The Oxford Club Premiere Investor Report Q2 2011 From: The Oxford Club Research Team For: Oxford Club Members How Rare Coins Could Hand You 500% or More... And the Best Way to Own Them Thinking of investing in gold bullion? Consider rare coins instead. Hard assests such as gold, have been getting a lot of attention from investors as of late. However, you must be surprised to learn that rare coins have significantly outperformed bullion when looking at long term results. Let s examine why this has happened. Let s Have a Look at Coin Collecting A good starting point is to look at the distinction between rare coins and bullion coins. Bullion coins, like Krugerrands, have a value that solely reflects the weight of the bullion they contain. Collectable coins, by contrast, have a value that depends on their scarcity and condition. Prices are set independently by investors and collectors. This happens mainly through the auction market and a network of coin dealers. So while some rare coins are made of gold or silver, they do not depend on the bullion price for their value. IMMEDIATE ATTENTION REQUIRED For the most recent and up-to-date information please visit www.oxfordclub.com
The Oxford Club Premiere Investor Report Although rare coins are positively correlated with gold, price increases lag behind those of gold. When gold goes up, rare coins follow, and eventually go up much more than gold. Over the years, that lag has provided an early warning signal of impending bull markets and has produced periodic windfall profits for knowledgeable investors. Rare coins not only follow, but surpass gold. Bull markets in rare coins always occur during or after periods of rising gold prices. In fact, the average annual returns on rare coins have historically been more than 300% greater than the returns on gold bullion. Let me explain... Better Than Gold Rare coins offer more than the periodic windfall profit. A study which was originally done for the Joint Committee on Taxation of the House and Senate, showed that U.S. rare coins were a better hedge than gold and produced far better investment returns. That study provided a comparison of the investment performance of gold and rare coins. Conducted by Raymond E. Lombra, Professor of Economics at Penn State, the study served as the investment basis for legislation that was passed by Congress and which provided for the inclusion of gold in Individual Retirement Accounts. The conclusions over the 28-year period covered by the Lombra Report were amazing: The average annual return on rare coins was more than 300% greater than the return on gold. The return on rare coins in their best year was approximately 100% greater than the return on gold in its best year. The return on rare coins in their best three years was approximately 100% greater than the return on gold in its best three years 2
Premiere Investor Report The Oxford Club Independent reports and indexes, including those published by sources as diverse as Solomon Brothers, Inc., The Wall Street Journal, Consumer s Digest, GE Private Asset Management, Inc., and numerous auction houses, confirm that portfolios of rare coins have had high rates of appreciation. Rare Coins and Their Long-Term Trend Upward 74000 72000 70000 68000 66000 64000 62000 60000 58000 56000 54000 52000 PCGS 3000 Index (10 years) Six Month Moving Average Aug 01 May 03 Feb 05 Nov 06 Aug 08 May 10 Our research suggests that, over a long timescale, coins are as good an investment as most things, says Mr Goldbart, Managing Director of specialist coin dealer A H Baldwin & Sons. Coins over the long term have returned 10% a year. But the key is to look for the highest possible quality and rarity very rare pieces keep their price in the face of any downturn. There is no weakening in the market at the top end. This trend isn t likely to change over the long term either, no matter what the precious metals market is doing. For example, some years ago, the Chairman and Chief Executive Officer of Fidelity Investments one of the world s largest mutual fund company was one of the principal investors in a partnership that invested in rare U.S. coins. The partnership was liquidated approximately four years later at a profit of more than 500%. More recently, and on a much bigger scale, an affiliate of Kidder 3
The Oxford Club Premiere Investor Report Peabody and Company was the General Partner of a fund, which was organized to achieve capital appreciation through buying and selling rare U.S. coins. These coin prices went up more than 100% within the year, with some coins tripling in value. The factors that influence the rare coin market have become overwhelmingly bullish. Most importantly, the price of gold is trending upward. And when gold goes up, rare coins eventually follow. Investing in Rare Coins: How Do You Get Started? If you want to be a hands-on numismatist picking items yourself and assembling a collection then there are a few rules you need to observe. One is that, not unlike the stock market, it s a good idea to specialize and to pick an area you know about. In coins, this might mean a geographical area or a historical period. There are collectors of, and investors in, rare coins in most markets of the world. Many start off by investing in the rare coins of their own country or those of a particular historical period. So whether it is coins of the English Civil War period, Georgian golden guineas, Islamic coins, or Ancient Greek and Roman pieces, there is an active market to suit the interests of most collectors and investors. The second point to remember is that assembling a collection means buying the very best pieces you can afford. In this context best means those pieces in tip-top condition and the real rarities. In order to be considered a good investment, it is not enough for a coin to be merely rare. It must also be in a good condition. For that, collectors and investors rely heavily on grades assigned by reputable USA companies. After grading, coins are sealed in a transparent holder and placed into a box (called a slab) with a stamp of approval that states 4
