Buying Graded Coins - How to Improve Your Chance of Success
Slabbed, graded, certified are all industry terms referencing coins that have been submitted to a third-party coin grading service or “TPGS”. But let’s first discuss what it means when a coin has been “graded.”
Since there are many levels of wear and tear a coin can experience throughout its lifespan, it makes sense that someone would establish a consistent way to identify the level of circulation or wear and tear a coin has.
Now, the term “graded coins” refers to a coin or piece that trained experts from companies such as PCGS or NGC have thoroughly examined and evaluated based on industry standards as to its rarity and condition and assigned it a grade. Grades are based on the industry accepted Sheldon Coin Grading scale which is a 70-point scale in the numismatic assessment of a coin’s quality. Graded coins have also been authenticated, which is especially beneficial for mint error coins.
Over the years, certified or professionally graded coins have increased in popularity. Third-party coin grading or certification can trace its roots back to 1972. The American Numismatic Association (ANA) initially started ANACS as a non-profit to verify the authenticity of coins, as many counterfeit coins were making their way to the market.
ANACS eventually opened their doors to the public in 1979 and became the first third-party grading service. A few short years later, PCGS and NGC launched in 1986 and 1987, respectively, and have become the industry leaders for coin grading.
Since that time, dozens of third-party grading companies have come and gone. Unfortunately, many of these companies have since folded due to over-grading or inconsistent grading of coins. In other words, they lacked the standards and consistency that have made both PCGS and NGC leaders in the industry.
While all but a few third-party grading companies are recognized and accepted in the industry, many coins were graded by what we’ll refer to as “third tier”, not to be confused with third party grading companies
In fact, many of these are still being traded by coin dealers and auction houses. However, the more reputable auction houses have stopped auctioning off these coins, as the assigned grades aren’t representative of the condition of the coins. In some cases, these companies were so poorly run and staffed that they even certified counterfeit coins!
We recently met with a customer who was interested in selling his coin collection that consisted primarily of these third tier graded coins. Unfortunately, we had to be the bearer of bad news and inform him that the value of his coins was worth only about a sixth of what he paid a few years back. One sixth! That is a jagged pill for anyone to swallow. To make matters worse, he had used all the money he had to purchase these coins and had planned to use the proceeds from the future sale of these coins to fund his retirement. We suspect the company he purchased the coins from is now out of business preventing any type of recourse from our customer.
These types of situations are extremely unfortunate but do provide good learning opportunities. In this piece, we discuss our thoughts on certified coins, third party grading companies, due diligence, general investing and measures that you can take to improve your chances of success when buying graded coins while at the same time reducing your risk.
Who doesn’t like certified coins? Or for that matter, anything of potential value that has been certified and authenticated.
Remember, certified implies that an expert has inspected the item, deemed it to be authentic and has commented on its condition, generally in the form of a letter or number grade. This provides investors and potential buyers with a sense of confidence that the item they are interested in acquiring has passed the proverbial sniff test.
Without certification, the authenticity of many historically significant items would be in doubt. If you’ve ever watched the infamous reality show, “Pawn Stars,” you’ll know that certification can mean the difference between hundreds, thousands, or even hundreds of thousands of dollars.
Not to get too far off topic, but as a kid, I was enamored with baseball. I began collecting baseball cards in 1981 at the age of 8 years old. I was so passionate about those cards that I had assembled a nice collection by the time I was a teenager. Just like any other kid, I had my favorite players. So much so that even as a collector today, I still take advantage of any opportunity I get to acquire memorabilia from my favorite players.
Don Mattingly, if you’re reading this – you’re still my favorite!
As an adult, I’ve come to realize that many of these pieces of memorabilia have limited value because they haven’t been certified. In some cases, after going back and comparing signatures, I’ve concluded that I was likely sold some items that aren’t authentic or genuine. I have chalked this up as a learning experience, but the consequences could have been much worse and oftentimes are for individuals that have purchased graded coins without knowing exactly what they’re buying.
