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A Pretty Penny?

Bruce Roberts

MY FATHER, WHO DIED in 2007, collected coins in a haphazard fashion through the 1970s, ’80s and ’90s. I believe he did this in the hope they’d appreciate significantly in value. In other words, he did it as an investment, not as a coin collector pursuing a hobby.

I’ve now been assigned the family task of “seeing what we can get” for Dad’s coins. As an investor in the stock market, I’m curious: Did my father’s efforts pay off—or would he have been better off putting the money into stocks?

My own bias is to invest in the stock market because it’s liquid and has historically provided handsome growth, while hard assets like coins and other collectibles aren’t as liquid. Because of this belief, I’ve not done any collectible investing. But maybe collectibles do provide decent returns if you hold them for long enough. Now, I had the chance to do a real-world test.

Here’s a snapshot of Dad’s collection:

  • There are 321 coins, mostly U.S. but some foreign.
  • Dates vary from 2000 to as early as 1843.
  • The condition of the coins varies greatly. As you’d expect, older coins are typically in worse condition.

My plan was to bring the collection to dealers to get quotes. But first, to be sure I’d get something like fair value, I created a spreadsheet listing all the coins and my estimate of their value. I hoped, of course, to find that rare 1955 doubled die penny worth north of $10,000. But, alas, there was no super coin in the set. My spreadsheet showed the collection was worth about $5,000 at retail. What this means wholesale I’ll find out as I shop the set among dealers.

Some interesting facts about the collection:

  • The most valuable coin is a 1914 half-dollar.
  • The six most valuable coins make up almost half the value of the 321 coins.
  • Two of those six coins are gold Quarter Eagles originally valued at $2.50, but which are now worth much more solely because of their gold content. The coin’s value equals the value of the gold in the coin. The coin itself adds little or no value. Those, unfortunately, are the only two gold coins in the collection.

Did my dad do better than the stock market with these coin purchases? To test this question, I made some assumptions:

  • Dad spent about $500 to buy the 321 coins. I have some receipts and those give me some idea of what he paid.
  • I’ll use 1985 as the date he purchased all the coins, a year that falls roughly in the middle of the period when he was acquiring coins.
  • I’ll use a 7% average annual return for the stock market. At that rate, stocks would double in value every 10 years.
  • I’ll be generous with the value of the coins today and call it $5,000.

Would $500 invested in the stock market in 1985 be worth more or less today than $5,000? There have been some four decades for the $500 to grow. The result of four decades of stock market growth, with shares doubling each decade, can be found with this calculation: 2 x 2 x 2 x 2. That gives us 16-fold growth. If we multiply $500 by 16, we get $8,000.

Moreover, I’m likely being far too generous in my valuation of the coins. I recently went to two dealers and got quotes of $1,500 and $2,300 for the lot. The dealers said many of the U.S. coins were of the “spend it” variety, meaning they were merely worth their face value.

Bottom line: My dad’s $500 invested in the stock market might have returned $8,000, while his coin investments will yield at most $5,000. This analysis doesn’t mean you can’t do well investing in coins. But I believe you must treat the effort as a business and become knowledgeable about the subject. If you’re a casual investor using a buy-and-hold strategy, the stock market has proven to be a far better place to increase your wealth.

Bruce Roberts recently retired from IBM after a 35-year career as a software engineer. Degrees in math and computer science served him well during his career and when investing. In retirement, Bruce enjoys tennis, playing bridge and tutoring math.

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