Premiere Investor Report The Oxford Club the basic information about the coin (face value, year of issue, grade assigned, the name of the grading services). You can buy coins at auction, but until you become a confident investor, the best route is a trusted dealer with whom you build up a relationship and who can keep an eye open for the type coins you collect. Rare... And Getting Rarer Only a very small number of the rare coins in existence are actually for sale at any given point in time. As a result, a relatively small amount of money can move the entire market substantially. The most rare of collectable coins exist only in very limited quantities. Own a rare item in first-rate condition and you have a very good chance that its value will increase in the future. The value of a rare coin is set by demand from the collector and investor base. Although hoards of coins occasionally come to light, supply is normally strictly limited. As sophisticated investors are increasingly looking for assets outside of the U.S. stock market, there has been a surge in interest in rare coins. The U.S. Mint estimates that at least 140 million Americans are collecting coins, up from 125 million just a couple of years ago. Much of the new demand for rare coins is coming from wealthy baby boomers roughly 80 million strong. Already the richest generation in history, they are scheduled to inherit approximately $225 billion per year over the next decade. And the baby boomers are making diversification a prominent part of their financial plans. As more of them have become collectors, the expertise that they have developed has been put to use in making their collections a valuable, profitable part of their portfolio diversification. At the same time, their increased demand has produced higher prices 5
The Oxford Club Premiere Investor Report and attracted more investors and collectors. Rare coins are a long-term investment, especially attractive in times of economic downturn. Even a small allocation provides good diversification and offers the opportunity for attractive returns over the long term given the inherent limited supply. The following is an interview with Pillar One partner Van Simmons, President of David Hall Rare Coins and co-founder of the Professional Coin Grading Service (PCGS). Van is a recognized expert in rare coins and has been helping Oxford Club members for years. Van is a great guy and a terrific resource for anyone interested in rare coin investing. How has the advent of standardized grading of coins been beneficial? When we first thought about standardizing the grading of coins, we were looking for a way to give the collectors and investors a level playing field. Before then it would be hard to invest in an expensive coin and feel secure that you received what you paid for. Since then, the market place has grown by at least 20 times in dollar volume. At that time, there was never a coin that had sold for over a million dollars but today there are quite a few. This is due to the confidence in the money back guarantees that PCGS gives with each coin regarding it s authenticity and its proper grade. The grade is a very important component for each coin, as the values are determined by the grade. You were a driving force in the standardizing of the grading system? My partner and I were the original founders of PCGS. It was such a success for the rare coin market place that we then created a baseball or sports-card grading service called Professional Sports Authenticators (PSA). That service became extremely successful. We grade around 120 to 140,000 coins and equal amounts of baseball cards every month. Before our system was in place, you had to trust a dealer to tell you what the product was worth, now there are online price guides for coins 6
Premiere Investor Report The Oxford Club and the other products we grade. In most cases you can call a coin dealer and get a bid price from him right over the phone. How liquid is the market for a collector/investor? Very liquid. Rare coins are one of the most liquid of all investments. If you call me and get a price you can come by my office and pickup a check in five minutes. Well, maybe 15. But, if you compare this to any other investing area, they are like water. If you sell a house you have a 30 to 90 day escrow (if it closes). If you sell a stock you have a few days of settlement and then you get paid. Graded collectibles are probably the most liquid item I know of. You have used the phrase that the coin market is maturing what do you mean by that? To begin with, I don t think the coin market has fully matured. By this I mean when something becomes popular people tend to buy anything or invest in any area of that market. There has been a very strong interest in rare coins since shortly after the civil war. But in the 1960s, President Johnson took the silver out of the U.S. coins, then got on TV and said these silver coins will never have any more value than our new clad token. Soon after that the public started to move in larger numbers to the coin market. First it started in junk silver coins and silver certificates. Then in the early 70s clients were searching for un-circulated rolls of coins. As silver moved up in price the demand for silver rolls of coins skyrocketed. In the late mid to late 70s our firm decided to get ahead of the pack and look for higher graded, rarer date coins. By the early 1980s, what I was looking at is how the marketplace tends to move to the higher levels in both quality and rarity. Some rarities have and are exploding in price. This is great for most coin buyers, as it has left tons of coins in the higher grades behind. Today I look at some of the coins and laugh to myself of how under priced they are. 7
