1 | 2 | 3

IV) How have rare coins performed as investment vehicles in the past? As an asset class, rare coins have outperformed conventional investments such as stocks and bonds. A broad rare-coin index, the CU3000, is up 6,466% since January 1970 and up 18.5% in the past three years (as of December 31, 2005). By comparison, The Dow Jones Industrial Index has risen 1,400% since 1970, excluding dividends. And, as Dr. Lombra’s study (sited earlier) showed, when rare coins were included in diversified portfolios, they increased overall return and reduced risk. I would like to go into a little more detail here about three points that are critical for individual and institutional investors considering purchasing rare coins: Know your time frame. Buy quality. Work with a trustworthy expert. Know your time frame As we have pointed out, the "population," as it is called, of any particular rare coin issue is essentially static. The population of people, however, grows. More people create the potential for more coin collectors and investors. Ultimately, more collectors and investors competing for the same limited number of coins leads to the outstanding gains we’ve described. As with stocks, bonds, real estate, and other investment classes, while the long-term direction of the rare coin market is up, there are peaks and valleys along the way. The spike in coin prices in 1989-1990 jumps out at you when you look at this chart, and tends to obscure the 6,466% increase from 1970 through 2005. The spike was a short-term market effect related to the Widespread acceptance of certified grading Limited supply of certified product Rush to tangible assets resulting from the instability caused by the buildup to the first Gulf War If you are an individual investor planning on retiring in 20 or more years or building a legacy for your children or grandchildren, and you can rely on other assets to take care of any needs for cash that might arise, you are ideally positioned to benefit from the long-term tendency of rare coins to increase in value. A good strategy for you would be buy and hold. You could purchase all the coins you intend to own now or plan to invest a given amount each year. With a perspective of two, three, or more decades, the direction and level of the current market would be of little concern to you. Nor would it be critically important to select "hot" issues that are likely to appreciate the most within the next year or two. No one knows what the hot issues will be several decades out, so you would be well served to assemble (if you were investing enough to do so) a broad range of quality rare coins. Look at the chart above. If you had bought your coins in 1970, or from 1970 through 1985, you’d be very pleased with the increase in value of your coins today, and you would not be all that concerned about the fact that there was a sharp rise in value in 1989, and a sharp fall in 1990. In fact, you might see the fall as another buying opportunity and/or as a sign of another sharp rise in the making. Your situation is different if you are, for example, building a retirement portfolio and planning to retire in eight years, or if you are a trustee of a defined-benefit pension plan that is obligated to pay retirees every month. You’ll want to know the direction of the current rare-coin market (which we take up in the next section of this article) and which coins are most likely to show maximum appreciation in value during your time frame. If you had jumped onto the coin mania in the summer of 1989 and sold your coins at the 2002 low, you’d not be a happy coin investor today. If you had kept your coins from 2002 to the present, one look at the chart below would have you feeling a lot better about the outlook for your investment. With rare coins, as with any investment, you should know your goal, including your time frame. Buy quality Every day, people buy thousands of coins graded Fine (F12), Very Fine (VF20), Extremely Fine (EF40), Choice Extremely Fine (EF45), About Uncirculated (AU50), and Choice About Uncirculated (AU55). As the numbers in the parenthesis indicate, these grades are all below Mint State (MS60-70) on the 70-point scale that is used to grade US rare coins. In addition, people buy many coins in the low Mint State grades, such as MS62-63. For a collector with limited income and many "holes" to fill in his/her collection, this buying strategy makes sense. The collector derives satisfaction from moving toward completing a collection, from owning the coins and studying their history, more than from anticipating or realizing return on investment. (In very old and or/very rare issues, a relatively low graded coin may be among the best specimens known to exist, in which case buying an EF45 or an even lower grade could be buying quality. Quality is relative to availability.) However, as the experience of Louis Eliasberg, John Pittman, and others demonstrates, higher quality coins, although they cost more to purchase, appreciate at a higher rate and therefore produce higher return on investment. Eliasberg, who constantly sought to own the highest graded specimen of any issue, calculated that he had an annualized return of 119% - about 