As we mentioned earlier, coins that have been certified improve your chances of purchasing an authentic coin, but still, there’s no guarantee. The idea is that you remove subjectivity from the equation with certified items, as it has been evaluated and authenticated by an “expert.” The hope is that anytime you can remove, or at least reduce, doubt you improve your chances of a successful transaction.
Next, we’re going to discuss specific grading companies that you can rely on, those you can’t, and when to discount the assigned grade and by how much. These general guidelines should help to level the playing field.
Third Party Grading Service Companies (TPGS)
At the time of this writing, there are four recognized and reliable TPGS companies in the industry, including NGC, PCGS, ANACS and ICG. NGC and PCGS are considered top-tier TPGS companies and are the undisputed leaders in the industry.
This is based on their longevity, consistent grading standards, quality talent and innovation in the industry. While there may be very slight differences between the two companies for certain coins in the highest of grades, most folks in the industry are happy to accept the assigned grade at face value due to the high levels of trust with these companies. Of course, the aesthetics of the coin can vary drastically, but as far as condition goes, they are both on point.
Even though ANACS was the very first TPGS company in the industry, they have dropped to second-tier status due to some grading inconsistencies and less stringent grading standards. That being said, you’ll rarely find an extremely high-end and valuable coin in an ANACS holder – especially those that are auctioned off by the large auction houses.
These days, many people submit their ANACS certified coins to PCGS or NGC for what is called a crossover grade. Think of it as getting a second opinion.
While not a hard and fast rule, when submitting an ANACS graded coin to PCGS or NGC for a crossover grade, it’s typically assessed a grade lower. In other words, you should pay less for an ANACS certified coin than a PCGS or NGC coin.
While not as recognized in the industry, ICG, which was founded in 1998, is also a player in the coin grading market. ICG’s grading standards tend to be a notch below ANACS, so these coins aren’t as widely accepted by coin collectors. Until recently, their coin holders were considered second-rate, but they’ve made some headway as of late and have improved the appearance of their slabs. Many of the coins that you’ll typically find in ICG holders are Morgan and Peace silver dollars as well as some American silver eagles.
As is the case with ANACS, you’re unlikely to find a high-end numismatic coin in an ICG holder. While there’s no harm in buying a coin in an ICG holder, you should expect to pay less than coins graded by PCGS, NGC or ANACS.
We should also mention a new player that is coming to market in 2023 that will likely have an impact on the third-party grading industry
Until recently, CAC has only been a third-party verification company. Basically, they evaluate coins that have already been professionally graded by NGC or PCGS and determine if they’re a solid coin for the grade. In other words, let’s say that a coin receives an AU58 grade. This is the highest grade a coin can receive short of being uncirculated. If CAC believes that this coin is a solid coin for the grade, they will apply a green oval “CAC” sticker on the holder.
If on the other hand, they’re of the opinion that the coin barely made the grade or is just average, then it will be returned to the submitting party without a sticker. CAC has recently announced that they’re entering the third-party grading market as well, so it’s likely that by the time you read this article, they may have already established themselves as a major player on par with the leading companies.
While we’re a bit hesitant to paint such a broad brush, we’re of the opinion that the grade assessed by any other third-party grading company should be disregarded. Rather, the coin(s) should be evaluated on their own merits to determine a proper grade. Otherwise, the grade will skew your opinion as to the value of the coin, which will likely result in you overpaying (oftentimes substantially) above market value for these coins.
The mistake our customer made is that he accepted the grades at face value by a third-tier company and failed to do his due diligence, which we’ll discuss next.
Due diligence is a term that not everyone may be familiar with, so let’s define what we mean by it. Basically, it involves taking reasonable steps to confirm the information being shared is accurate and can be relied upon.
