federal investigators, may owe its customers millions of dollars in refunds or gold coins. However, it is doubtful the victims will receive anything, at best just a fraction of the amounts due them.
The moral of our "Tales of Two Collectors:" 'Tis a far, far better thing that you deal only with reputable mail-order firms, for if you only seek improbable bargains - you could lose your head!
I am frequently asked, "What do you collect?" My standard response is, "I collect the somewhat esoteric copper coins of the state of Connecticut dated 1785 to 1788, I collect mint error pieces, and I also collect the names of mail-order coin dealers who defy the Law of Supply and Demand with amazing retail offers to sell superb, Gem condition coins at 30 to 50 percent below prevailing wholesale prices."
As of now I have more Connecticut copper coins than the names of suspicious dealers, but there are only about 400 known varieties of these coins. Eventually the list of dealers' names may exceed the number of coppers in my collection.
In 1977, with the assistance of the Chicago Better Business Bureau, I conducted the first in a series of precedent-setting investigations into the suspected overgrading of coins by some mail-order dealers. The probe's results were broadcast on WBBM-AM radio in Chicago, and printed in the July, 1977 issue of the ANA's publication The Numismatist, and in other numismatic publications.
I received the "Sol Kaplan Award for Outstanding Service to Numismatics" presented by the Professional Numismatists Guild (PNG), and over the next few years similar investigations received other prestigious awards from the Numismatic Literary Guild (NLG) - and also resulted in the vigorous defense of a lengthy lawsuit.
What was accomplished by these investigations?
Aside from public exposure for several questionable dealers and being instrumental in either halting or continuing to halt the retail advertising privileges for these dealers in major hobby publications, the investigations and related stories about them stressed the importance of all collectors and investors being educated about the grading of rare coins. And, they stressed the importance of being a responsible mail-order customer.
A quick lesson in coin buying is posted on the countertop of my friendly, local, neighborhood printer's shop. Aware of his competitor's fees, this merchant's small sign reads: "The bitterness of poor quality remains long after the sweetness of low price is forgotten."
The axiom is applicable to nearly all phases of merchandising. Many times you indeed can find a bargain, but usually you have to pay the price for quality.
If you go coin shopping looking only for the lowest price you still could end up "paying a price" by not getting the quality you sought.
In my investigative reporting on alleged mail-order dishonesty by some suspicious coin dealers two definite patterns became clear.
First, the vast majority of mail-order coin dealers are honest merchants who want to sell accurately graded merchandise at fair prices. After all, they want to stay in business by making repeat sales to their customers and to the friends of their satisfied customers.
Second, the few dealers who consistently lure customers with advertised "wholesale" prices for top quality material consistently fail to make good on their grading claims. There is a handful of slick, coin con artists who promise to sell you a Rolls Royce at only Chevrolet prices - and then deliver a Volkswagon.
Here are two important definitions, then a numismatic fairy tale.
SLIDER: A slider is a coin that has just a very slight amount of wear. It is about (or, almost) Uncirculated, often with a substantial amount of original luster. To an inexperienced collector or investor, it may easily appear to actually be Mint State, that is, Uncirculated.
It "slides" under the wire of the Uncirculated category; hence, the name Slider.
WHIZ: The mechanical processing of a circulated coin, usually done with a motor-driven wire brush, in an attempt to give the coin an artificial luster and cover up the signs of wear, and circulation.
A whizzed coin usually is easily detected with the use of a good magnifying glass, but some whizzed coins can be very deceptive. Under high magnification the surface of a whizzed coin will show many tiny scratches from contact with the wire brush.
To the inexperienced coin buyer a whizzed coin may appear to be Brilliant Uncirculated and not really an artificially processed, circulated specimen.
Now, a numismatic fairy tale.
Once upon a time, and unfortunately, many was the time, Little Read Slider Hood set off with a basket of money toward Grandma's Coin Shoppe.
Although she enjoyed buying and keeping coins, she rarely looked at serious numismatic publications of any sort and knew little about grading. Hence, her well-deserved name, Little READ Slider Hood.
Soon, she arrived at Grandma's, but this was not one of the many reputable, professional dealers. The Whizzer Wolf was waiting here.
"My, Grandma!," said Little Read as she eagerly entered the store, her eyes glimmering from the light reflected off the merchandise. "What big, bright, and shiny coins you have for sale!"