The Oxford Club Premiere Investor Report I have always been willing to pick up overlooked golden apples that no one else is chasing at the time. I look at the value and am more than willing to place a bet and hold it until the world sees what I see. Have you seen a divestiture from other collecting areas or markets to enter rare coins? Yes, to some degree. There are quite a few investors out there who are looking for something tangible to place their money into. If I was going to leave something to the next generation of heirs would I leave U.S. dollars, or something that has always been sought after great parts of history. Rare coins are probably the purest form of our American heritage. What useful tips would you have for the beginning collector? Again, I wouldn t look to buy everything, I would start buying coins you like. Always stick with high quality, I am not a fan of what I call recent ga ga coins, such as proof 69 or proof 70 coins which we tend to see in the more modern issues. I like older coins that have a price history of 50 years or more. It doesn t make sense to try to pick something new and hope it will become a collectible in 40 or 50 years. I like to break my investment dollars down into different areas of the coin market. I try to stick with older coins prior to 1950 in grades MS 65 and higher. I only invest money into coins graded by PCGS. I am not telling you this because I was one of the founders, I am telling you this because you can buy and sell coins graded and certified with no problem. They have the most conservative grading standards. Therefore they are a bit more expensive. But you get it back on the back end. So today I am focusing on rare gold coins minted prior to 1933 in grades MS 65 and higher. Some of the coins I like are Saint Gaudens, which are the very popular $10 Indian, $5 Liberties, $10 Liberties etc. All of the issues minted between 1850 and 1933. In the earlier issues such as 1795 to 1850, I look for nice examples graded MS 63 or higher. 8
Premiere Investor Report The Oxford Club I love the older Silver Commemorative arena at this time. There are over 60 million collectors on the U.S. Mint s mailing list. The U.S. Mint has become the largest coin dealer. But these buyers are collecting the modern issues. We are starting to see some of them discovering that the U.S. Mint also made commemorative coins from 1892 up until the 1950s. I especially like the issues 1936 and prior. There is a 50-piece set that you can collect. This area of the market corrected in price in the early 1990s and has only slightly recovered some of the losses. In some cases you can pick up great examples today at 20 cents on the dollar of what they were selling for 20 years ago. I also love the 19th century coins. These were coins struck from 1793 to 1915. People used to collect one of each coin ever minted, but as the market place has matured, collectors moved to higher quality coins. Some dates simply are not available in high grades, so collectors moved to one high-grade example of each variety, or one of each type of coin. This is one of the very best long-term bets in the coin market. Some of the coins that no one is paying attention to are the nickel coins, such as Liberty Nickels, Shield Nickels, three cent pieces struck out of nickel. But over all I like all of them. You could just throw a dart and do fine in the coming years. As a long time collector, this is probably my favorite area to collect. I used to collect silver dollars and still do. But each coin looked like all the others, only the dates were different. With 19th century coins every coin is different and was struck for a reason. Overall I like most of the U.S. coins today. I break the market into five major areas, which we refer to as the meat and potatoes of the coin market: Gold Coins (prior to 1933) 19th Century Type Coins Silver Dollars Modern Singles (which include Walking Liberty Half Dollars, Mercury Dimes, Buffalo Nickels etc.) These are probably some of the most beautiful coins ever struck 9
The Oxford Club Premiere Investor Report in this country. That being said, one or two coins I overlooked are the Buffalo Nickels in MS 65 to MS 67 and Mercury Dimes. The Buffalo Nickels, are by far, one of the prettiest U.S. coins ever struck. In the mid 1980s a common date MS65 sold for over $200 today you can buy these for around $55 or $85 for the MS 66. These are coins you should consider picking up in quantities of 50 or more at a crack. Fifty coins cost around $2,750 today. OC If you re interested in rare coin investing, contact Pillar One partner Van Simmons, President, of David Hall Rare Coins. Van Simmons can be contacted at: http://vansimmons.com/home.html Or, you can reach Van directly at 800.759.7575 or 949.567.1325, or e-mail him at info@davidhall.com. Professional Coin Grading Service http://www.pcgs.com/ 10
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