10 times the return on the CU3000 Index! Read More 10. Work with a trustworthy expert Whether you are an individual investing $10,000, $100,000 or $1 million in rare coins, or a pension-fund trustee investing $5 million or $25 million, consistent success requires developing a close relationship with an experienced numismatist whose fingers are on the pulse of the market, and who can help you answer the "devil is in the details" questions about buying quality. Select a professional who is a member of PNG and the ANA (see Section 1 above) for at least 10 years and who has experience investing in coins and working with investors, whose needs differ from those of collectors. The professional should proactively ask you, and help you determine, how much you plan to invest over what period of time, your time frame for return on investment, the role coins are to play in your overall portfolio, and other questions to clarify your goals for investing in rare coins. Read more 11. I) V) What is the current market outlook for rare coins? Before we get into an exciting subject for me - the current bull market in rare coins - let me say again that for the long-range investor who does not need to generate income from this numismatic portion of his or her portfolio, it doesn’t matter. Based on past performance, if you’re planning to hold your rare coins for at least 20 years, the numismatic portion of your portfolio is likely to outperform any asset class with comparable high liquidity and low risk. In June 2002 I wrote and published an article (you can read it on www.coinmag.com) entitled "A Coin Market Like No Other Creates Highly Profitable Opportunities: The US Coin Market Enters a Major Up Cycle." The article described "11 early signs of a bull market in investment quality US gold and silver coins." In the past three years, just about everything the article predicted has happened. Interest rates have risen. Federal budget deficits have increased. War and terrorism have, unfortunately, increased. Stocks have moved sideways, with the bursting of the tech bubble still gripping the minds of investors. Silver and gold are up. Cash, particularly the weakening US dollar, has proven a poor alternative to equities. In addition, more recently, fears of the bursting of the housing bubble and of inflation driven by ever rising debt and higher energy prices have spooked investors. According to the Associated Press (Oct. 7, 2005), "Gold is hovering near 17-year highs. What that means depends on who’s doing the interpreting. According to one school, demand from China and India is pushing the price higher, but another school says gold is up because Western investors are convinced inflation is much higher than their governments admit." On December 31, 2005 the price of gold, historically an excellent predictor of inflation, was up 18.6% from 12 months previously. Media attention to 25-year highs in the precious metals market helps the rare coin market. New buyers of bullion coins enter coin shops or visit coin sites online and are exposed to rare coins. Prices of the generic date $10 and $20 US gold coins increase dramatically and provide a higher floor for investment-quality low-population coins. $100 million invested in the gold bullion market buys less than 95 tonnes of gold and would move the market $3 to $5 - less then 1% at the current price of well over $500/oz. Just $50 million, however, flowing into investment quality rare coins could move the market 10-15%. Buyers outnumber sellers More and more investors are looking to hard assets, such as rare coins and gold, for protection and appreciation. Steve Ivy, CEO of Heritage Rare Coin Galleries, has this observation regarding the growth of retail demand: "In the past 3 years we have seen our rare coin buyers mailing list increase from 100,000 to 250,000 collectors. Most of these new numismatist have come from the Internet auction sites." Currently, more than 100,000 bid and ask prices are posted on wholesale coin trading site CCE on any given day. In a bull market, more people want to buy than to sell; there are more bids than asks. The graphic below, from the CCE website, shows that on December 30, 2005 there were 112,571 bids posted and 3,864 asks. That’s 29.13 bids for each ask - a raging bull indicator. Total bids were over $705 million; total asks $2.46 million - a stunning imbalance that shows dealers have so much demand from retail customers that they have virtually no need to sell to other dealers. Certified Coin Exchange Statistics as of Close 12/30/2005 (US Dollars) # of Listings # of Coins Total Value $ BIDS 112,571 224,526 705,584,481 ASKS 3,864 7,183 2,462,958 The absolute numbers on CCE indicate a raging bull market, and the trend is accelerating. Read more 12. Where had all the collectors gone? For a long time the rare coin market was driven by collectors, not investors. Where had all these collectors come from? Most of them became interested as boys (over 90% were male) going through their pocket change and putting coins with particular dates and mintmarks into the corresponding holes in coin boards. A small percentage of these millions of boys developed a long-lasting fascination with