Epic Portfolio Strategies

I write quite a bit about finding what I call “opportunity specie” in the rare coin market. Undervalued coins. Sleeper coins. Pedigree coins. Old holder coins. Blue chip coins. All represent strong opportunity for smart resourced investors. Combine any of these and other important principles – like Focus Investing (more on this in a bit) – with a strong “story” background, and investors have the makings of great future growth.

Another critical strategic move to employ when building a rarities portfolio is to focus on specie that have Room to Run. Tied closely to big jump coins – coins that make big leaps in value in the next grade or two and are therefore smart opportunities – specie with room to run are coins that by the virtue of their unique characteristics can bring untold growth potential. In particular those characteristics include eye appeal that makes the coin meritorious of regrading or upgrading upon re-evaluation.

Few coins combine all of these characteristics in one specie, and any resourced investor/collector craves opportunities to secure them. Yet, in order to be effective in the market, one does not need to have such a recipe in every coin. Further, all the evident “potential” for such a coin, noted above, does not have to be realized for the coin to be a real winner. The coin has room to run even if it never does get an upgrade. Collectors will crave it on the hope of an upgrade at some point, knowing sometimes it takes multiple resubmissions to get it through and make the jump. A coin’s history and story and singularity can make it a runner with or without the upgrade. Further, on its date alone, and its mint mark, it’s a runner. Still further yet, it’s a critical date in that it’s a “marker coin” (see further explanation below).

While a CAC coin can be a room to run coin, just like big jump coins, other coins can also provide a great deal of growth opportunity as well. Recently, I had the chance to place a coin that was right in the sweet spot for rarity, growth, history, jump, and CAC evaluation. An 1876-S gold double eagle in high mint state condition, the coin was desirable on those qualities alone. Further though, the coin was a historic find, a rare date with gold rush allure behind it, and if it had a CAC sticker attached was also a huge jump candidate in that the price more than triples in the next grade.

When I advise a client to secure a big jump coin, I’m doing so, not just for the clear potential pay-off should the coin get the upgrade, but more fundamentally because the coin has the merits of being the strongest possible for the grade, and true collectors and investors pursue these specie with a passion. Even without an upgrade, a strong coin will retain its front-runner status because investors recognize it’s the best of the best in a particular grade. Demand is always greatest for coins with the best eye appeal. Finding a specie with that clear edge provides “room to run” on the value scale.  This is true of art, auto art, and any collectible where an eye toward quality exists.

 The smart investment philosophy for acquiring coins remains the same, regardless of larger market and financial realities – focus on quality coins with strong eye appeal, high rarity factor, key date, and key blue chip market segments, as all of these provide room to run. The more one combines multiple proven factors like market niche, limited mintage, scarcity, condition, historical importance, etc., the better the chances of holding a specie with upside growth potential. At a minimum search for coins that that provide at least one major factor for growth potential. To find a specie with more than one of these factors is to hold what I call a “Potentiation Asset” (An asset whose combined strengths have an exponentially powerful result…more on this another time). 

 

Untimely Offerings and Timely Opportunity

A common principle in the high-end fine art market is that of timing. Smart investors know that exposing a highly visible work of art too soon after initial acquisition can bring pain rather than gain. The same applies for rare coins. The five-year principle is a common one known by fine art buyers. Savvy investors in multi-million dollar pieces of art hold them for extensive periods of time to allow them to achieve their price growth potential. The trend is that the longer a piece is held, the stronger the market longing for it grows. On unexpected occasions where an owner has to become a fast seller – lawsuits, economic stress, business failure – there are opportunities for great buys for those with available capital. The untimely pressure to sell for one person becomes the timely opportunity for another. During these rare moments it’s important to realize that opportunities like these may not come again. Make the call – it can bring a windfall down the road, and the chance to acquire a once in a generation asset.

 

Prohibitive Opportunity Plays

Some assets are so rare and appear so infrequently that few collectors ever get a shot. Others are in so much demand that the second they hit a trading floor they are sold within seconds. Focusing one’s portfolio dollars on these kinds of assets is wisdom in action. More often than not, you will need to have gotten your funds prepared in advance or have given explicit authority to your manager to move for you as acquiring these assets requires resources, timing and planning. Wise investors are opportunity strikers.

 

Sleeping Runners

Sleepers are assets that have yet-to-be-recognized growth potential. This can be due to a number of factors such as market focus on other segments or a new and emerging collector base. Either way, they have been undervalued and off the radar screens of most collectors. Other factors come in to play as well. True sleeping runners are those specie that have historically performed well but still have untapped potential. Many coins, as the last ten years has shown, sat in relative obscurity for decades and then took off like rockets. In that time period more coins have achieved the six-, seven- and eight-digit levels than in the history of the market combined. As more investors – domestic, Asian and European – continue to flock into the market for privacy, growth opportunities and wealth protection, more specie and market niches have the potential to take off into the stratosphere. Many rarities are in the early explosion stages like art was decades ago. The future looks very bright for the rare coin market.

The key is to search those areas where history has always been a part of the coin’s story, the rarity is high and the populations very low, then gauge them against coins of similar merits which have already popped. In the last two decades the coins that have reached the upper stratosphere in price are those coins that have important dates attached, more than a bit of history and prohibitively low numbers available – typically a dozen or less. Yet, today, there are many coins of similar rarity, story and population figures that are just making their way toward those massive numbers. These are epic buying opportunities right now. The decades ahead will afford them vistas unseen to run and run and run.

Take New Orleans Mint gold and silver key date coins for example. Ten years ago these branch mint coins were recognized for their rarity and as opportunities for value growth, they were a bit off the map compared to today. Many could argue that other branch mints had more panache a decade ago, but that has changed. New Orleans mint gold and silver coins are increasingly becoming front and center in the marketplace. The 1838-O half dollar in particular has seen tremendous investor and collector fervor in recent years and is poised for huge growth going forward.

Lastly for our purposes here, Marker Coins are specie set to be runners as well. Simply put, a marker coin is a coin whose characteristics – by virtue of its date, type, variety and uniqueness – cannot be found in any other specie within its category. Examples include first year issues, last year issues, singular die varieties, proof-only years, patterns, some over-dates and error strikes, or historically-significant specie with pedigree. Each of these makes for rarities so singular and important to numismatics that serious collectors must have them to complete their collections. They are always highlights on trading floors, the first to trade, and they see the strongest profits. Marker Coins, as such, are great runners.

Room to run. It’s a great principle for collectors-investors to consider as they build wealth, secure their legacy and work toward the future of their collections.