Rare Coins and Penny Shares: What They Have in Common

Coming out of Oxford's Sheldonian Theatre last night I happened to overhear part of a very interesting conversation.

It went something like this...

Blue cardigan guy: “...and he ended up paying £400,000 for a coin!”
Tweed jacket bloke: “It must have been rare”.
Blue cardigan guy: “It was. He sold it on last week and made a packet”.
Tweed jacket bloke: “How much...?”

A loud motorbike roared past... just as they were about to get to the juicy bit. But it got me thinking about investing in coins, so here's a little history...

An Empire built on coins

In 1935 the USA fixed the dollar at $35 per ounce against gold.

The motive?

To stabilise a very shaky dollar (don't forget, just a few years before the world was hit with greatest depression of the 20th Century).

However this had the side effect of pegging gold down to an artificially low price.

And most professional investors will realise that any artificial constraint placed on commodity prices will eventually fail...

Those who were smart enough to act on this ideal speculative opportunity back in 1935 would have been very happy (and rich) bunnies a few years later.

But the story didn't end there...

Back in the 60's gold coins were a great buy. Anybody buying then could have easily averaged over 100% per year between then and about 1984.

In 1968 great pressure built upwards on gold and downwards on the dollar...

The yellow metal eventually peaked at $850. But as all suchlike market corrections this massive bull-run ran its course and gold subsequently dropped to around the $330 mark, settling around $400.

More recently, Gold's been stirring again, reawakened from a two-decade slumber... it's currently worth around $620 per ounce.

Gold is rising because of the fundamental mismanagement of the dollar by our central banker friends across the pond.

Their respective tactics and strategies might have differed, but the result is the same: decreased confidence in paper money and an increased appetite for gold.

The ultimate form of insurance

Even so, compared to other resources gold is, and always has been, a very steady priced, reliable commodity. In my opinion, it is not one which will provide rich speculative profits in a short space of time.

The main benefit of investing in gold is supreme safety. A mattress full of bank notes can go up in flames, or be devalued or demonetised overnight. This just cannot happen to gold.

In countries like Britain, where we have a relatively stable currency, there is not a high risk of drastic devaluation - although this did happen in 1964 and again in 1992, but we soon recovered.

For third world countries gold is a very desirable insurance against devaluation or even complete collapse of their currency. It is also very compact and portable.

But even in stable, civilised countries, it would be prudent to maintain a small proportion of one's wealth in gold as a form of ultimate insurance.

But what's this got to do with penny shares?

Well, I'll tell you...

One to look into, but NOT to invest

Diversifying your portfolio so you spread the risk and get involved in as many different opportunities as possible is very important if you want to make money through investing.

And rare coins could well be a worthy part of your portfolio.

Past research has shown that in the right market conditions rare coins can produce better returns than equities, bonds or property.

I wasn’t sure where to turn to next... but then a great idea hit me. Instead of buying gold coins ourselves, why not invest in a company that specialises in doing just that.

Does such a company exist?

I did a little digging around and I stumbled across this potential money-spinner...

Avarae are unique in their field as they're the UK’s only publicly traded specialist Investment Company, dedicated to investing in rare and high quality coins.

Now it's not my job to tell you where to put your money, so please DO NOT treat this as a recommendation. All I want to do is highlight interesting plays that you can look into, that's all.

Now with Avarae it isn’t necessary to be an expert in trading coins because they do all the hard work.

They provide access for institutions and individuals wanting to diversify their investment portfolios away from the traditional asset classes such as equities, property, bonds etc without the need to be an expert in the coin collecting sector.

Its strategy is to invest actively in the coin collecting sector in various countries across the world. It's currently building up an impressive portfolio of coins which it intends to hold both for the long-term in order to achieve long term capital growth for its shareholders, and also the short-term, in order to take advantage of short-term trading opportunities, as the market for rare coins continues to grow.
The market for trading coins is international in nature and significant in size.

Over the last few months, there has been an increasing interest in the coin sector. Its prominence as an alternative investment class is illustrated by recent increases in activity across the world, where record prices have been paid for certain rare pieces, especially in the UK and in the US.

The UK market is still trading below the levels of the US market, but the gap is narrowing and the US market does provide an insight into the significant sums being paid for individual coins.

For example, in the US a 1933 double eagle coin sold for over $7.6 million, whereas the most expensive individual British coin was sold earlier this year for £0.4 million.

The number of interested parties in coins and coin collections is growing rapidly with auction houses, particularly in the UK, in some cases witnessing increases of more than 50 per cent.

Not only that, Avarae announced maiden results this week.

Keep your eye on this one.

Tom Bulford

for The Penny Sleuth