1st Quarter 2000 — Investment Mania

In 1849 a book titled Extraordinary Popular Delusions and the Madness of Crowds appeared. One of the topics covered was the great tulip bulb mania of the 1600's in Holland. It seems that everyone collected tulip bulbs and in due course great sums of money were paid. People were paying several times their monthly incomes in order to purchase tulip bulbs. Eventually it became evident that there was no real value in collecting tulip bulbs.

All this comes to mind when I see what is going on around us today. The stock market as measured by the S&P 500 is selling at the highest price that I can remember. Shares of stock are exploding in price for no other reason than the fact that there are people bidding up the prices. When a company takes its stock public the firms that underwrite the deals are supposed to know the market and bring it out at a price that is fair to both the company and the investor. This is not happening. On a personal note, several months ago a collector friend of mine and I were talking and he told me that his company was going to be selling stock. He seemed to think that it might be a good investment.

I followed the company and told my broker that I would like to buy a few shares. For several weeks prior to the sale the expected price was published to be in the $14-$16 range. When it was finally priced the underwriters priced it at $48!! One would think that the demand was strong and the company would be maximizing its proceeds on the sale. Wrong! The public ran the price up to $280 on the first day.

Now you are probably wondering what all this had to do with numismatics. Well I see the same thing happening in the collector area. Huge gains in the stock market are allowing people to bid up the prices of rare coins beyond reason. About eighteen months ago there was a coin I wanted very much to add to my collection. I placed my bid with the auction house and bid 30% more than the estimate. I was not even the covering bidder since it sold for 50% more than my bid, twice the estimate!

Earlier this month the same coin came up again for auction. The previous owner had died. This time I asked a dealer to represent me at the auction. This time I was certain to buy the coin since I set my limit at 180% of the estimate. This time the estimate was just 20% under the price it sold for eighteen months ago which would be reasonable. It sold for almost 3 times the estimate. And again I was not even the covering bid. I was left in the dust.

I know that in time this one coin I need will come up at a reasonable price. Right now I think the stock market is inflated and high end coins may also be inflated. When the market either comes down or stops going up the coin market will get back to a reasonable level. I have always been willing to shift my numismatic interests around and will continue to do so. I don't have to bid on English gold coins right now -- I can wait until the prices come down.

Don't get caught up in the mania. Keep your senses and enjoy our hobby for what it is, an educational diversion. It is not an investment like stocks or real estate.