The Difference Between Stamps and Coins: Not as Trivial as You’d Think!
by Ursula Kampmann, translated by Maike Meßmann
There was a time when numerous people bought freshly printed stamps to put in their collector’s album. I’m talking about the 1970s. Back then, the collector’s market for stamps was an excellent field of business that offered wonderful profits.
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Today’s commemorative coins can be fun to buy. However, generally they are not a solid form of investment.
We all know that collecting for investment purposes became a popular pastime in the 1970s. It was not only stamps that were selling like hot cakes, but also commemorative coins – especially circulating commemorative coins. But since state mints couldn’t keep up with issuing enough commemorative coins, more and more private companies jumped on the bandwagon. They produced what’s known as non-circulating legal tender today. Their preferred target group was the same as that of stamps from Angola or the Fiji Islands: people who didn’t really know what they were doing. After all, every expert could have anticipated that the sale of many overpriced collectibles would result in great financial loss.
The Slump of Contemporary Collectibles in the 1980s
And that’s exactly what happened. A drop in inflation combined with falling precious metal prices and an economic boom made it attractive again to store your money at the bank or to invest in shares. Coin and stamp collections were sold – and, very much to the surprise of some owners, at a high loss. But not to the surprise of real collectors. They knew what collectibles issued at horrendous mintage figures were worth: their material or face value. Coin collectors were a bit better off than stamp collectors: at least, even non-circulating legal tender had a material value (although it was rather low). Those who had been clever enough to put their money in circulation commemorative coins could even sell their objects at face value.
Stamps Lost in Credibility
Stamps, however, were made of paper and therefore practically unsaleable. That’s why, contemporary commemorative coins enjoy a better image than contemporary stamps. This is proven by the fact that modern stamps don’t benefit in the slightest from the current collecting hype.
Will Commemorative Coins Produced Today Retain Their Credibility after the Boom?
And now things get uncomfortable – because those who have not yet experienced a boom to end cannot imagine that even the most beautiful boom will eventually come to an end. In other words: the coin industry must prepare itself for the fact that the run on its products will end at some point. As soon as share prices start to rise again, the fear of inflation is overcome, and life returns to normal, commemorative coins will lose a great deal of their appeal as an investment object. I currently assume that out of 10 buyers of contemporary commemorative coins, one – at most – is a collector in the traditional sense of the word. Put differently, it may well be that sales will collapse to a tenth of today’s figures when the boom ends.
Nobody knows when that will be. It could just as easily be in a month as in five years. But one thing’s for sure: in all of history, no boom has lasted forever.
Collector Versus Investor
What will happen after the end of the boom? Actually, that’s quite easy to predict by relying on the model of the coin crash of the 1980s. Only those commemorative coins were still worth more than face value for which there was a collector’s market – readily called “secondary market” by mints – which must clearly be distinguished from the investor’s market.
Unlike investors and many other “customers” of mints who need to be attacked by means of bold marketing measures, collectors are people who buy coins solely for intrinsic reasons. To inspire a collector, you don’t need advertising, you need to provide them with information. Collectors are people who buy coins without immediately thinking of their resale value. In short, a collector will also remain loyal to coins when investors have long since pulled out.
The Example of Russian Olympic Coins
An excellent example to illustrate the difference between the investor’s and the collector’s market are the extensive coin sets issued for the Moscow Olympics in 1980, which were primarily sold abroad. Those who wanted to sell their coin sets after the Olympics suffered a loss of more than 90%. Bad publicity for the image of commemorative coins as investment objects!
But then the Iron Curtain fell in 1989. It took a few years, but in the mid-1990s, Russian coin collectors entered the market. The market for Russian coins experienced an unprecedented boom. In the slipstream of this development, Olympic coins were also offered at some auctions – and sold like hot cakes. Russian collectors bought commemorative coins that had escaped the melting pot for many times their issue price. Those who hadn’t sold their Russian Olympic coins in the 1980s, enjoyed a nice increase in value in the 1990s.
By the way, although the market for Russian coins has shrunk considerably due to the embargoes, Moscow Olympic coins still enjoy the attention of collectors. After all, Russian-born people now live across the globe, and coin dealers currently buy Russian coins at attractive prices to be ready when Russian customers are back.
In this way, Russian commemorative coins made it into the cycle of the coin trade. Their number is small enough today to harmonise the ratio of coins and collectors.
The Secondary Market as a Key Issue of Mints
Only a fraction of all contemporary issues will succeed in doing what Russian Olympic coins achieved. Like in the 1980s, there will be many newspaper articles and TV features in which journalists luridly report on what a collecting investor paid for his commemorative coins and what value he is left with today. Especially when state mints get caught up in the whirlwind of such coverage, this can have devastating effects on their reputation. What politicians and central banks will do then remains an open question.
That’s why, in my view, it’s especially important to think of what will happen “after” in times of boom. Now it would be possible to invest money to attract real collectors. And to do so, other methods are needed than those marketing departments are currently adopting, measuring their success by means of the annual balance sheet and not by the effect that will only become apparent in a few years, maybe decades.
Those who want to know how to build up a collector’s market should take the methods of the classic coin trade as an example. By the way, the classic coin trade has been around since half a millennium. Mints have only been selling commemorative coins for half a century.
Before buying any coin you should read this article in order to understand the difference between an coin, a commemorative coin, and a medal.
Read more about the Olympic Games in Munich and how Germany started a collector coin boom with their issues.
Although gold seems a risk-free investment, it is not. Read what to keep in mind when buying gold.
