Earlier in the month, I had the good fortune to attend Art Basel, the art world’s premier platform for bringing artists and their patrons together. The volume of art that was displayed and purchased was staggering. It was quite an event.
The wealthy have always been serious art collectors, but fine art has been emerging as a new “alternative asset” class for well-heeled investors who embrace a well-diversified portfolio strategy. Consequently, I began to think about how one might assess the “relative value” of another collectable asset class having aesthetic value and historical significance that seems destined to follow fine art as an alternative asset investment class for savvy investors - U.S. rare coins.
Relative value is a method of determining an asset’s value by taking into account the value of similar assets or cohorts. Investors evaluating opportunity in a particular asset class designate assets as either “rich” (expensive to its cohorts) or “cheap” (inexpensive to its cohorts.) Once discovered, value investors then look to purchase those assets within a specific cohort that have been defined as cheap.
I want to clarify that this article is focused on the enduring value of genuine, certified rare coins from the 1700 and 1800’s and not the “gold or silver coins” that are mass marketed on television. Numismatics 101 – coins (or anything else for that matter) being “mass-marketed” on late night television, through cable television personalities or any other mass marketing venue can NOT be “rare”.
I have chosen three (one sculpture, one painting, one rare coin) “works of art” that possess iconic status in their respective genres to evaluate on a relative value basis.
High-Level Valuation Metrics
- Alberto Giacometti’s “Walking Man” sculpture sold for $104.3 million at auction in 2010.
- Edvard Munch’s “The Scream” sold for $119,922,500 in 2012.
- 1794 “Flowing Hair Silver Dollar” sold in January 2013 for $10 million. (It is believed to be the First Silver Dollar struck by the United States of America.)
Especially significant is that while the 1794 “Flowing Hair Silver Dollar” coin clearly benefits from being positioned at the elite intersection of art, historical significance and rarity – it is being valued (using the last sales pricing of each) at a 91% discount to Giacometti’s “Walking Man” and a 92% discount to Munch’s “The Scream”.
Using a relative value context, it seems reasonable to assert that the “Flowing Hair Silver Dollar” is conspicuously cheap to both “The Scream” and “Walking Man.”
Similar to works of art that convey a story, U.S rare coins provide investors with the opportunity to own a physical asset representing the history of our country. They memorialize the birth of democracy and capitalism. And like fine art, the supply of U.S. rare coins is extremely finite! Investors thus enjoy the peace of mind associated with a market that is supported by wealthy collectors – who much like themselves – have extremely deep pockets.
In addition to being a cheap or currently undervalued asset class, rare coins represent an alternative investment strategy for investors looking to diversify their portfolio with an exceptionally “non-correlated” asset class that exhibits superior wealth preservation and capital appreciation characteristics.
Now - more than ever, investors are seeking intelligent alternatives to volatile stocks, bonds and precious metals. Global economic risk, the specter of future terrorist attacks and political uncertainty are realities that exacerbate market risk. Rare coins, as part of a portfolio diversification and risk mitigation strategy, provide investors with a number of unique and compelling attributes to mitigate their exposure to market risk. Namely, virtually zero correlation to the market volatility associated with traditional assets and precious metals. Strong stable market performance over time and through crisis; portability; tax advantages and being a self-regulated market – no 1099 reporting is required, which makes the process of buying and selling rare coins fast, private and convenient.
