Wednesday, February 8, 2012

Coin Collecting vs Coin Speculating

A Coin Collection
A post on the Silver Stackers forum prompted this post, where a user suggested that those buying Silver Lunar Dragons for double spot price were collecting coins rather than investing:
“1 oz dragons were $38 when they sold out then people are paying double to me that is collecting and not investing. You’re counting on collectors to be there and pay what you paid - at the minimum. Please make sure you at least have some silver you can offload if you need to and not be hoping to recoup +100% premiums.” Silver Stackers
I don’t disagree completely with the post, the user raises the fact that there has to be a buyer for the coin at a 100% premium to spot price (and spot may appreciate dramatically over coming years). However, I think there will be plenty of ‘speculators’ as well as ‘collectors’ around to pay these sorts of premiums (for some coins) as public interest in hard assets continues to increase.

I think it’s important to differentiate between speculating and collecting, because they are two very separate activities. Not all collectors are speculators and not all speculators are collectors and in fact depending on the purchase one can be both a speculator and a collector!

The dictionary says a collector is “A person who collects things of a specified type, professionally or as a hobby”. The way I see it a coin collector is someone who purchases the coins for the personal enjoyment of the coins themselves. They buy the coins not to flip them at a higher price in a short period of time (although purchasing below their market value might still be a goal of the collector), but to hold them for longer term increases in value and to enjoy inspecting them as well as sharing their finds and sets with others. It’s often the case that collectors will try and complete a set or series of coins, for example 1 of each Lunar year coin or a penny from every year.

Investopedia (.com) says that a speculator is “someone who takes large risks, especially with respect to anticipating future price movements, in the hope of making quick, large gains”. There is a very fine line between ‘speculating’ and ‘investing’, there are multiple definitions for both. On this blog I will generally refer to those buying coins for profit as speculators (rather than investors). A speculator in the Silver coin market might be someone who buys modern bullion releases at a higher premium than normal to spot with the expectation the premium will increase over time (due to the coins rarity), it might be someone who buys a large number of new release numismatic coins to try and corner the market, it might be someone who looks for key dates in sets (those with the lowest mintage) to speculate that collector demand for these will increase with time. A speculator is someone who is buying the coins with the intention of profit rather than personal enjoyment.

It’s important to understand the difference between these two reasons for buying. As I mentioned above, someone can be both, speculating on some coins while collecting others, but it is important to separate the two. If you don’t separate these two activities it will be much more difficult making an objective decision to sell when it is the right time to take a profit.

I both collect and speculate in the coin market. Predominantly speculate, but there are certainly a few coins I purchase which I do not intend to resell. It may come across that I have a strong interest in coins, which I do, however the interest is predominantly in picking the coins that will perform rather than in the coins themselves.

Are you a collector, speculator or both?

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Coin collecting is a lot of fun. Be sure to have the right supplies when coin collecting, such as coin sets and colorized coins.

Colourised coins can be very hit and miss, personally I prefer standard bullion coins, but each to their own :)

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