Five sure-fire ways to make money in coins: Watch inflection points
Below is my third sure-fire way to make money in coins.
Check out the first two here:
Buy on the downgrade side of rising inflection points. Many coins have an inflection point – a grade where increasing demand pushes up the retail price dramatically from the next lower grade, often doubling it. In a rising market, that inflection point moves down grade. Predicting where it will go can lead to profits.
If demand for a series is increasing, more and more collectors are chasing a fixed number of coins. When there are more collectors than coins in a desirable grade, price pressure builds on the next lower grade.
The action first appears in the intermediate grades. An Extra Fine 40 coin may rise a bit in value, but interest intensifies in Very Fine 30 coins, then 25s. Like a wave, the value hike rolls down through the grades until it hits the next resistance point, in this case Very Fine 20.
In Seated Liberty coins, for example, most of the action is between VF-20 and EF-40. Coins graded 25, 30 and 35 are ripe for profit making. It’s hard to tell when it’s happening. The movement is neither smooth nor obvious.
Curiously the value of higher grade coins, especially uncirculated coins, may not move much, if at all. The market perceives that higher grade coins are already valued fairly, but lower grade coins are not. As the market moves to correct the perceived imbalance, prices rise in lower grades
Think of this as a numismatic analog to stock market momentum investing.
Next: Too blue blue chips
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