Explained: Investing in Coins (Part 1)

In recent times Coin Collecting as Investment has been gaining popularity. This article discusses the pros and cons of such a strategy and for amateur hobbyist who wants to understand the investment potential or general public who is unaware of basics of coins and wants to pursue this as Investment Avenue.

Background:

With rising income world over and need for diversification, many investment advisers world over started advising “Collectibles” as investments. The collectibles included everything from Painting by popular painters, Letters, Stamps to other collectibles including coins. Everyday there are stories in the papers as to how some one made a fortune by selling of the old collectibles which they thought was worthless. These article discuses the Coin Collectibles; specifically with respect to the India market. The reason for limiting the scope is that the information and avenues to engage in this kind of activity in say in US or UK is organized.

In India of late there are quite a few articles as to how some people made a fortune by selling old coins and were able to buy their dream house. While the stories are true, remember it’s much worse than stock markets. We hear stories as to how some investors purchased some stocks at throw away prices and are now laughing their way to bank. But lady luck favors only very few. 

Common Misplaced Beliefs:

• All old coins will fetch great value: Not really, there are only a select few coins that would give good returns.
• Investing in Coins will give you more than 30-40% year on year guaranteed returns. Not really, the price of coins is similar to Stock Market or Real estate. It’s purely based on demand and supply.
• The older the coin the more expensive: Not really, the price of coin is a function of age, mint condition, metal used, design of the coin, Historical significance, quantity available.

Difficulties of Investing in Coins:

• Lack of Information: Unlike stock market or real estate, that have quite a few recognized indicators that point to the basics there is very little readily available information. There are no recognized publications that give periodic information. 
• Liquidity: Buying and selling coins is more illiquid compared to other avenues. The sector is largely unorganized. 
• Unpredictability in Demand: The Demand for a particular coin varies with time as collectors fancy something else over a period of time. For example early last century the Princely states coins were in vogue, in recent times they are more for British India. The current trend is moving towards Republic India coinage. 
• Supply Uncertainties: The supply or the total number of coins in market is unknown. Many a time’s quite a few coins vanish away from the market possibly get lost / misplaced by not so aware holders. At times they are minted away to fetch the price of metal they were minted in. All this drastically reduce the supply. And some other times all of a sudden you get a huge supply of coins from someone finding the lost / forgotten chest increasing the supply drastically. 
• Dealer Margins: As the sector is unorganized, the margin at which the dealers buy and sell coins is huge. At times it’s in excess of 300 to 500%. Thus it means that when you buy the coin from dealer for Rs 5/-, you can sell to him at Rs 2/-. Thus the value of coin sold by dealer has to reach Rs 20/- so that you can sell it to him for Rs 8/-, making a profit of just Rs 3/- 
• Hording: Lot of Dealers or well off businessmen, individuals hoards the coins and holds them. This creates an imbalance in demand and supply, the dealers would sell around 20% of these holding at 5 times the price and break even. The remaining 80% gets sold over period of years. 
• Fake Coins: There are quite a few fake coins doing rounds and it becomes difficult to identify unless you have the required expertise. There are still no grading agencies in India that grade the coins. 
• Number of Buyers: Over the past decade there are quite a few who have taken into Coin Collecting. This could be a trend or a passing fade, one never knows. The next generation few years from now may want to collect digital stuff like old iphones/ipod etc. 
• Making Merry: In recent times as the coin collection hobby is picking up, everyone is making merry out of the situation. The Mints are releasing more than the norm of themes, making it hard for collectors to keep up to date with the collection. Mints in the recent past as also opening booking for proof sets of older sets as “Re-Strikes”. This makes completing a set all the more difficult. 
• All round awareness: As the money involved in coin collection is increasing by the day, everyone including the local tea / newspaper vendor has basic awareness and is indulging in storing the coins there by reducing the supply. 

If you are not yet put off by what you have read so far; read on.

Strategies to Follow:

• Study the market: To invest in coins, one need to have interest in coins, only then one can put the required effort to study the market and understand the dynamics.
• Invest in Good Books: Buy good books on the subject and familiarize yourself with all aspect of the coins you are interested in. There could be some variations that are rarer than others.
• Stick to a theme: Pick what sets you would like to collect , rather than randomly buying coins.
• Sets Command price: If you have a bunch of individual coins or a Set of particular theme; the set always will fetch you more price. Once you start the set, keep it up to date. It’s not like buying a property and forgetting about it for year till you want to sell. Once has to put quite a bit of efforts to keep the collection current.
• Buy Rare Coins at higher Prices: Don’t let go a single coin that is expensive today in favor of using the same money to buy 10 cheaper coins. That one coin would give you more returns that what other 10 coins would give.
• Volume Game: Even today if one collects in bulk the regular coins [classic examples in recent times being 10 paise steel, or more recently 25 Paise coins] they would fetch you good returns. A ten paise coin in near future would fetch Rs 10/- per coin. In absolute terms it’s a 1000% return. However in real sense Rs 10/- is not a great amount by itself, but if you have say around 1000 coins, you would be easily getting Rs 10,000/-. However its not as easy to sell. Read the article on selling.
• Coin Condition: Mint condition coins fetch astronomical sums than used ones. Buy good quality coins and more importantly keep them in good condition.
• Invest in Storage: Factor a budget for coin storage as well. Good storage is expensive and can burn a hole in pocket.
• Set a fixed Budget: Like any investment, don’t get carried away and buy everything in one go. Fix a budget to buy coins every month and stick to it.