For example, when you purchase a home, whether you realize it or not, your real estate agent will do their due diligence to confirm that the home has a clean title and that it’s unencumbered by any liens. They will also arrange for an inspection of the house to confirm that it doesn’t have any structural or foundation issues and that the house truly is “as described” by the seller. As Ronald Reagan is famous for saying, “trust, but verify.”
Due diligence should be utilized when you consider any major investment, including graded coins. Not only should you vet the coin dealer or auction house that is selling the coins, but you should also evaluate the coins on an individual basis. This is especially important when purchasing coins certified by third-tier grading companies but the same still applies when buying coins that have even been certified by the leading third-party grading companies.
An important point to make is that certified coins, even those by the leading companies in the industry, merely assess the condition of the coin, and not aesthetics. Individuals that are new to the field of coin collecting, or certified coins, typically aren’t aware of this fact. They assume that the grade takes into consideration any perceived aesthetic issues with the coin.
For example, dirt, grease stains, red and brown spots, toning, tarnishing, oxidation marks, etc. do not detract from the grade, but do have an impact on the attractiveness and perceived value of the coin. Rather than just accept a graded coin at face value, you should know exactly what you’re buying.
We recommend that you buy graded coins in person, when possible. If not, request high resolution photos of the front and back of the coin to confirm that the coin you’re buying meets your standards.
Another potential pitfall to be aware of is that counterfeiters have made their way into the industry. Initially, they merely produced poor-quality counterfeit coins, but have stepped up their game not only with respect to the quality of the replica coins, but also their ability to replicate third-party grading holders.
One way you can combat this issue is by purchasing certified coins from reputable coin dealers only. Another way is to look up the serial number listed on the graded coin labels on either the PCGS or NGC’s websites to confirm that it’s a coin that they have indeed certified. If the serial number is accurate and is in their database, you can access additional details, including pictures of the obverse and reverse of the coin.
Nine times out of ten, a counterfeit coin won’t pass the serial number test. Yet even that sometimes isn’t enough.
We’ve personally seen slabbed coins with correct serial numbers, but counterfeit coins in the holders. In one case, a seller brought in a handful of PCGS MS70 1 oz American gold buffaloes for sale.
The serial number checked out, but there were two issues:
- The same serial number was used on all the holders, which is obviously a red flag since third-party grading companies assign unique serial numbers to each coin, and
- The color and weight of the coins appeared to be off. A simple check on our scale and electronic precious metals verifier confirmed that they were counterfeit.
5 Steps for Success
So far, we’ve shared some guidelines we hope will help you sidestep many of the pitfalls we’ve seen over the years that oftentimes lead to poor decisions or costly mistakes. Next, we’re going to share with you some nuggets to help improve your chances of a successful purchase.
Armed with this information, we hope that at some point in the future you’ll be able to sell your coins at a higher price to meet a long-term goal, such as funding college expenses, buying a house, retirement, etc.
First things first.
Ask yourself, “Am I paying a fair price for these certified coins?” We’ve discussed some of the differences between the top third-party grading companies and how they operate with different standards, but ultimately, the price you pay will determine if you’re likely to realize a profit in the future or not.
Have you researched the historical price of the coin, the price in various pricing resources and recent comp information to determine if you’re buying a coin that has increased in value over the years and is being offered at a fair price? Too many times, we’ve seen individuals purchase coins from unscrupulous companies that charged customers many times the actual value of the coins. In many of these cases, the investor may never be able to recoup their original investment. When considering purchasing coins, we recommend that you reference a few resources, such as “A Guidebook of United States Coins,” “The Coin Dealer Newsletter,” and to a lesser extent, published retail prices on NGC and PCGS’ websites.
Is there a market for the graded coin(s) that you’re considering when it comes time to sell? One of our favorite customers reaches out to us periodically to sell certified coins. Many of these coins have a limited market, think Star Trek High Relief PF70 Ultra Cameo, and in most cases, he sells at a loss. Make sure that any certified coin you’re considering purchasing, especially if you’re doing so for investment purposes, is a coin that is in high demand and desired by coin dealer and collectors alike. Purchasing obscure or illiquid coins due to an emotional connection can often limit your ability to realize a profit in the future.