coins and began collecting rarities that did not exist in pocket change and had to be purchased from dealers or other collectors. Beginning in the 1960s and extending into the 1990s, coin collecting from pocket change died out. Coin collectors were not being generated and, as a group, they became older and older. On January 4, 1999 coin collecting from pocket change returned with a boom and a roar. That was the release date of the Delaware Quarter, the first coin in the US Mint’s 10-year, 50 State Quarters® Program. The Mint estimates that as many as 130 million Americans - 44% of the population - collect State Quarters, and, with five quarters released each year, the program will run through 2008. The Mint estimates that collectors have already spent $4 billion on quarters that have been removed from circulation. Read More 13. In 2007, during the final two years of the 50 State Quarters Program, the Presidential Dollar Program will start. Legislation creating this program was signed into law by President Bush December 22, 2005. It authorizes the Mint to issue a series of $1 coins commemorating all former US presidents. Presidents will be commemorated in chronological order, starting with George Washington. At four coins per year, the series will take 9.5-9.75 years to complete (depending on whether the next couple of presidents are re-elected). The bill also creates a gold bullion coin program of images of former first ladies. These coins will have a $10 face value. The Presidential Dollar Program is likely to keep millions of Statehood Quarter collectors focused on coins for another decade. They will visit coin shops, TV coin shopping programs, and numismatic websites, where they will be exposed to rare coins. The Presidential Dollar Program will also accustom Statehood Quarter collectors to paying higher prices for their coins. And it will attract people who are more interested in presidents than in states. In our celebrity-driven culture, this could be a major marketing plus. Read more on how casual collectors become serious coin collectors and investors 14. Tax and retirement benefits increase the market As a result of lobbying, primarily by ICTA, 21 of our 50 states have enacted sales-tax exemption for rare coins, based on the concept that they are investments rather than retail items. Often a minimum purchase, such as $1000, is required for the sales tax to be waived. Including the five states with no sales tax, 26 states do not tax investments in rare coins. In 1986 the US Congress approved the inclusion of silver, gold, and platinum American Eagle bullion coins for Individual Retirement Accounts, including traditional, Roth, and SEP IRAs and Keogh plans. Bullion and rare coins are currently permitted in certain corporate pension plans, but were disallowed along with other "collectibles" from self-directed plans such as 401(k)s in 1981. Legislation now pending in the US Congress would enable investors to include certified coins in self-directed retirement plans, including IRAs and Keoghs. This legislation has been introduced by Senator David Vitter (R-LA) as bill S 804. Read more 15. A new and stronger bull market The 1981-1989 rare-coin bull market, particularly in its final stage, resulted from the entry of investors into what had been a relatively tiny, collector-dominated market. The new money chased coins relatively indiscriminately; as a result, coins in just about every category and grade increased in price simultaneously. Today’s bull market, which already includes significant investor capital, is larger and more sophisticated. It has "legs." Rather than a simultaneous rise of all coins, we have seen a market led by one sector after another, showing strategic buying by investors and collectors. At different times from 2002 through 2005, the market has been led by gold commemoratives, key dates and rarities, Morgan silver dollars, and territorial pieces. Set registration powers the market Set registration, which did not exist in the 1980s, is a powerful driver of today’s bull market, and another factor behind the higher appreciation rate of quality coins. As of December 31, 2005 there were 16,583 sets registered on PCGS, of which 15,785 consisted of US coins. NGC had 11,487 registered sets with 11,376 sets consisting of US Coins. Collectors passionately compete to have the highest quality and most complete sets within their categories, which means that they bid up the prices of low-population, key-date coins. New categories - with new awards and recognitions - are constantly created. This excerpt from NGC’s full-page ad in the Oct. 24, 2005 Coin World conveys the flavor of set registry. Under the headline "Sets. Apart." The text reads: "Announcing the 2005 NGC Registry Awards. We’re looking for the top sets in the world - and as the most inclusive registry in the hobby, NGC will see thousands of world-class sets. Make sure yours are among them, and see if your collection has what it takes!" How far will the bull run? No one can say for sure how long the current bull market will last. What is clear is that all the factors contributing to this bull market remain in place, with no sign of abating. In fact, given the