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Ancient Coin Hoards – Short-Term Oversupply Spells Investment Opportunity

Ancient Coin Hoards - Short-Term Oversupply Spells Investment Opportunity

A hoard or treasure trove is defined as a collection of valuable objects that have been either intentionally sequestered for safekeeping or lost long ago.  Hoards have been with us for as long as humanity has found delight in precious items.  And a large number of ancient hoards, perhaps a majority, are composed either partially or exclusively of coins.

Many ancient coins that are tremendously popular with modern collectors were actually struck in very large quantities in ancient times.  For instance, it is believed that the iconic ancient Greek silver tetradrachm coins minted by the city-state of Athens during its golden age in the 5th century BC were created by the tens of millions.  However, survival rates are abysmal for Athenian tetradrachms, as well as most other ancient coins, and it is thought that less than one percent of these specimens exist today.  In addition, many of the coins that have survived are heavily worn, damaged or otherwise in poor condition.

In contrast, ancient coin hoards are of great interest to investment minded collectors because they often contain pristine or lightly circulated examples.  A coin hoard may contain dozens, hundreds or even thousands of high quality ancient coins.  This can be a godsend for ancient coin collectors, allowing them to acquire high quality pieces that otherwise would not have endured the ravages of time.  These same beneficial dynamics apply to medieval coin hoards as well.

Just because an ancient coin has originated from a hoard, however, doesn’t automatically make it desirable.  During the twilight years of the Roman Empire, in the 4th and 5th centuries AD, massive quantities of coins were buried by anxious Roman citizens, merchants and legionaries.  Many of these people never returned to reclaim their treasure, which is why their hoards are often found by metal detecting enthusiasts today.

But the coin hoards they left behind usually contain large numbers of late Roman bronze pieces that are small, dumpy and crudely struck.  They are nothing like the magnificent pure silver denarii of the Roman Republic or the stately gold aurei of 1st century AD Imperial Rome.  In other words, coins from ancient hoards can be great for investors, but only if the coin series in question is investable to start with.

While ancient coin hoards are a boon to modern day collectors, there is a market phenomenon related to them that deserves some discussion.  When an ancient coin hoard is found, the coins often find their way to the marketplace fairly quickly.  This usually depresses prices, provided the hoard is large enough in size and dominated by only one or two coin types or denominations.

Some collectors find this disruption of normal market operation to be undesirable.  If they already own that variety of ancient coin, a newfound hoard will temporarily lower the value of their existing specimens.  The sudden price drop and plentiful supply of previously scarce, or even rare, ancient coins can also scare away connoisseurs who were considering buying that issue.

However, these objections are ultimately shortsighted.  Instead, ancient coin hoards should be thought of as a gift from the heavens.  They are wonderful, but temporary, opportunities to acquire rare and desirable ancient coins for far less money than they would normally cost.

A great example of this is ancient Koson gold staters.  These attractive and historically important coins weigh in at an impressive 8 grams of almost pure gold.  They feature three toga-clad Roman figures advancing in a row on the obverse and an eagle clutching a wreath on the reverse.  They are also often struck in fine Roman style.  Put simply, Koson gold staters are top notch, investment grade ancient coins.

Although no one knows for certain where these gold stater coins originated, the prevailing theory states that they were struck by Julius Caesar’s assassin, Brutus, with gold given to him by the grateful Roman senate around 43 or 42 BC.  Brutus used the coins to hire Dacian mercenaries (from modern day Romania) to fight the army of the murdered Julius Caesar’s heir, Augustus Caesar.  Unfortunately for Brutus, his army lost the battle of Philippi in 42 BC and he was forced to commit suicide.

In the early 2000s, a sizable hoard of these ancient Koson gold staters was unearthed somewhere in Romania.  We have no record of exactly where or when the hoard was discovered because treasure hunters are notoriously secretive about their finds.  But a large hoard was definitely unearthed around this time.

Predictably, significant numbers of these ancient coins began to make their way into the market.  Koson gold staters, although usually scarce, were now everywhere.  Being a fairly specialized coin series, there were few collectors of this type.  Supply quickly overwhelmed demand.  Prices plummeted.  At the time, comparable ancient Greek gold staters in good condition might have cost between $1,000 and $1,500.  But the glut of ancient Koson gold staters was so severe that examples in excellent condition were only selling for $500 to $800 per coin.  There was effectively a 50% off sale on the coins.

And these depressed market conditions didn’t last for just a few months either.  They persisted for years, a not unusual situation when very large ancient coin hoards are brought to market.  As recently as 2008 or 2009, it was still possible to buy pristine ancient Koson gold staters for under $1000.  In 2017 those same coins sell for at least $1,500, if not more.

The message is clear.  Savvy ancient coin collectors and investors should take full advantage of hoard dispersals to increase their holdings.  If a hoard is large enough, prices will invariably dip.  Ancient coin series from hoards, even those that were previously rare or uncommon, will become readily available – at least temporarily.