"All the better to convince you they are Super, Godzilla Mint State-67 gems," grinned the Wolf as he put away his wire brush and other polishing paraphernalia.
"And, oh Grandma, what big discounts you offer!," gasped Little Read as she looked at the unbelievably low retail prices, prices that were lower than prevailing wholesale levels.
"All the better to entice you to buy from me," chuckled the Wolf. "Besides," he innocently shrugged, "I'm only in business for my health."
"And, oh Grandma," squealed Little Read as she ignorantly handed over her basket of hard-earned money to buy overgraded items advertised as Gem quality. "What liberal return and refund policies you have."
"All the better to not make waves," replied the Wolf as he prepared to eat alive yet another uneducated buyer.
The controversy over the grading of coins in the United States is nothing new. Researchers Richard Bagg and James J. Jelinski have traced grading problems in the U.S.A. back to disputes in 1892. And, overgrading is certainly not limited to just U.S. coinage.
However, when prices for Gem quality coins began soaring in the late 1970s, some unscrupulous operators no longer delivered circulated coins that had been whizzed or were sliders. A new pattern emerged. Average Uncirculated pieces, accurately described as Mint State-60 or even slightly better than average MS-63, were labeled MS-65 or better.
Either way, the buyers are not getting what they ordered, are not getting proper value for the money.
In an effort to standardize the process of grading, the American Numismatic Association (ANA) adopted a numerical system of grading classifications. In the excellent book, "ANA Grading Standards for United States Coins," line drawings of U.S. coins in various degrees of wear are depicted. These drawings, accompanied by word descriptions, permit quick establishment of the grade of a coin held next to the book's many illustrations.
Stages of circulation and wear are described by both word and number, ranging from Basal State-1, a very worn, barely recognizable coin, to Mint State-70, a rarely found, perfect specimen in top Uncirculated condition.
The ANA recognizes several steps in the Uncirculated category, going from MS-60, 63, 65, 67, and 70. In recent years, some silver dollar dealers have introduced MS-64, and some other dealers are calling for the introduction of the additional steps of MS-61, 62, 66, 68 and 69.
Frankly, while I realize the necessity of easily communicating the idea of a coin's grade, I am outraged at both the continually expanding categories and, worse, the shifting standards for using those categories. They seem to conveniently shift and change to benefit only a few. Short-term standards do not promote long-term confidence for collectors and investors.
It seems that every time the numismatic market goes soft, dealers' eyesight greatly improves. What had been honestly sold as MS-65 quality, suddenly is only MS-63 at best. And collectors quickly find that to receive an MS-65 price for their coin, it actually has to have MS-67 quality.
When the market heats up again, however, many dealers are delighted to purchase and sell "arm's length gems."
The real problem I suppose is that too many people have forgotten how to enjoy numismatics. Too many people are collecting quotations from price guides rather than collecting coins.
Back to grading guides. Aside from the ANA's book and set of grading standards, there are two previous, independent and non-numerical reference works that provide similar standards. A Guide to the Grading of U.S. Coins by Martin R. Brown and John W. Dunn is usually referred to as the "B & D System." There is also the popular Photograde book by James F. Ruddy.
Both of these grading systems and books are still widely accepted.
Most commercial numismatic publications in the U.S. insist that all their advertisers adhere to the grading criteria of at least one of these three grading systems when offering coins for sale. Both Coin World and Numismatic News also quietly check out the grading of advertisers about whom they receive complaints or believe their advertised prices are suspiciously low.
Most reputable dealers' ads will contain a simple reference to one or more of the three major grading standards. This reference is usually found under the Terms of Sale portion of the advertisement.
However, a few shoddy operators may play around with words to imply they adhere to accepted grading standards when actually they do not. Here are some actual examples from mail-order solicitations I've read.
"All coins are positively guaranteed genuine and accurately graded. Our grading standards have been refined through years of careful study."
(Sure! They've been studying to find out just how much they can get away with!)
"Grading by our unique, combined 20 year experience system."
(Now that's a very clever hedge because a unique system by definition is not necessarily the grading criteria accepted by any other person buying coins on this planet. By his own standards, this particular dealer's Gem Uncirculated label could match nearly everyone else's Extra Fine. But then, he's telling you right up front that his system is a unique system of grading. Unfortunately, this particular sharpie is not unique in using various scams to lure unwary customers.)