precarious situation of the global economy related to shooting wars and trade wars, terrorism, rising interest rates, rising energy prices, inflation, currency instability, the housing bubble, and other factors, it appears that the outlook for hard assets such as rare coins remains favorable for the foreseeable future. In my 40+ years of participation in the coin market, I have never seen a better time to invest in rare coins. In conclusion We’ve shown that Not only is it safe to invest in rare coins, but that investing in rare coins will add true diversity to a portfolio. Rare coins tend to move independently of equities and have strongly negative correlation with inflation. The rare coin market is large and, particularly as a result of online trading of certified coins, liquid. Investors will be able to realize profits by selling their coins. As new collectors and investors enter the market, demand for the investment-quality rare coins increases, but the supply is essentially static. This is a classic formula for profit. A number of well known people (and/or their estates) have made enormous profits from their investments in rare coins. The most successful investors have concentrated on acquiring coins of the highest quality available, and they have enjoyed a rate of return far above that of the rare coin indexes, let alone that of the stock market. Despite the fact that rare coins are currently 64% below their 1989 peak, over the long haul they have outperformed stocks and bonds. In the three bull markets since the 1989 peak, the high exceeded the previous high. By now you can probably recite the following data: A broad rare-coin index, the CU3000, is up 6,466% since January 1970 and up 18.25% in the past three years (as of December 31, 2005). Two indexes that are restricted to higher quality coins have increased even more. During the same period (1/1/1970 to 12/31/2005), the Mint State Type Coin Index has risen 7,241% and the Mint State Rare Gold Coin Index is up 9,523%. By comparison, The Dow Jones Industrial Index has risen 1,400% since 1970, excluding dividends. The historical evidence suggests that for funds or individual investors with a long-term outlook, allocating a portion of their portfolio to rare coins is a solid, rational, even conservative way to protect and grow assets. The current bull market for rare coins started in 2002. As 2006 begins, the factors propelling this market are even stronger than they were at its onset. Inflation in particular has become a serious source of concern to investors, and rare coins are among the strongest hedges against inflation. The evidence suggests that the current bull market will continue for at least three or four more years, providing ample opportunities for profit even in the short to medium term. However, three or four years are not equal to eternity. Investors who want to take maximum advantage of the current bull market should therefore not procrastinate in planning their entries. (Nor should they jump in without a plan.) To take advantage of the opportunities for protection and growth of assets, institutional and individual investors should work closely with an experienced coin professional who has been a member of the Professional Numismatists Guild (PNG) and the American Numismatic Association (ANA) for a minimum of 10 years. Select a professional who invests in coins and works with investors, whose needs differ from those of collectors. The professional should help you determine how much you plan to invest over what period of time, your time frame for return on investment, the role coins are to play in your overall portfolio, and other questions to clarify your goals for investing in rare coins. Many pension funds already use independent consultants to monitor their stock and bond holdings. I recommend to my institutional clients that they consider hiring another coin professional, one not involved in the fund’s purchases and sales, to monitor their fund’s investments in rare coins. Is it safe not to invest in rare coins? Based on the research and thought I have put into this article, I have concluded that Question 1, "Is it safe to invest in rare coins?" should be rephrased. Fiduciaries and others concerned with protecting and growing assets should ask themselves, "Is it safe not to invest in rare coins?" Barry Stuppler President California Coin & Bullion Merchants Association Vice President American Numismatic Association Member, ICTA Board of Directions Chairman PNG Consumer Protection Committee Publisher Coinmag.com and GoldNewsToday.com You can reach Barry at barry@stuppler.com or at 818.592.2800 Copyright © 2006 by Barry Stuppler. To request permission to reproduce and distribute this article or to post it on a website, send email to barry@stuppler.com. The article may not be altered or abridged, and the Copyright line and this notice must be included. Is it safe to invest in rare coins? Is the size of the US rare coin market sufficient to provide adequate liquidity? Who among well-known people has successfully invested in rare coins? How have rare coins performed as investment vehicles in the past? What is the current market outlook for rare coins?

1 | 2 | 3