Are you able to view the coin in person or with high resolution photos of both the obverse and reverse? This is an important factor to consider that we alluded to earlier in our article. Graded coins reveal little if anything with respect to the aesthetics of the coin. Know what you’re buying before buying it. In other words, make sure that you see the coin in person or have an opportunity to view high resolution photos prior to making your purchase. If this isn’t possible, confirm that the company you’re purchasing your coins from is reputable and has a generous return policy so that you don’t get stuck with a coin that make be difficult to sell in the future. Remember, coins that have brown or red spots, toning, tarnishing, etc. can devalue the coin despite a high grade when it comes time to sell.
Unfortunately, aesthetics is not a factor that is taken into consideration when coins are submitted for grading. So, to make sure you’re investing wisely, make sure you can properly view the coin to ensure your best chance of investing success.
Finally, consider asking yourself if certified coins truly are the best option for you. Compare the price of raw or ungraded coins to the price of certified coins to determine if it’s in your best interest to buy graded coins. For example, if you’re investing in American silver eagles and are primarily purchasing the coins to take advantage of the upside of silver, as a hedge against inflation or for bartering purposes, then certified coins probably aren’t necessary.
Sure – certified coins remove the question of authenticity from the equation, but American silver eagles aren’t commonly counterfeited coins, so you’re likely perfectly fine with purchasing tubes of silver eagles as opposed to certified silver eagles.
When considering this final question, be honest with yourself regarding your investment acumen. Have you done enough research to feel confident in your investing abilities and to be able to identify the right coins at the right price? Too many times, novice investors jump headfirst into the certified coin market with unrealistic expectations of future returns.
We’ve been around long enough to know that there’s no easy way to make fast money and that no investments are a surefire guarantee of success.
If you’re buying graded coins as a hobby and for the fun of coin collecting, that’s one thing. However, if you’re relying on your purchase to produce investment income in the future, make sure that you understand all the risks involved and/or consult with an unbiased third-party expert.
We covered a lot of ground in this article, but we wanted to make sure that you walk away with a few key points. We began our discussion with a bit of history on the third-party grading industry, certified coins in general and which coin grading companies are the most reputable.
We recommend PCGS and NGC-graded coins, whenever possible. ANACS, and to a lesser extent, ICG coins, are also viable options, but remember that their grading standards aren’t as strict, so you should expect to acquire these coins at a discount. The grades assigned by any other grading company should be disregarded and the coins should be evaluated based on their own merits versus the assigned grade.
Be sure to do your due diligence on the coin dealer or auction house offering graded coins and know exactly what you’re buying. It’s important that you limit your purchases to coins that “face up” nicely so that you have a broad and liquid market when the time comes to sell your coins. Avoid coins with aesthetic issues, or if this is your only option, be sure that you’re not paying the full retail price.
Also, avoid private transactions, when possible, as this increases your chances of purchasing counterfeit coins. However, if you choose to go this route, make sure that you’re seasoned enough to be able to identify replica coins.
Understand that certified coins may not be the best option for you – especially if you’re interested in acquiring modern coins, such as American silver eagles.
In some cases, buying raw coins is nearly as good, and will help to save you hundreds of dollars, which you may not be able to recoup when the time comes to sell your coins.
If you have a coin collection consisting of coins that you think may be viable candidates for certification, we recommend that you first read this article.
The experts at Atlanta Gold & Coin Buyers deal in all types of bullion, collectible, and numismatic coins, including many professionally graded coins.
We do our best to help you navigate your way through the plethora of options so that you can make the right investment decision for you and your future. Contact us today at 404-236-9744 to receive expert advice and to experience industry-leading customer service.
We look forward to hearing from you and earning your business!
Happy Treasure Hunting!