But savvy connoisseurs are like a school of piranhas.  They will keep nibbling and nibbling until the seemingly abundant supply inevitably dries up.  Once that happens, the coins’ true scarcity will become apparent and prices will shoot skyward again.  If given the opportunity, the astute collector should not hesitate to buy investment grade pieces from ancient coin hoards.

Investing during a Recession – Buying Antiques on Sale

Investing during a Recession - Buying Antiques on Sale

The year was 2002 and I was scouring downtown Boston for antique bargains.  After unsuccessfully looking elsewhere, I finally stopped in at my favorite coin shop, JJ Teaparty.  Before they abandoned their physical storefront and became an online only coin store, JJ Teaparty used to acquire random assortments of old, semi-numismatic gold coins.  I would gleefully comb through these accumulations, knowing they would sell me good pieces at modest premiums over bullion value.

It didn’t take me long before I found what I was looking for.  I requested that six different French 20 franc gold coins be pulled from the display case for closer inspection.  The dealer laid a glittering cornucopia of early 19th century French gold before me.  There was a fine Napoleonic 20 franc coin, a lovely Louis XVIII piece from the Bourbon Restoration and a nice specimen from the July Monarchy of Louis-Philippe.

But there was more!  Two different types of 20 gold franc coins from the short-lived Second Republic of the late 1840s lay in front of me – Genius writing and the head of Ceres.  The final cherry on top was a pristine example of a Second Empire 20 franc piece from the reign of Napoleon III.  It was a veritable parade of early 19th century French gold.  Not only were these 140 to 200 years old coins all in above average condition, but a couple of them were even uncirculated.  I coveted them all.

There was only one problem: money.  The coins themselves were not very expensive, just $70 each.  And with gold trading at a modest $325 a troy ounce at the time, the premium over bullion prices was as low as I could possibly have hoped for with coins of this caliber.  But the economy was in recession in 2002 due to the bursting of the internet bubble and my job wasn’t secure.  Investing during a recession made sense, but $420 for all six coins was too much money for me to easily part with.

Ultimately, I decided that I could only afford two out of the six gems and chose the Napoleon I piece and one of the Second Republic coins.  I paid the dealer his well deserved $140 and left the store almost in tears.  You only rarely come across deals that good, and I was distraught at having to leave some of them behind.

In hindsight, I had made a major mistake by not investing during a recession.  I should have dug deep into my wallet to find the extra $280 to purchase the remaining four gold coins.  I should have found a way to fit it into my budget.  I should have, barring any other possibility, just charged it to my credit card.  Basically, I should have found a way – any way – to make the deal work.

Why?  Because, those six gold coins that cost $420 back in 2002 would today, in 2017, conservatively sell for $1,800.  That translates into an annualized return of 10.19% over the last 15 years!  This investment performance is especially impressive in light of the fact that the S&P 500 stock index has barely managed more than 6% per annum over the same timeframe.

I believe there is a profound lesson in this story for both coin collectors and antique investors alike.  I am firmly convinced that this phenomenal deal was only available because of the deep recession the economy was experiencing at the time.  The recession suppressed the price of precious metals, including gold, and reduced the collector’s premium charged on the coins.  In short, those French 20 franc gold coins were such great long term investments specifically because of the recession.

This situation applies more broadly to the world of investment grade antiques too.  Regardless of what type of antique you are interested in buying, investing during a recession is likely to give you better future returns.  Assets are always more reasonably priced in the depths of a broad economic slowdown and this applies doubly to antiques.  Money, in general, is scarcer and there are fewer collectors bidding against you.

As a result, antique dealers are usually more willing to be flexible on their pricing in order to maintain business cashflow.  But, once the economy recovers, those same antiques will become dear again, resulting in higher prices.  For these reasons, investing during a recession often leads to out-sized gains over the long run.  Dig deep for the money if you must; your future investment performance depends on it.

Investing in High End Antiques by Buying the Best of the Best

Investing in High End Antiques by Buying the Best of the Best

One piece of advice that investors hear again and again is to always buy the best quality investment available.  This platitude is particularly common in the stock market.  Pundits will often recommend best in breed companies with strong business models and good management, like Apple, Coca Cola or Google.  These types of companies have traditionally given shareholders consistently high returns over many decades.  The reasoning behind this “buy the best of the best” investment strategy is that superlative quality investments should ultimately produce superior returns.

This idea of buying quality also applies to alternative assets like art and antiques.  It is accepted wisdom that high end antiques tend to appreciate at a far more rapid pace than lower quality antiques.  In fact, low quality or damaged antiques may not appreciate at all over time.  Instead, they usually either stagnate in value or depreciate, due to their undesirable characteristics.

But this concept of buying high end antiques can be taken one step further.  Instead of settling for just high quality antiques, you can also apply the “best of the best” doctrine.  Now, most people equate ultra high end antiques with jet-setting tycoons placing million dollar bids at a Sotheby’s or Christie’s auction.  But this is largely a myth.  In some niches of the antique market, prices are low enough that even average people can successfully invest in the very highest quality pieces.

In fact, there are a surprising number of antique categories where the finest examples available only cost between $500 and $1,000.  Indian silver rupee coins from the Mughal Empire, Mid-Century fountain pens, vintage cigarette holders and European art medals are just a few examples of investment grade antiques that qualify.