(Also note the phrase "...combined 20 year experience...." That could mean he has 40 people working in the back office to fill orders and each person has only six months of experience in the rare coin business!)
"All coins are strictly graded by our Old Time grading standards."
(That one speaks for itself.)
Just because a particular dealer does not indicate what system he uses to grade his coins is not a reason for you to take your business elsewhere. But if a reference to grading is made, it usually should be one of the widely-accepted systems, guides or standards for whatever type of material your are seeking to purchase or sell.
There is of course a certain amount of subjectivity involved in assigning grades to coins, there are no universal printed standards for the coins of most countries. Researchers Bagg and Jelinski emphasize: "Grading expertise is based upon experience integrated with familiarity about a particular series."
For example, I feel very comfortable determining the value of Connecticut copper pieces based on die variety, date, and condition; however, I make no claims of personal expertise on U.S. Morgan and Peace dollars, silver tetradrachms of Alexander the Great, and certainly not on the often difficult to grade U.S. Standing Liberty quarters.
Some coinage series, because of their design or strike characteristics, are more difficult to grade than others. But usually there are widely accepted standards.
Also widely accepted at any given time are specific price levels for specific coins in specific conditions. To be specific, there are general wholesale price levels, dealer to dealer levels, especially for commonly traded items such as U.S. silver dollars. (I've often wondered about the phrase "rare coins" when applied to some Morgan and Peace dollars that are available by the bagful, a thousand coins at a time...).
If a particular coin in true Gem Uncirculated condition has an average wholesale price of $200, why would any dealer want to sell one for $150 or less?
Why would a dealer purchase advertising space or mail price lists in an effort to sell that coin for a less-than-wholesale price to a retail customer?
In theory, the dealer could get more money for that same coin by walking down the block to another dealer's store and sell it to him for the prevailing wholesale price. And, he could save all that extra money by not paying for advertising space and postage.
Apparently, some dealers must be in business only for their health. (They indeed are RARE coin dealers.)
No one, absolutely no one, knowingly will sell large quantities of highly sought after, Gem quality numismatic material at below wholesale costs through normal retail channels.
There are no "fire sales" or "inventory clearances" when it comes to top quality rare coins and currency. Be highly suspicious of any such offers involving this type of material.
THE PEARLMAN PRINCIPLE: Numismatic investment is like a sewer - you get out of it what you put into it.
THE BETTER BUSINESS BUREAU SLOGAN: If the deal seems too good to be true, it probably is.
THE WARNING OF VETERAN HOBBY PUBLISHER LEE HEWITT: There is no Santa Claus in numismatics!
In addition to mail-order solicitations, collectors and investors again are hearing from merchants by phone. Telemarketing is not new to the rare coin industry. It has been successfully used by several prominent and well-respected numismatic companies. However, telephone sales pitches also are being made by what numismatic telemarketing pioneer Stanley Apfelbaum calls "phony coin dealers."
"The boiler-shops are back in full steam. 'Expert' rare coin dealers are employing hundreds of telephone salesmen to sell overgraded junk coins, polished to a fare-thee-well to resemble uncirculated coins," he warns.
"It's so easy to say 'Yes' to them! But you should say 'No,' at least until you ask for their bank references, find out how long they've been in business, who works for them (who are their 'experts?'). At least ask these questions."
Apflebaum, whose First Coinvestors, Inc. began telemarketing campaigns around 1970, says rare coin buyers should not be put off by the phony coin dealers, just beware of them.
"Rare American coins are the very best investment in the world," he proudly claims.
Now, if you haven't been scared away from numismatics yet, consider one more area of concern in addition to grading and authenticity: Toning.
Just like your good silverware, old coins (especially silver) may acquire a thin layer of colorful toning or blackish tarnish. Sophisticated collectors and investors often pay substantial premiums for coins with beautiful toning. However, some dishonest people have discovered ways to artificially color coins - including baking them inside Idaho potatoes!
Writing in the June, 1985 issue of The Numismatist, noted commemorative coin specialist Anthony Swiatek warned: "A number of coins are artificially toned for the sole purpose of catching the unknowledgeable. The main goal of some dealers is to rid their stock of coins that A) grade between AU and MS-63+ because of excessive flaws; B) lack surface luster but have virtually mark-free surfaces; or C) are Proof specimens that simply have too many hairlines...."
