As I was driving into work this morning, I began thinking about my schedule over the next couple of days, which includes appointments with regular customers, some new comers, and some sellers. While our regular customers are familiar with how we operate and our philosophy with respect to various types of coins, many of our new customers are buying coins for the first time and are seeking our direction and guidance. We’ll oftentimes spend a half hour or more discussing coin and bullion investing with individuals that are new to the field prior to our first transaction. We’ve also purchased enough coin collections over the years to determine how other coin dealers approach their business; some good, and others not so good. This got me to thinking that being a coin dealer is similar to an investment advisor in many respects, and thought we’d take an opportunity to discuss some of the parallels.
Investment Goals/Objectives
If you’ve had any experience with investment advisors, typically the first question they ask is “What are your investment goals and objectives?” This is also the first question that we pose to our new customers. Many of our first time customers are interested in purchasing coins as a hedge against inflation, financial crises, ballooning national debt, trillion dollar annual deficits and a devaluation of our currency. Some of these individuals are also concerned that our monetary system will collapse and that we’ll revert to bartering until a new currency is established. These individuals are clearly interested in bullion and should be buying low premium gold and silver coins as an investment.
On the flip side, we have individuals who are interested in the history of coins, have a goal of completing a type set, and truly value rare, obsolete and unique coins. While these individuals want to purchase items that will maintain their value and hopefully go up in value in the future, their main goal is not necessarily to buy coins as an investment, but rather, to collect them. These individuals are true collectors; and therefore, are candidates for numismatic coins. A coin dealer should take the time to educate these customers on the types of coins available, their rarity and historical value, but should also make no guarantees that the coins will continue to appreciate as they have in the past.
Risk Tolerance
Risk tolerance, in our opinion, is oftentimes an overlooked aspect of coin buying, but is one that should be discussed at the outset of any transaction. Individuals that have only recently started to follow the price of gold and silver, or numismatic coins for that matter, may be of the opinion that prices only go up. When we tell customers that the price of gold reached $1,900 an ounce in August of 2011, silver recently topped out at $49 an ounce in April of 2011, or that platinum’s all-time high was $2,300 an ounce in March of 2008, they’re shocked to hear that the price of precious metals can be so volatile. The numismatic coin market has also had its share of ups and downs over the years, which are highlighted in the following article from Mark Ferguson. It’s important to establish realistic expectations with customers and to explain of the volatility of various investments; similar to the role of an investment advisor.
Time Horizon
The time horizon of any investment, whether stocks, bonds, bullion or numismatic coins should be discussed, as this will oftentimes dictate how a customer should approach their investment. Individuals who have a short time horizon should probably stay away from bullion or numismatic coins, just as they should with stocks, unless they’ve set aside a portion of their investment for speculation. We’re oftentimes asked where the price of gold and silver is headed over the next few months, and flatly tell people that we don’t know. Furthermore, we tell them to ignore the comments of anyone who claims to know, as there are a number of factors that can come into play which can affect the value of gold and silver in the short term. However, we tell people with a reasonable level of certainty that gold and silver should be higher in five to ten years from now; especially if we continue on our current path of record level annual deficits, national debt that exceeds our annual GDP and loose monetary policies of the Federal Reserve.
Summary
In conclusion, we’ve addressed a few ways in which the roles of an investment advisor and coin dealer are similar. To begin with, a coin dealer should always discuss the investment goals of new customers before directing them toward any particular investment. Secondly, they should determine whether they’re dealing with a risk adverse individual or risk taker to determine if they can handle certain levels of volatility that accompany various investments. Lastly, one’s time horizon should be understood before purchasing bullion or numismatic coins. Following the above guidelines should help to ensure that coin dealer’s interests and those of their customers are aligned.