There are actually far greater numbers of ultra high end antiques accessible than those few categories I listed above.  And sometimes, shockingly, these best of the best antiques don’t even cross the $500 mark!  But how can this be?

To put it simply, alternative asset markets are highly inefficient.  Unlike the traditional securities markets, where computer trading algorithms constantly search global exchanges for bargains, few people delve into the intricacies of investment quality antiques.  Therefore, it is a largely unexplored and underrated asset class today.

This means that tangible assets are, by default, left to the bold and adventurous investor.  In contrast, the rest of the world crowds into the increasingly precarious stock and bond markets.  These conventional investors hope against hope that another financial crisis doesn’t eviscerate them before retirement arrives.  Personally, I don’t see the appeal of most traditional financial assets when fine art and antiques offer the savvy investor so much more.

Of course, the very highest tier of some categories of antiques can be prohibitively expensive.  For example, the very finest investment grade jewelry commonly sells for millions, if not tens of millions, of dollars.  Similarly, the very best ancient Greek coins can trade for anywhere from a few tens of thousands of dollars to millions of dollars.  So, in order to make the best of the best antique investing strategy work, you must be willing to explore more obscure niches.  But the monetary payoff for investing in high end antiques can be significant.

It is amazing to live in an age where a person can purchase a museum quality antique for the same amount of money as the average monthly car payment (about $500 in 2017).  These unparalleled high end antiques drip with precious metals, glittering gemstones and exotic hardwoods.  Historic and enticing, these luxury items have endured as objects of desire for hundreds of years already, and will undoubtedly continue to do so for centuries more to come.

Buying Fine Antiques on the Installment Plan

Buying Fine Antiques on the Installment Plan

If you’re anything like me, you may currently be a bit wary of the financial markets.  Stocks and bonds seem to perpetually float along on a fluffy cloud of central bankers’ good intentions.  They are oblivious to the fact that, completely untethered from reality, they have drifted far from their fundamental valuations.  And yet it is usually simply not possible to “drop out” of the financial markets altogether.  We are often stuck holding stocks, bonds, mutual funds and other potentially overvalued securities in our brokerage accounts due to the lack of an acceptable alternative.

There is a vague, unsettling apprehension that at least some of the stocks and bonds in our portfolios may be, in effect, Monopoly Money.  Many of us fear that one day we will wake up to discover a portion – or even most – of our hard-earned savings has evaporated in a cloud of financial volatility, discontinuous markets and bitter regret.  But what recourse does the average investor have?

What if there was a painless way to crystallize some of the gains from your paper assets into real, tangible wealth?  A method that wouldn’t force you to make heroic asset allocation decisions like “going all in” on the market or “sitting this one out” while stocks rally without you?  You’ll be pleased to know that a simple yet compelling investment strategy does exist.

It involves redirecting the income produced by a portfolio of traditional assets into investment grade art or fine antiques.  I call this the income-to-art strategy.  For example, let’s suppose your brokerage account holds an equity mutual fund with a total account value of $50,000.  The mutual fund has a distribution yield of 2.5%.  So your accounts receives $1,250 in distributions annually ($50,000 x 2.5% = $1,250).

Now you could take this $1,250 in cash and reinvest it right back into your mutual fund.  But that would mean leaving all your cash in the very unpredictable and somewhat questionable financial markets, which isn’t something you generally want to do.  Instead, you could divert that $1,250 into tangible assets – fine antiques or art of your choice.  This technique reduces your risk by removing your “winnings” from the stock and bond market casinos.

And the best part about this strategy is that it is dead simple.  It works with any kind of income stream derived from a financial asset.  Dividends from stocks or REITs, interest from bonds and even premiums from option writing all work equally well.

However, one complication is that many of us have our nest egg stashed away in retirement vehicles, usually 401-k or IRA accounts.  These retirement accounts specifically prohibit investments in “collectibles” including investment grade art and fine antiques.  And if you haven’t reached retirement age yet – generally defined as age 59 and 1/2 – you cannot withdraw funds from these account types without paying a penalty.

On its surface, this would seem to disqualify retirement accounts from employing our income-to-art strategy.  But there is an easy way to get around these restrictions.  If you are currently contributing money to a retirement account, you can simply reduce your contributions by the amount of income the account spins off.  This will provide you with unrestricted funds outside of the retirement account equal to the amount of the dividends and interest accrued inside the account.  You can then use these unrestricted funds to directly purchase art, fine antiques or any other tangible assets you like.

The only situation where this trick isn’t advisable is if you are receiving a matching 401-k contribution from your employer that vests immediately.  In that case, you would want to continue making large enough contributions to your 401-k to ensure that you receive the full match.  A fully vested matching contribution from your employer is essentially free money, even if it is locked up in a 401-k.

There are few easy investment answers in a world of overvalued paper assets.  Determining the right course of action to secure your financial future can be daunting.  Investing in fine antiques and art can be a compelling alternative to holding traditional stocks and bonds.  The income-to-art reallocation strategy is a simple, but powerful way to reduce financial risk in an unforgiving world.