So, readers, what do you do now? Forget about rare coins and collect old beer cans?
No, just become a knowledgeable and responsible consumer. You and the dealers can all profit.
Here are some common sense recommendations for astute mail-order buying.
In medium- and large-sized display advertisements offering coins for sale, look for the logos of various major numismatic societies and organizations. Is the dealer a member of established collector or dealer groups such as the Professional Numismatists Guild (PNG), the International Association of Professional Numismatists (IAPN), or other established groups?
Small-sized ads may not have room for the logo or some other reference to membership in such groups, so do not eliminate a dealer solely because the logo is not present in the advertising.
Dealer membership in various local, regional and national coin clubs or organizations is not a blanket endorsement, but it is a big step in the right direction. Membership in an organization emphasizes the dealer's apparent concern for being in the mainstream of the industry as well as providing good service to clients.
Listing membership in hobby organizations usually is a sign of commitment by the dealer and his staff to supporting worthwhile groups. (But it also can mean the dealer wants a bourse table at that group's next convention or show because those tables may be limited to organization members only.)
Sometimes, larger organizations such as the PNG can provide help in settling disputes between member dealers and customers.
(For a free list of the more than 200 worldwide members of the PNG, send your name and address to Paul Koppenhaver, PNG Executive Director, P.O. Box 430, Van Nuys, California 91408. Request a copy of the PNG membership directory.)
All reputable dealers provide return privileges. When your merchandise arrives examine it immediately. Did it arrive damaged? Is it what you ordered? Can you determine the grade? If not, show the coin(s) to someone you believe is knowledgeable about them, perhaps a local coin dealer or members of your local coin club.
Are you a member of one or more local coin clubs? If not, why not? You'll find numismatic companionship and a delightful exchange of information there.
(For information about membership in the American Numismatic Association, send your name and address to ANA, P.O. Box 2366, Colorado Springs, Colorado 80901.)
If you are not satisfied with the mail-order merchandise for any reason send it back by registered and insured mail and get a return receipt card. And do it in the time limit set by the dealer. You usually can find that time limit under the Terms of Sale section of the advertisement or price list.
You usually have at least five days to inspect the items and get them back in the mail.
Honest mistakes do happen. just because you ordered a coin in Extra Fine condition and it arrived in corroded, About Poor condition does not mean the dealer is intentionally trying to cheat you.
He may have reached into the wrong bin while filling your order; he may have left the house without breakfast that morning because his wife and kids were yelling at him; he may have mixed up your order with someone else's; or maybe he could not decipher your illegible handwriting.
If a mistake was made in the grade or type of merchandise you ordered, send it back with a brief, concise explanation of why you are returning it and politely request a replacement. Enclose a photocopy of the dealer's original invoice and save the original for your records.
Do not under any circumstances remove the coin from the dealer's holder.
Now, if the replacement coin you receive also is unsatisfactory because of overgrading, immediately send it back and demand a refund for both your purchase price and your postage costs. You might even send photocopies of your now indignant letter to the publishers of the newspapers or magazines that normally carry this dealer's advertising.
They should want to know what is happening as they probably want to protect their readers as well as protect honest advertisers from unfair competition. They will especially want to do this if they get copies of enough unfriendly letters.
Be sure you always include your clearly-written or typed name and address on your order and on all correspondence.
List second choices; if you can, in case the items you ordered already are sold. Don't forget to include adequate postage if it is requested, and also add the applicable sales taxes, if any.
Finally, buy and read The Coin Collector's Survival Manual by Scott Travers. It is a well-written and well-illustrated guide to responsible consumerism and profitable rare coin investment. The book won a major award from the Numismatic Literary Guild in 1984.
In recent years, more of the respected, veteran numismatic dealers have realized they must help rid the industry of questionable, mail-order merchants. They realize that if the industry does not police itself, some government agency may get involved.
It also is a matter of good business economics. After all, every dollar being sent by consumers to one of the Bad Guys is a dollar less in sales with the Good Guys. Consumer protection works both ways.
Numismatics is a fascinating hobby and investment. If you cannot find enough enjoyment in the colorful history of the coins and currency themselves, and the rewards of trading with professional dealers, you can always spend your time pouring over the many mail-order advertisements - and reading the plentiful fiction!